The Securities and Exchange Commission has been unusually busy this year – as a result so has FIA PTG. Treasury market structure issues have been at the forefront, followed by equity market structure. Rule proposals addressing Treasury market access and registration have been published with additional proposals on central clearing of Treasuries and equity market structure expected before yearend. The CFTC finally has a full Commission, so in addition to the FTX proposal that kept everyone busy this spring, we expect to hear more from them going forward.
2021 was a year of contrast for US market regulators. The Commodity Futures Trading Commission (CFTC) was without a confirmed agency Chair (until December 15) and vacant Commissioner seats (as many as three), which led to a minimalist agenda, while the Securities and Exchange Commission (SEC) was extremely active with a confirmed Chair Gary Gensler and full slate of Commissioners. The Archegos blowup, the GameStop/meme stock events, a review of 2020’s treasury market volatility, and various crypto events were all of significant interest to Congress and in scope for SEC Chair Gensler to weigh in on, creating pressure on the SEC to act and Chair Gensler’s commitment to do so. SEC staff is working toward concrete proposals on these issues, and we expect proposals in 2022. In addition to Rostin Behnam being confirmed as CFTC Chair, four new CFTC Commissioners have been nominated and should be approved by the Senate in Q1 2022, so we expect more leadership and activity from the CFTC in the coming year. Digital asset regulation and guidance from the Administration, particularly on how the SEC and CFTC could potentially work together, the aggression of each agency, and the resulting commercial impact to this industry, will be an important thing to watch.
In response to growing concerns around the functioning of the Treasury market in March 2020, and calls for increased central clearing, FIA PTG published a white paper in July 2021. The paper outlined the benefits of central clearing, the limitations of the current client clearing model, and recommended changes designed to expand clearing access to a wider range of market participants. Since the publication of the paper FIA PTG has met over ten times with representatives of the SEC, Federal Reserve and Treasury to discuss the paper. We will continue advocacy on this important topic in 2022.
In addition to our work on Treasury market structure, we filed 10 letters on a wide variety of topics including: the Consolidated Audit Trail; Regulation ATS; TRACE reporting; exchange data center concerns; and various tax initiatives. We continued our efforts to support our members as they navigated the ongoing impact of the pandemic on remote work as well as plans to eventually return to the office.
In 2022, we look forward to continuing to promote the vital role professional liquidity providers play in today’s markets, as well as related advocacy.
As members continued working from home, the Group prioritized its advocacy efforts for 2021 while waiting for new administration personnel to be appointed. Treasury market structure discussions resulted in a white paper focused on central clearing in Treasuries. Market access concerns continued and resulted in a comment letter and an Amicus brief. CAT proposals were once again the focus of the Equity Market Structure Committee.
In 2020, against the backdrop of the global pandemic and unprecedented volatility and volumes, the FIA Principal Traders Group (FIA PTG) continued to advocate on behalf of its members on a broad range of market structure issues across multiple asset classes including futures, equities, government securities, cleared swaps and corporate bonds. In addition to our market structure advocacy work, other topics addressed included the risks associated with electronic trading, the importance of timely trade reporting, the market impact of financial transaction taxes, the value of client participation in CCP default auctions and opportunities for streamlining audit trail requirements. FIA PTG used comment letters, regulatory advisory committee participation, meetings with regulators and media as well as conference panel participation to promote its positions on these topics.
This year we continued to build on our relationship with the Commodity Futures Trading Commission (CFTC) through over one dozen meetings with Commissioners and staff. The topics discussed included: the impact of the pandemic on financial markets; electronic trading regulation; and post-trade name give-ups in swap markets. We also met with the economists at the Federal Reserve responsible for the Financial Stability Report published in May to help them become better informed on the role of principal trading firms in today’s markets.
In addition, we filed 14 letters on a wide variety of topics including: post-trade name give-ups for swaps; capital requirements for Swap Dealers; reporting of swap block transactions; electronic trading risk principles; equity market order types, periodic auctions and other market structure impacting exchange proposals; exchange wireless connections; and market data infrastructure.
