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Screenshot of a breaking news alert e-mail from Q2 2017
As regulatory authorities around the world strive to overhaul their entire structure relating to how professionals and companies in the financial markets of the world operate, the Commodity Futures Trading Commission (CFTC), one of the most far-reaching and well organized regulators in the world, has admitted that lack of funding has hampered its ability to independently test the cyberdefenses of the entities it oversees.
CFTC Chairman Tim Massad yesterday announced that the regulatory authority is increasing its oversight regarding how electronic exchanges, clearing houses and other highly technology-led companies are addressing cybersecurity and business continuity matters, but cannot extend as much resources to this cause as it would like to due to budget constraints.
According to a report by the Wall Street Journal yesterday, Chairman Massad explained ““Keep in mind that some of our major financial institutions are spending more on cybersecurity each year than our agency’s entire budget” at a conference in Chicago.
Regulatory authorities with far less experience in the monitoring of capital markets activities in other jurisdictions have embraced technological methods of monitoring market activity and conducting surveillance to combat not only irregularities in corporate behavior but also the security of their systems with regard to the handling of client information and custody of their funds.
The Australian Securities and Investments Commission (ASIC) is a prime example of this, with the regulatory authority having become highly advanced over recent years, leading to many retail FX firms favoring Australia as a region from which to operate, due to exactly this advanced regulation and customer protection, pragmatic approach to compliance adherence through real time surveillance and strong national economy.
Whereas Chairman Massad demonstrates concern regarding how to stem modern, internet related threats caused by not only nefarious companies but also hackers which he considers could wreak havoc on U.S. firms, ASIC has invoked First Derivatives’ Delta Suite surveillance system and made several public reports that its effectivity is highly valuable.
On this basis, First Derivatives reported very strong commercial financial results in its quarterly earnings report yesterday, partly attributable to ASIC’s success with its system which has led to further contracts from other regions and corporations alike.
Chairman Massad, who presides over a federal regulator in a nation which is world renowned for its high regard for consumer protection and good business ethic, considers that the internal concerns about weaknesses within the outmoded systems of the CFTC have prompted industry participants, particularly Wall Street banks, to work closely with the Federal Bureau of Investigation and other law enforcement agencies to boost cyberdefenses.
As it wrestles with cybersecurity, Mr. Massad also said the CFTC is trying to determine how to deal with another digital dilemma: Bitcoin. The agency is weighing whether planned contracts based on Bitcoin can measure up to the same standards the U.S. derivatives market regulator applies to futures and swaps linked to interest rates and energy prices, he told reporters at the Futures Industry Association meeting.
At least one trading platform wants to list Bitcoin derivatives and “we look at whether our basic core principles and requirements are met to ensure that any product doesn’t result in manipulation or fraud,” Mr. Massad said. Bitcoin “raises issues that cut across a number of regulatory areas and a number of regulatory agencies.”
In the days when financial services regulatory authorities came into existance in Europe, Hong Kong, Japan and North America, four of the most advanced regions in terms of capital markets and retail investor enthusiasm, the entire compliance process was a paper one, with very little cross border activity and pretty much no electronic trading – that was reserved for the large banks and trading desks of Chicago and New York.
Regulators came about largely due to the financial boom in the 1980s which empowered salaried employees to invest in private pensions, second homes, endowments, savings plans, shares and bonds, the transactions of which were often conducted by a salesman who visited the home of the investor with a briefcase.
Nowadays, the investor uses electronic trading platforms, signals, news and analytics, social trading solutions and other advanced technology for which regulators have had to redesign their entire criteria.
Whilst the CFTC was extremely effective in orchestrating its full and extensive overhaul of North America’s highly developed institutional FX and OTC derivatives sector, being the first to install new trade reporting rules which are now being emulated across the entire world in the quest to modernize the regulatory structure to encompass cross-border electronic transactions in multiple jurisdictions, the cost of overhauling other bureaucracy and systems is indeed apparently lacking.