The United States National Futures Association (NFA) has responded to the CFTC Divisions of Market Oversight, Clearing and Risk and Market Participants request for public comment to inform the CFTC’s understanding of potential issues related to a designated contract market’s (DCM) or swap execution facility’s (SEF) offering of trading on a 24/7 basis.

NFA believes the Commission should consider if its current risk disclosures are appropriate for customers, particularly retail, for 24/7 trading. NFA notes that there may be unique risks associated with 24/7 trading for customers both trading and not trading around-the-clock.

For example, although some customers may not trade 24/7, their positions may be negatively impacted, including liquidated, due to market movements over the weekend. While some market participants’ interest may drive the advent of 24/7 trading, all market participants must understand any unique risks arising therefrom and how they may be potentially impacted.

NFA also stressed a number of issues that it believes impact futures commission merchants (FCMs) and their customers.

Specifically, Part 1 of the Commission’s Regulations contains numerous requirements imposed on FCMs regarding their dealings with customers. While many of these requirements apply no matter how an FCM’s business is conducted, NFA encourages the Commission to fully review Part 1 to ensure that the requirements are fit for purpose to properly oversee 24/7 trading. The Commission may have to address and adapt several of these regulations to 24/7 trading.

A couple of examples include:

• Use of the Term “Business Day”. Several customer protections provided by Part 1 are currently based on the term “business day,” which is defined as “any day other than a Saturday, Sunday or holiday.” NFA believes that the Commission should consider how this definition impacts an FCM’s compliance with Part 1 and the relevant customer protection safeguards over weekends in a 24/7 trading environment. Neither the Commission nor an FCM’s DSRO should have a lack of transparency relating to critical issues involving an FCM’s business (e.g., the firm’s financial condition) if risks build-up over a weekend. Further, while FCMs may provide customers with daily trade confirmations via their front-end systems over a weekend, at least under the CFTC’s current requirements, they are not required to do so because of the next “business day” terminology within CFTC Regulation 1.33.
• Capital Computations. The term “business day” is also critical to an FCM’s capital computation, which requires an FCM to compute various charges and deductions, some of which are based on the number of business days since the occurrence of a particular event.

NFA also encourages the Commission to consider whether any changes are needed to its FCM Risk Management requirements to ensure that they adequately address all relevant risks, including credit, market, liquidity (e.g., collateral movement), technological (e.g., system maintenance) and operational that may be heightened due to 24/7 trading.