Futures Market

Automation Can Enhance Detection of Trade Abuses But Introduces New Risks Gao ID: IMTEC-89-68 September 7, 1989

Pursuant to a congressional request, GAO provided information on the: (1) potential benefits in using the Chicago futures exchanges' planned automated systems to detect or prevent trade practice abuses; (2) potential vulnerabilities associated with using automated systems in conjunction with or in place of the current trading process; and (3) Commodity Futures Trading Commission's (CFTC) activities in assessing automated exchange systems.

GAO found that: (1) although the exchanges were developing automated order routing systems and researching the use of hand-held trading terminals to improve the open-outcry trading process, the extent to which the systems would detect trading abuses was unknown; (2) the systems would provide improved timing data for customer orders, but could not determine the timing and trading sequences of floor traders' personal trading; (3) although the planned systems had the potential to better control trading abuses, the systems introduced risks that the exchanges planned to address to ensure correct transaction processing, responsive operations, and secure and continuous operations; and (4) although CFTC responsibilities included assessment of the exchanges' automated systems, CFTC did not conduct or set guidelines for technical assessments of the systems' capabilities to control trade abuses and automation risks, since it did not have the technical resources for such assessments.


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