Since publication, the CFTC has extended the Part 17 compliance deadline to July 2027.

A recent spate of regulatory fines is pushing Futures Commission Merchants (FCMs) to a decision point on how best to change systems for their front-, middle- and back-office functions. This was a central theme in the conversations we had with front office and operations-focused delegates attending FIA’s Futures and Options Expo in Chicago, as the industry needs to respond to regulators using more sophisticated tools for enforcement globally.

Large Trader Reporting under the Spotlight

At the forefront are the fines for failures in Large Trader Reporting, notably the orders most recently issued by the Commodity Futures Trading Commission (CFTC). Four recurring themes emerge in this field: failure to maintain reliable records, inaccurate reports resulting from system errors, a lack of completeness in submitted reports, and inadequate oversight.

The regulatory framework for Large Trader Reporting is only going to get tougher, following the CFTC’s introduction of Part 17 requirements, with a June 3, 2026, deadline for compliance.

The changes include replacing 80-character disclosures with a new data format, the Financial Information eXchange Markup Language (FIXML) standard. Nearly 40 new data elements will also be required, and there will be unique instrument codes provided by exchanges for better identification purposes.

For U.S. regulators, the modernization aims to harmonize the rules with the reporting regimes for other financial instruments and will enable automation, reducing the reliance on time-consuming manual inputs in submissions that are prone to error. It is also worth noting that other regulators and exchanges have their own reporting requirements, adding greater complexity to the production chain for Large Trader Reports.

Fines for Large Open Position Report failures are only part of the regulatory story for the Exchange Traded Derivatives (ETD) industry, however, and it is no leap to assume that these cases are symptomatic of a broader need to improve compliance amid heightened regulatory scrutiny.

Regulatory Scrutiny Drives System Modernization

As we have discussed before, the Exchange Traded Derivatives industry can learn much from the Over-The-Counter (OTC) derivatives industry’s response to the intense regulatory scrutiny and enforcement that followed the Global Financial Crisis, by investing in technology to upgrade its systems.

One lesson is that proactive steps in remediation are looked on favourably by the regulators and can also help mitigate the size of potential fines for past failures.

The confluence of these factors leaves Heads of Operations at financial institutions essentially with three choices on how to proceed.

  • First of those is to continue with their existing systems, keeping the status quo.
  • The second option is to review existing systems and make updates internally, “marking your own homework.”
  • And the third choice is to implement effective controls using external rules and logic through an external technology provider.

None of these options comes without further investment to innovate and scale, something we observe may be long overdue for many parts of the ETD industry.

Change carries high implementation costs and is a drain on senior management time. It is worth noting that the CFTC estimates that implementing the new large trader reporting changes will cost more than $1 million for starting and testing new systems for those that previously filed submissions manually. But we have seen CFTC fines in the past year for failing to file accurate Large Trader Reporting totaling even higher.

Automation and Standardization are the Way Forward

The ETD industry needs to embrace automation and a standardization of processes, which will enable institutions to process position and transaction data and unlock cost-saving operational efficiencies. This is important in the longer run for an industry characterized by thin margins from high transaction volumes.

Whichever approach is taken by a financial institution, Droit’s ETD reporting QA platform provides a single control point for quality assurance. It is back-office system agnostic and enables clients to set the controls according to their commercial requirements, while unlocking the time-saving benefits and cost efficiencies of automation. Another key feature is the transparency and auditability provided by an unbroken link from the decision logic through to the source text, be that an exchange rule or regulation. It allows internal auditors and regulators alike to trace the decision-making process and its effectiveness, a transparency that contrasts with other black box QA solutions.