The Commodity Futures Trading Commission is contemplating the creation of a new 'Division of Market Data Collection and Analysis' to keep pace with computer-based trading and reduce its reliance on the exchanges it regulates for data dissemination.
Describing the plan as a 'tectonic shift' for the agency, Commissioner Scott O'Malia said the Division would develop its own own algorithms, "enabling the Commission to keep pace with new computer-generated trading styles as well as nefarious activities".
O'Malia says he is repeatedly struck by the CFTC's lack of technological firepower. "Our forms and filings are not required to be filed electronically, and those that are don't automatically populate our trade surveillance data bases," he says. "We have only a few automated surveillance alerts, and none of those monitor real-time trading. It took us far too long to reconstruct and analyse the CME order book for our ultimate response to the May 6, 2010 Flash Crash."
Under the Dodd-Frank financial reform act, the CFTC has been charged with a host of new responsibilities that will require a heightened focus on technology investment and data management and analysis.
Under new Federal budget proposals, the CFTC has been earmarked a 20% increase in budget to $202.7 million for the six months to end-September 2010. The award includes a specific floor of $37.2 million for "the highest priority information technology activities of the Commission".
This is an increase of $17.2 million above the current spending level of $20 million for technology. The bill language directs this funding to be used for IT activities, which include work such as developing automated alerts, advanced analytical capabilities, and systems to integrate futures, options and swaps data.
O'Malia says the agency will seek to establish another subcommittee of its Technology Advisory Committee to focus on developing a standardised reference data depository for defining and describing deriviatives contracts.
Late last week, the CFTC and SEC published a joint study into the feasibility of rendering OTC documentation in machine-readable format. The US Office of Financial Research is also casting around for ideas for the creation of a standard legal entity identifier for trading in financial instruments.
Says O'Malia: "The creation of standardised reference points and data terms will most certainly aid in the development of universal entity, product, and/or instrument identifiers and provide greater consistency in the collection, reporting, and management of individual transactions."