CFTC division extends deadline on some pre-trade screening requirements

The Commodity Futures Trading Commission’s (CFTC) Division of Clearing and Risk (DCR) extended the deadline to comply with certain provisions of clearing member risk management rule 1.73 due to go into effect on Oct. 1.

The CFTC noted in a release that the extension would “provide additional time for market participants to coordinate on the communication of limits for give-ups and bunched orders for futures and swaps.”

Walter Lukken, president of the Futures Industry Association (FIA), explained the significance of the postponement. “The implementations of pre-execution risk limits has been difficult in a variety of areas, including give-ups and bunched orders, which represent more than 60% of transactions by volume in the industry. We had requested of the CFTC more time and guidance to help clarify certain things in the rule and to get some additional time to make sure we have a system in place to be in compliance with the 1.73 risk limits.”

The extension, until June 1, 2013, is intended to provide sufficient time to transition to fully compliant pre-trade screening. The Commission’s Division of Clearing and Risk also provided an extension for “pre-trade screening requirements for those transactions executed on Derivatives Clearing members that do not have a system permitting FCMs to set pre-execution limits.”

Shortly after the announcement the FIA released a statement. “The FIA has been working closely with the Commission and its staff over the last several months to address specific concerns with the implementation of certain provisions of this rule and to request relief, where appropriate, for clearing member FCMs where additional time is needed to address the consequences of the rule,” noted the statement.

Lukken further explained why more time is needed for some exchanges. “It largely is [a technology issue]. We are going to spend the next eight months identifying whether there is a mechanism to get into compliance with rule 1.73 and to work with the CFTC on overcoming those challenges.”

It went on to say, “While significant operational and technological challenges remain, especially as it pertains to give-ups and bunched orders, today’s relief will allow the industry some ability to scope the market structure complications raised by Rule 1.73 and work to develop a plan for overcoming these difficulties.”

A letter from the director of the CFTC’s Division of Clearing and Risk to the FIA noted that other provisions of Rule 1.73 will go into effect on Oct. 1 and, “…reliance on other entities, including third party vendors, does not excuse a failure to comply with such requirements.”  

CFTC release

FIA statement

Division of Clearing and Risk letter 



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