Highlights

  • The Commodity Futures Trading Commission (CFTC) has issued a request for comment (RFC) seeking public input on the use of artificial intelligence (AI) in CFTC-regulated markets.
  • The RFC was issued partially in response to an Executive Order issued by the White House on Oct. 30, 2023, encouraging federal agencies to "consider using their full range of authorities to protect American consumers from fraud, discrimination and threats to privacy and to address other risks that may arise from the use of AI."
  • The RFC will remain open for submission of comments until April 24, 2024.

The Commodity Futures Trading Commission (CFTC) has issued a request for comment (RFC) seeking public input on the use of artificial intelligence (AI) in CFTC-regulated markets. The RFC – distributed jointly by the CFTC's Divisions of Market Oversight, Clearing and Risk, Market Participants and Data, along with the Office of Technology Innovation – was issued partially in response to an Executive Order issued by the White House on Oct. 30, 2023, encouraging federal agencies to "consider using their full range of authorities to protect American consumers from fraud, discrimination and threats to privacy and to address other risks that may arise from the use of AI." The RFC will remain open for submission of comments until April 24, 2024.

The term "AI," as used in the RFC, is defined broadly as "a machine-based system that can, for a given set of human-defined objectives, make predictions, recommendations or decisions influencing real or virtual environments." This definition is consistent with the Executive Order and other federal law.

The increased use of AI in all aspects of derivatives markets will not only impact CFTC-regulated entities such as designated clearing organizations, swap dealers, commodity pool operators, introducing brokers and others, but also unregulated end users of derivatives. End users include corporate, financial and nonprofit entities hedging variable rate debt with swaps or caps, hedging commercial currency risk or energy or commodity price risk or engaging in a wide range of other swap and derivative-related transactions. As noted in the RFC, the derivatives market provides many potential uses for AI, including trading, risk management, compliance and, notably, customer interaction. The RFC presents all market participants with an opportunity to provide feedback on these and other uses of AI in CFTC-regulated markets.

RFC Background

The purpose of the RFC is to "enable staff to assess the benefits and risks associated with the use of AI in CFTC-regulated markets, to inform staff's supervisory oversight and to evaluate the need for any future guidance and rulemakings." The RFC is "part of a broader staff effort to monitor the adoption of AI, including machine learning, and other uses of automation in CFTC-regulated markets."

Recognizing the data-driven nature of finance and the "ever-increasing availability of expansive datasets and computing power," the RFC notes that the use of AI "may lead to significant benefits in derivatives markets," including "improved efficiency, enhanced performance, and cost reduction for registrants, registered entities, customers, and other participants in CFTC-regulated markets." The RFC further notes that when "properly configured, AI can minimize errors, reduce transaction times, and remove unnecessary manual processes." On the other hand, the RFC also acknowledges that "such use may also pose risks relating to market safety, customer protection, governance, data privacy, mitigation of bias, and cybersecurity, among other issues."

Citing the CFTC's mission to promote "responsible innovation while also protecting market participants and ensuring the financial integrity of transactions subject to the [Commodity Exchange] Act," the RFC solicits responses to 20 questions, some with multiple parts. The questions are split into two overall categories: Questions 1-8 relate to current and potential uses of AI in CFTC-regulated markets, while Questions 9-20 relate to concerns raised by the use of AI in such markets. The questions cover a wide range of topics, including the definition of AI, general and specific use-cases, governance, cybersecurity, market manipulation and fraud, bias, consumer protection and other areas.

According to the related press release, CFTC staff "will consider the responses to this request in analyzing possible future actions by the CFTC, such as new or amended guidance, interpretations, policy statements, or regulations."

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