Algorithmic Descriptions Regulation - Comment Letters

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Dodd-Frank Timeline, Feasibility Study on the Adoption of Standardized Computer-readable Algorithmic Descriptions
Proposal Date Comment Deadline Study Issued
December 9, 2010 December 31, 2010 April 7 2011

Comment letters regarding algorithmic trading study.

Goldman Sachs - December 29, 2010

Feasibility Study on the Adoption of Standardized Computer-readable Algorithmic Descriptions
December 29, 2010

Based on its "extensive experience in using various electronic communication protocols, Goldman Sachs recommends:

  • utilizing Financial products Markup Language (FpML) as the standard protocol for data representation and calculation of value and net risk exposure; and
  • making such computer descriptions legally binding.
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Managed Futures Association - December 28, 2010

Feasibility Study on the Adoption of Standardized Computer-readable Algorithmic Descriptions
December 28, 2010

From the comment letter:

  • "Derivatives markets participants, including MFA members, continually work to standardize industry practices and terms, where appropriate. Standardization improves efficiency and minimizes disputes. However, the use of such electronic-based tools is only possible where the terms of the derivatives are sufficiently uniform. Complex derivatives and customized derivatives do not currently lend themselves to the use of algorithms or standardized computer readable descriptions."
  • "...the successful move towards the use of standardized computer readable descriptions of derivatives in certain markets and for certain instruments should not lead the Commissions to conclude that mandating similar practices across all derivatives markets is advisable or even possible. Many instruments that have multiple factors determining their value are too complex or customized."
  • "Computer readable descriptions should not be legally binding."
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ISDA/SIFMA - December 31, 2010

Feasibility Study on the Adoption of Standardized Computer-readable Algorithmic Descriptions
December 31, 2010

In this letter, ISDA and SIFMA address all 40 questions asked by the CFTC and SEC in the proposal, including:

  • Support for the adoption of FpML as the standard for all derivative transactions for which a standard is practical. "Moving to FpML took many years and required changes to numerous systems in each institution. To change to a different standard would involve a tremendous amount of work effort across the industry." (p. 12)
  • Acknowledgment that not all transactions lend themselves to standardized computer-readable language, and to require standardization of all transactions would "stifle the ability of the derivatives market to offer tailored products for clients and to innovate and create new solutions to clients’ needs.(p. 2)
  • A table summarizing the types of information currently communicated using FpML, by and to whom, and for what purposes. (p. 8)
  • An explanation of the benefits, drawbacks, and regulatory requirements to making the computer readable descriptions of financial derivatives legally binding. (p. 13)
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BM&FBOVESPA - December 31, 2010

Feasibility Study on the Adoption of Standardized Computer-readable Algorithmic Descriptions
December 31, 2010


From the comment letter:

  • "Complex derivatives" terminology is not used in Brazil; instead, local markets understand derivatives as being exchange-traded and OTC-registered. "It is very important to mention that according to Brazilian market regulators, all OTC derivatives in Brazil (or involving Brazilian counterparts) shall be registered at a registering central authorized by Central Bank. OTC derivatives can be bilateral or guaranteed (having BMFBovespa as a central counterparty)."
  • "FpML over FIXML message specification is going to meet all the Exchange needs for OTC derivatives."
  • "Market Surveillance can be conducted using this data, especially when in conjunction with data coming from our trading systems for standard derivatives."
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References

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