The CFTC’s Proposed Standards Identify Cybersecurity Best Practices

by BakerHostetler

The Commodity Futures Trading Commission (CFTC) offered several reasons for proposing five new cybersecurity testing requirements for the commodity trading platforms it regulates in its December 23, 2015, Notice of Proposed Rulemaking:

  • More than half of the securities exchanges surveyed in 2013 reported that they had been the victim of cyberattacks. 80 Fed Reg. at 80140.
  • Attacks increasingly seek to disrupt financial systems rather than just steal data. Id.
  • Survey respondents reported 42.8 million cyberattacks in 2014, the equivalent of 117,000 attacks per day. Id. at 80141. One of the CFTC commissioners who approved the proposed new standards referred to a bank that faced 30,000 cyberattacks per week, which averages an attack every 34 seconds. Id. at 80189.
  • More stealthy, “advanced persistent threat” attacks have escalated. Id. (See, for example, “How Russian Hackers Stole the Nasdaq.”)
  • Threats to the integrity of financial sector data rival threats to confidentiality. Fed Reg. at 80142.

The CFTC regulates derivative clearing organizations (DCOs), swap data repositories, swap execution facilities, and designated contract markets (DCMs). The proposed regulations would require these regulated entities to conduct five types of periodic tests to ensure the effectiveness of their cybersecurity controls:

  • Vulnerability tests
  • Penetration tests
  • Security incident response plan tests
  • Security controls tests
  • Enterprise technology risk assessments

The proposed regulations would specify how frequently some of these tests must be performed, and would dictate when tests must be performed by independent contractors and when they may be performed by employees of the regulated entities.

For example, DCMs with annual trading volumes of at least 5 percent of all DCMs regulated by the CFTC would have to test their cybersecurity controls at least every two years. 80 Fed. Reg. at 80148, 80154. The controls could be tested on a rolling basis, provided all controls were tested within the two-year period. Id. The DCMs’ “key controls” would have to be tested by an independent contractor, while remaining controls could be tested by independent contractors or by “entity employees not responsible for development or operation of the systems of capabilities involved in the tests.” 80 Fed. Reg. at 80154.

Similar minimum frequency and independent contractor requirements are specified for the other types of testing that the proposed regulations would require. The frequency and independent contractor requirements differ for the types of regulated entities (e.g., DCMs and DCOs) and, at times, by the size of the entity. Dan Ryan of PricewaterhouseCoopers summarizes the proposed regulations’ frequency and independence requirements here.

Entities regulated by the CFTC should carefully review the proposed regulations. Concerns or proposed changes to the regulations may be submitted by fax to (202) 395-6566 or by email to The federal Office of Management and Budget (OMB) is required to make a decision about the collection of information proposed by the new regulations between 30 and 60 days after publication of the proposed regulations in the Federal Register. Comments are therefore best ensured of having effect if OMB receives them within 30 days after the proposed regulations were published in the Federal Register (i.e., by January 22, 2016).

The proposed regulations may also prove to be important to businesses regulated by federal agencies other than the CFTC. The CFTC compiles and relies on numerous regulatory and industry standards to justify its proposed demanding requirements, including those from the Federal Information Management Act, the National Institute of Standards (NIST) Cybersecurity Framework and several NIST Special Publications, the Financial Industry Regulatory Authority, the Council on CyberSecurity, the Federal Financial Institutions Examinations Council (FFIEC), Information Systems Audit and Control Association’s (ISACA) Control Objectives for Information and Related Technology (COBIT), and the Payment Card Industry Data Security Standards (PCI DSS), among others. See, e.g., 80 Fed. Reg. 801442-43, 80149. If the proposed CFTC regulations are adopted, they may serve as a model for other federal cybersecurity requirements.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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