To support our members as they initially transitioned to a work-from-home environment and then contemplated how to manage returning to office, we created a Returning-to-the-Workplace Issues Working Group. Participants in this Working Group met monthly to share challenges and issues related to both working from home and eventually returning to the office. Finally, as 2020 came to an end we closed the book on seven years of working with the CFTC on rules to mitigate the risks of electronic trading. In December, the CFTC finalized Electronic Trading Risk Principles.
Advocacy plans for the first half of 2020 were upended by the coronavirus. Efforts turned to keeping our markets open and supporting our members through the pandemic. Once members had settled into the new “normal” we resumed our advocacy work including equity and swap market structure issues, as well as the newly proposed CFTC Electronic Trading Risk Principles.
As 2019 came to a close so too did the FIA Principal Traders Group’s (FIA PTG) first decade of advocacy work. Since inception in January 2010 we have successfully established ourselves as a “go to” resource for regulators and policymakers as well as media on a wide variety of industry topics. During this time, we have worked to emphasize the important role of the liquidity provider while constantly looking at issues that may impact the function, fairness and stability of markets. We have produced best practice recommendations and white papers on topics ranging from risk controls for automated trading to liquidity to market structure and filed over 100 letters on a broad range of topics across asset classes.
This year we continued to build on our relationships with the US regulatory agencies through over one dozen meetings with Commissioners and staff. The topics discussed included: automated trading regulation; various market structure issues including artificial latency mechanisms; the impact of the leverage ratio and support for the move from CEM to SA-CCR; swap execution facility (SEF) issues including the proposed Commodity Futures Trading Commission (CFTC) SEF rule, post-trade name give-up consultation and Floor Trader Swaps Exclusion; and digital assets.
In addition, we filed 16 letters on a wide variety of topics including: SEF rule proposals; speed bumps and other market structure impacting exchange proposals; the supplemental leverage ratio calculation methodology; the Consolidated Audit Trail (CAT); reporting of corporate bond block trades; Central Counterparty (CCP) default auctions; and digital assets. And finally, after seven years of advocacy, we asked for and received from the CFTC no-action relief to clarify the existing Floor Trader Swaps Exclusion which facilitates our members providing liquidity on SEFs without having to register as Swap Dealers.
The first half of 2019 was driven by discussions of market structure across asset classes. Other advocacy work addressed crypto assets, trade reporting and the supplemental leverage ratio.
After nearly five years of advocacy work on what effective regulation of automated trading should look like, FIA PTG members were happy to hear in October that the Commodity Futures Trading Commission (CFTC) had abandoned the original version of proposed Regulation Automated Trading (Reg AT). Since the publication of its first paper on the subject in 2010, Recommendations for Risk Controls for Trading Firms, FIA PTG has taken an active role in identifying risks and working to strengthen safeguards in futures markets globally. Rather than very prescriptive regulation like Reg AT, FIA PTG believes that principles-based requirements, appropriate to the role of the market participant, that can evolve with the market and avoid unnecessary complexity will ultimately best serve the market.
In 2018 FIA PTG continued to build relationships at the regulatory agencies through 14 meetings with Commissioners and staff. The meetings covered a variety of topics, including digital assets, equity, swap and treasury market structure, regulation of automated trading (Reg AT), and capital and supplemental leverage ratio (SLR) constraints. Advocacy continued in opposition to artificial latency mechanisms in the US as well as the EU, but was expanded to cover market structure issues more broadly, including letters on treasury and swap market structure concerns, as well as a comprehensive white paper on suggested equity market structure, specifically Regulation NMS, reforms.
As part of a continuing effort to foster a productive, data-driven discussion about the nature of liquidity and liquidity provision, in March, FIA PTG released a white paper entitled Liquidity in Today’s Markets. The paper included a comprehensive discussion regarding the definition and measurement of liquidity as well as setting forth principles that FIA PTG believes are foundational to healthy, liquid markets.
The first half of 2018 was driven by discussions of bitcoin and digital assets. At CFTC Advisory Committee meetings, FIA PTG emerged as a thought leader in this area. Other advocacy work addressed automated trading, equity market structure, CAT fee structure, and the impact of new capital rules including the supplemental leverage ratio.
