United States Government Publishing Office publisher pbl distributor dst United States Government Accountability Office General Government Division author aut Government Organization text government publication eng GAOREPORTS Legislative Agency Publications gao legislative 2010-08-12 U.S. Government Printing Office 2000-05-05 monographic deposited born digital 52 p. GA 1.13:GGD-00-99 https://www.govinfo.gov/app/details/GAOREPORTS-GGD-00-99 P0b002ee18039e46b f:gg00099 DGPO 2010-08-12 2011-03-24 GAOREPORTS-GGD-00-99 machine generated eng fdlp REPORT GAOREPORTS-GGD-00-99 GGD-00-99 Commodity futures Derivative securities Computer networks Securities regulation Risk management Electronic data interchange Internal controls Letter Report GGD

Pursuant to a congressional request, GAO reviewed issues related to the regulation of electronic trading systems, focusing on: (1) how technology is being used in the exchange-traded futures market, and what concerns this use raises under the Commodity Exchange Act (CEA); (2) how technology is being used in the over-the-counter (OTC) derivatives market, and what concerns this use raises under the CEA; and (3) what alternatives have been suggested for addressing the concerns raised under the CEA by the use of technology in the exchange-traded futures and OTC derivatives markets.<p/>GAO noted that: (1) automated order routing systems (AORS) have been used for over 10 years to route orders from futures commission merchants (FCM) to and within futures exchanges; (2) AORS can now transmit orders from the customer's computer to the FCM's computer, and then to the exchange for execution; (3) to the extent that AORS provide for enhanced trade monitoring and control, more precise trading records, and more direct market access, their use can benefit the exchange-traded futures market and its participants and can reduce some regulatory concerns; (4) nonetheless, according to some futures market participants, the use of AORS without adequate controls can also raise regulatory concerns about the adequacy of system capacity and security as well as opportunities to engage in unauthorized trading; (5) electronic trade-matching systems are being used in place of or in addition to open outcry to execute orders; (6) similar to AORS, electronic trade-matching systems can offer many benefits and reduce some regulatory concerns; (7) electronic trading systems for OTC derivatives more directly link buyers to sellers that previously interacted through telephones and faxes; (8) to the extent that these systems enhance trader monitoring and control and interface with risk management software, they can reduce both firm-specific and systemic risk; (9) to the extent that these systems link multiple participants and transmit contract execution details electronically, they can improve market transparency and reduce the time and cost of trade execution and reporting; (10) nonetheless, without adequate controls, these systems can raise concerns about inadequate system security and unauthorized customer trading; (11) general agreement exists among regulators and market participants that the approach to regulation needs to be revised to better accommodate electronic trading systems for exchange-traded futures and OTC derivatives; and (12) market participants have suggested three approaches for accomplishing this objective: (a) drafting a separate section of the CEA to deal with electronic trading; (b) developing core principles to which all electronic trading systems must adhere; and (c) developing a flexible regulatory structure under which electronic systems are regulated based on the extent to which they raise specific public policy concerns under the CEA. https://www.govinfo.gov/content/pkg/GAOREPORTS-GGD-00-99/html/GAOREPORTS-GGD-00-99.htm https://www.govinfo.gov/content/pkg/GAOREPORTS-GGD-00-99/pdf/GAOREPORTS-GGD-00-99.pdf GAO/GGD-00-99 https://www.govinfo.gov/app/details/GAOREPORTS-GGD-00-99 Letter Report GAO/GGD-00-99; Commodity Exchange Act: Issues Related to the Regulation; Commodity futures Derivative securities Computer networks Securities regulation Risk management Electronic data interchange Internal controls Title 7 Section 6(c)(3) 7 U.S.C. 6(c)(3) Public Law 102-546 Title 17 Part 35 17 CFR Part 35