Jun 10, 2016 - 11:15am

A 'Net Loss: Regulation AT and Your Source Code


Former Director, Center for Capital Markets Competitiveness (CCMC)

Artificial intelligence beats real stupidity. That’s particularly true in the case of Regulation Automated Trading (AT), where the regulator of the computer algorithm is the dunce. Unless it significantly changes its proposal, the Commodity Futures Trading Commission (CFTC) will make the intellectual property of many American businesses incredibly insecure. It also will set a dangerous global precedent for our due process rights.

Let me explain.  Regulation AT creates new rules for automated trading – the system by which specific rules are programmed into software in order to have trades automatically executed. As part of the regulation, the CFTC requires that the proprietary source code under that software be turned over to the government so that the CFTC can examine it. They say that will help them reconstruct market events if there are ever hiccups in the markets.

The first question, which could pose an even bigger problem: Can the government keep that intellectual property secure? We’ve already seen cyberattacks at the CFTC, as well as the IRS, the OPM, the FDIC, and even the Federal Reserve. Who knows what a hacker could do with proprietary source code? Once it’s out, it’s out.

Secondly, a biggie: What happened to due process? American entrepreneurs can only succeed and will only invest in starting a business if they can reap the fruit of their labor. Source code is no different than any other product, like the secret sauce at the local burger joint. If the CFTC needs this information so badly, the American judicial process affords them every opportunity to access it. Instead, by doing an end-run around our rights, the CFTC is enabling other regulators, and other countries, to replicate its own objectionable behavior.

The CFTC is meeting today to discuss this issue, among others, at a staff roundtable.  We hope they get the message loud and clear: requiring disclosure and storing proprietary source code is an insecure, dangerous and costly precedent that tramples on the hard work of American business. Let’s erase this from memory.

More Articles On: 

About the Author

About the Author

Former Director, Center for Capital Markets Competitiveness (CCMC)

Andres Gil was formerly a director at the Center for Capital Markets Competitiveness (CCMC).