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NFA requests comments on proposed notice regarding automated order routing systems
Technology has altered almost every facet of the futures industry, including the traditional order-routing process. The proliferation of new automated order-routing systems (AORS) prompted the CFTC to ask NFA to develop some industry-wide standards for the new systems. NFA's Board assigned this task to the Special Committee to Review Technology. Specifically, the Board asked the Committee to develop standards relating to security, capacity, and controls for AORSs.
On August 31, NFA distributed a proposed Interpretive Notice (Notice) regarding AORSs, and requested comments by September 28. NFA has since extended the comment period to November 15.
Associate General Counsel Kathryn Camp describes the reasoning behind the Board's decision to develop these new guidelines: "Firms know how to supervise telephone orders because they have been doing it for a long time. But because these AORSs are new, they raise some new issues."
Camp adds that the Notice recognizes that supervisory standards don't change with the medium used, but the way those standards are applied may be affected by technology. "The same standards and obligations that apply to taking orders over the phone also apply to taking orders over an AORS. The Board felt it would be helpful to provide Members with guidance on how those standards apply specifically when you're taking orders over an AORS."
While the Notice requires Members to have supervisory procedures in place, it isn't specific about what those must be so that each Member has some flexibility to design procedures that are tailored to its own situation.
"The Notice is designed to try to achieve a middle ground between one-size-fits-all requirements that mandate specific technology and guidelines that are so vague as to be meaningless," says Camp.
The Notice addresses several issues related to AORSs, including security, capacity and credit and risk management controls.
The procedures should also be reasonably designed to handle customer complaints about order delivery and reporting in a timely manner.
Credit and Risk Management Controls
The Committee that drafted this Notice is composed of representatives from all areas of the industry involved in order-routing, including FCMs, exchanges, end users and third party vendors. The Committee also sought input from industry trade organizations and NFA's FCM, IB and CPO/CTA Advisory Committees.
After the comment deadline has passed, the Committee will consider all the comments and make its recommendations to the Executive Committee and the Board.
The text of the entire Notice is available at NFA's web site: www.nfa.futures.org/news/newsNotice.asp?ArticleID=237. Copies of the Notice can also be obtained by calling NFA's Information Center at (800) 621-3570.
Comments should be sent to Kathryn Camp, Associate General Counsel, and should be received by November 15, 2001. They can be filed by e-mail at: firstname.lastname@example.org, via fax at (312) 781-1523, or by mail at National Futures Association, 200 West Madison St., Ste 1600, Chicago, IL 60606. Questions can be directed to Kathryn at the above e-mail address, by telephone at (312) 781-1393.