The CFTC’s Manipulative and Disruptive Trading Authority in an Algorithmic World

As a result of the Dodd-Frank Act, the Commodity Futures Trading Commission ("CFTC" or the "Commission") has new broader authority to prosecute manipulation and disruptive trading in the derivative and swaps markets. However, the commodity and derivative industry’s increasing reliance on algorithmic trading systems makes the breadth of this authority challenging to apply in a practical sense. This new authority will be shaped as the courts continue to rule on actions brought by the Commission in the future. During this period, it will be challenging to operate a legally compliant trading company when the unpredictable regulatory environment means waiting for lawsuits and investigations to learn if one’s daily business and trading might be seen by its regulator as illegal. This article aims to guide practitioners and derivative trading companies on how the Commission may wield its expanded authority.

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