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Futures Market: Automation Can Enhance Detection of Trade Abuses But Introduces New Risks

IMTEC-89-68 Published: Sep 07, 1989. Publicly Released: Sep 07, 1989.
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Highlights

Pursuant to a congressional request, GAO provided information on the: (1) potential benefits in using the Chicago futures exchanges' planned automated systems to detect or prevent trade practice abuses; (2) potential vulnerabilities associated with using automated systems in conjunction with or in place of the current trading process; and (3) Commodity Futures Trading Commission's (CFTC) activities in assessing automated exchange systems.

Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Commodity Futures Trading Commission The Chairman, CFTC, should acquire the necessary expertise to technically assess the systems planned by the futures exchanges. Such assessments should include analyses of proposed technical solutions and alternatives to ensure that the futures exchanges design, develop, and implement systems that maximize the automation's potential to control trade practice abuses. CFTC should also assess the risks of using the exchanges' automated systems to ensure that they are adequately controlled.
Closed – Implemented
Although CFTC has initiated several actions to respond to this recommendation, GAO audit work shows that more needs to be done. However, GAO is closing this recommendation because subsequent recommendations in IMTEC-91-21 recognized the need for the CFTC Chairman to be more aggressive in controlling automation risk by acquiring additional expertise to oversee the exchanges' automation activities.
Commodity Futures Trading Commission To acquire the expertise needed for such assessments, CFTC should consider: (1) obtaining its own technical resources; (2) requiring exchanges to have independent technical assessments performed on their systems under guidelines set by CFTC; or (3) creating a technical advisory committee consisting of government and private-sector representatives to advise CFTC on the relative merits and risks associated with using automated systems to better detect or prevent trade practice abuses.
Closed – Implemented
Although CFTC has initiated several actions to respond to this recommendation, GAO audit work shows that more needs to be done. However, GAO is closing this recommendation because subsequent recommendations in IMTEC-91-21 recognize the need for the CFTC Chairman to be more aggressive in controlling automation risk by taking additional steps to oversee the development and use of automation.

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Topics

Financial Markets and Institutions
AuditsBrokerage industryCommodities exchangesEthical conductFuturesInformation systemsInvestigations by federal agenciesLaw enforcementSecurities regulationSystems analysis