Energy Metro Desk provided highlights of the proceedings of the Futures Industry Association ("FIA") 38th Annual Law & Compliance Conference on the Regulation of Futures, Derivatives and OTC Products. The conference was held during the first week of May 2016 in Baltimore, Maryland.
Editor John Sodergreen reported on panels discussing: "What Is Spoofing?," "Automated Trading Requirements," "Regulation AT," and "Responding to an Investigation or 4G Request." Regarding spoofing, regulators on that panel generally expressed confidence that they could distinguish between that practice and legitimate trading activity, such as stop-loss orders or "fill or kill orders," while the Regulation AT panel agreed that pre-trade risk controls and kill switches would not act as "any sort of panacea in keeping markets safe from runaway algos." Mr. Sodergreen noted that participants on a panel on "Responding to an Investigation" advised to "keep feeding the beast" with responsive documents "when the enforcement office comes knocking."
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Commentary
The confidence expressed by regulators in their ability to get a "good handle"on what constitutes spoofing and their denial of charges of vagueness regarding the scope of the prohibition seem belied by two statements made during the proceedings.First, was the view of an exchange official that spoofing means "whatever the government says it is."Second, was that of a CFTC official who reportedly stated that clarity will come "as the decisions and case files stack up around this statute over time."In another context involving the issue of regulatory clarity, the Seventh Circuit once observed that "it is essential to know beforehand whether a contract is a futures or a forward,"and that "[n]othing is worse than an approach that scrutinizes the [question]ex post." CFTC v. Zelener, 373 F.3d 861, 866 (7th Cir. 2004).That principle would seem to be equally applicable here.
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