Futures Markets:

Use of Automation to Detect Trade Abuses

IMTEC-90-81: Published: Aug 24, 1990. Publicly Released: Sep 25, 1990.

Additional Materials:


Howard G. Rhile, Jr
(202) 512-6418


Office of Public Affairs
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Pursuant to a congressional request, GAO reviewed information on: (1) automation initiatives at 14 U.S. futures exchanges that recorded accurate trade times; (2) risk assessments of two automated trading systems that were being developed by the Chicago Board of Trade and the Chicago Mercantile Exchange (CME); and (3) steps taken by the Commodity Futures Trading Commission (CFTC) to assess automation initiatives.

GAO held that: (1) the six automation initiatives were intended to provide accurately timed records, although effectively detecting trade practice abuses would depend on how exchanges used such records; (2) the successful implementation of the six systems could benefit other exchanges; and (3) the exchanges need to ensure that internal controls are strengthened before they implement after-hours trading systems. GAO also found that CFTC implemented several actions to strengthen its oversight of automated systems, including: (1) technical assessments of planned systems; (2) evaluations of operating systems; (3) an interagency task force; (4) a formal policy for system assessments; (5) increased automation oversight; and (6) seeking additional technical resources.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: CFTC requirements for enhanced audit trails and trade surveillance systems were designed to encourage use of automation at exchanges. In addition, CFTC has been supportive of the Chicago exchanges' efforts to develop and test hand-held trade recording terminals that, if successful, could provide instantaneous information on trading activities.

    Recommendation: The Chairman, CFTC, should ensure that exchanges maximize, to the extent practicable, the potential of automated systems to accurately record trade times.

    Agency Affected: Commodity Futures Trading Commission

  2. Status: Closed - Implemented

    Comments: The CBOT/CME Globe System is still not operational. CFTC, however, has continued to actively oversee development and testing of the system. The final third-party review report on corrective actions is due to CME and CFTC prior to the system becoming operational.

    Recommendation: The Chairman, CFTC, should ensure that the Chicago Board of Trade and CME strengthen the security and other internal controls GAO identified in its limited risk assessments before their systems become operational.

    Agency Affected: Commodity Futures Trading Commission


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