CFTC Plans To Scale Back Proposal To Prevent Trading Glitches

(Dow Jones) -- The Commodity Futures Trading Commission plans to scale back a controversial proposal to prevent automated trading glitches from roiling futures and derivatives markets, granting some relief to proprietary traders that could have had to devise new risk controls.Under an approach described Friday by CFTC Chairman Timothy Massad, traders could use their own risk controls or rely on those of their futures brokers. The CFTC's original plan, issued last year, would have required brokers and traders to devise separate systems to avoid trading mishaps caused by haywire trading algorithms or programs."We got a lot of comments that that was excessive and could simply lead to conflict," Mr. Massad told reporters after a speech in New York.The change will be included in a revised proposal that the CFTC will soon issue overhauling aspects of its original plan. Traders have also criticized a provision of the CFTC plan that would force them to provide the computer code that drives trading strategies to their regulator upon request. Critics of that measure say the CFTC should need to acquire a subpoena to get the source code.Mr. Massad said earlier this week that the CFTC would amend its proposal to seek source code but wouldn't retreat completely. He said the agency was studying ways to ensure the formulas aren't disclosed publicly and that access is limited even among regulatory officials.Under the new proposal, fewer algorithmic traders could have to register and submit to the agency's rules. Mr. Massad said the new plan would include "a volume-based" test that captures "the most active firms.""We received many comments that our registration requirement was too broad and burdensome," he said in the speech to the Managed Funds Association, a group that represents hedge funds.