For members of FIA PTG, 2017 may be remembered as the year of the speed bump, as it was filled with a variety of proposals to introduce artificial latency mechanisms to equity market exchanges. Nearly a third of FIA PTG’s advocacy letters were comments to regulators about the problems, complexity, and costs introduced by these artificial latency mechanisms. FIA PTG evaluated and responded to each proposal individually, but urged the Securities and Exchange Commission (SEC) to impose a moratorium on new types of artificial delays until it is able to complete a comprehensive review of Reg NMS. 2017 also saw the start of the Trump administration, bringing with it new leadership at the SEC, the Commodities Futures Trading Commission (CFTC), Treasury, and other regulators. FIA PTG built relationships through 14 regulatory meetings and another 11 with members of Congress and their staffs. The meetings covered a variety of topics, including swap market structure, capital requirements, regulation of automated trading (Reg AT), equity market structure, treasury market structure, and liquidity.
In the first half of 2017, FIA PTG members sent 12 comment letters and conducted 19 meetings with policymakers.
2016 was an active year for FIA PTG, with members weighing in on 13 regulatory comments over the course of the year. FIA PTG members’ advocacy for principles-based risk controls in general, and our work on the issue of source code access in particular, earned the group a reputation as a thought leader on the CFTC's proposed regulation of automated trading. On the equities front, 2016 was the year of the speed bump. FIA PTG presented comprehensive and detailed arguments against allowing intentional delays in protected quotes. This advocacy work earned FIA PTG media coverage in outlets worldwide, from Chicago to New York and from London to Mumbai.
In the first half of 2016, FIA PTG members sent 7 comment letters and conducted 17 meetings with regulators and legislators.
In 2015, policy makers initiated a variety of discussions on market structure, conducting studies, producing reports, and holding public roundtables. FIA PTG was an active participant in these discussions, whether through direct member participation or through comment letters and media outreach. FIA PTG’s work spanned a variety of markets and regulators, firmly establishing the group as a thought leader on market making and automated trading, regardless of asset class. FIA PTG’s advocacy and messaging emphasized the need for data-driven analysis and a principles-based approach to policy making to ensure transparent, accessible, and competitive markets.
A progress report on FIA PTG's 2015 Advocacy and Outreach Goals
In 2014, FIA PTG was actively engaged with lawmakers, regulators, and members of the media on issues surrounding transparent, accessible, and competitive markets. FIA PTG continued our advocacy work with regulators on issues including central trading of futures, centrally traded and cleared swaps, and automated trading. Notably, FIA PTG expanded our work on automated trading into equity market issues. FIA PTG members have strengthened relationships with SEC regulators and established our group as a valuable contributor to policy discussions on equity market structure.
FIA PTG coordinated its membership action this year on a wide range of projects and continued its outreach to legislators, regulators, and media. We also expanded our scope to include a number of issues related to equities. In addition, we hosted seven meetings of the group and established a Compliance Networking Group.
FIA PTG continued to work actively with regulators, legislators and members of the press to increase understanding of the role of principal traders in the markets. We visited with members of the House and Senate Agriculture and House Financial Services committees. We met with CFTC Commissioners and participated in the CFTC Technology Advisory Committee and Subcommittee on High-Frequency Trading. We also led comment letters to the CFTC on block thresholds for swaps, clearing requirement determination and requested and received limited no-action relief from swap dealer registration.
FIA PTG continued its growth by adding nine new Member Firms and creating and adopting FIA PTG Bylaws. We supported FIA in creation of new division – the FIA European Principal Traders Association (FIA EPTA). FIA PTG members were actively engaged with legislators, sponsoring a luncheon for Senator Stabenow and briefing both majority and minority staff on the House Agriculture Committee. We also worked with regulators on priority issues including equal access to centrally cleared OTC markets; CFTC rules to clarify disruptive trading practices; rulemaking for defining and establishing requirements for swap dealers; tax policies which impact PTGs; and communication/education on current market issues, such as DMA.
FIA PTG was formed in January of 2010 to provide a forum for proprietary trading groups to identify and discuss issues confronting the PTG community; define common positions on public policy issues and advance the group’s collective interests through the FIA; improve public understanding of the constructive role played by proprietary trading groups in the exchange-traded derivatives markets; and promote cost-effective, transparent access to U.S. and non-U.S. markets.
- FIA PTG