The consultation also seeks feedback on the overall implications for trading, clearing and risk management activity of allowing derivatives markets or swap execution facilities to operate 24 hours a day, seven days a week.
“While transition to such a model may enhance market access and innovation, it also raises important questions regarding system resilience, market integrity, and the ability of the [trading venue] to fulfill core regulatory obligations,” it said.
Specifically, CFTC staff is interested in understanding how these facilities “would ensure the reliability and integrity of trading systems without extended scheduled downtime for maintenance and upgrades.”
“Extending current market activity such that it can effectively be done on a continuous basis may raise a number of questions related to market liquidity, collateral access, operational resiliency and the implications of a default occurring outside of normal business hours,” it added.
The prospect of continuous trading also raises questions about the capacity of market surveillance for abusive trading practices, such as front-running, wash trading and other manipulative or disruptive trading practices.
In addition to consulting on the issues raised by all-day trading, the CFTC is also seeking input on possible measures to mitigate these effects — such as governance frameworks, staffing requirements and technological capabilities that could help address the challenges of 24/7 trading.
At the same time, the CFTC also issued a separate consultation on the potential risks and benefits of so-called “perpetual” derivatives contracts — derivatives that are priced on an ongoing basis, in contrast to traditional derivatives that benchmark the value of derivatives to the underlying asset at the expiration of the contract.
The differences between these structures “may raise novel questions and concerns related to trading and clearing risk management,” it said — adding that they may also produce new investor protection and market integrity risks.
Both consultations are open for comment until May 21.