Big brother alert

On July 12 the Commodity Futures Trading Commission (CFTC) proposed rulemaking that “calls for the collection of certain ownership, control and other information for all trading accounts active on U.S. futures exchanges and other reporting entities.”

I did a double take when I read it. What stuck in my head was the word “all”.  Not to sound all conspiratorial but “all trading accounts active on U.S. futures exchanges and other reporting entities.”

Perhaps a conversation with some of the fine folks at the CFTC will put this in proper perspective but it not only sounds slightly big brotherish but also a daunting and unnecessary task. What would they do with all of that data? Especially in light of all of the other added data collection requirements the agency will have once Financial Reform legislation is finally passed in some form.

The agency already has a large trader reporting regimen that requires traders to report activity once it breaches a certain volume or percentage of total open interest. There are sound reasons for this as commodities have limited supply and it is important to know when certain entities hold a high percentage of the open interest in a contract, especially as markets near expiration. But why do they need information on all trading accounts?

If their objective was to set off those folks susceptible to paranoid theories of government power grabs they could not have worded the release much more ominously: "OCR data will include trading account numbers, the names and addresses of accounts’ owners and controllers, owners’ and controllers’ dates of birth and other information necessary to uniquely identify owners and controllers to identify related trading accounts."

In supporting the action Commissioner O’Malia noted, “In order to better understand trading behavior in the derivatives markets, including the trading behaviors of high frequency traders, it is essential to discover who controls which accounts and how those trading styles impact markets, including the order book, which is vital to fulfilling our surveillance and enforcement obligations.”

O’Malia cited the May 6 flash crash in the CFTC’s reasoning for seeking this data. Perhaps he is correct but for each reason cited you can find a red flag as to a negative consequence and overreach of government power.

We will take a careful look at this proposal in the coming weeks but I am especially interested in hearing from our readers on this one. Maybe you have no issues with this, maybe it is good that they know what those mysterious high frequency traders are up to but the breadth of this proposal is a little off putting. And I am suspicious of those folks still trying to blame the flash crash on futures markets.

Please let us know what you think.

About the Author
Daniel P. Collins

Editor-in-Chief of Futures Magazine, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange. Dan joined Futures in 2001 and in 2005 he was promoted to Managing Editor, responsible for overseeing all the content that went into Futures and Dan’s incisive reporting and no-holds barred commentary places him among the most recognized national media figures covering futures, derivative trading and alternative investments.

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