Academic Use of CFTC’s Private Derivatives Data Investigated

The top U.S. derivatives regulator has suspended a program of visiting academic researchers over concerns about the handling of confidential trading data.

The Commodity Futures Trading Commission said in a statement yesterday that it began an internal management review and asked the agency’s inspector general to investigate its oversight of data used to research issues including high-frequency trading.

The commission’s concerns were initially triggered by an outside person who raised questions about academic research that referenced CFTC data, according to the statement.

“The management review, which is ongoing, has preliminarily discovered issues regarding the manner in which academic consultants and contractors were brought into the agency, their status with respect to the agency, their access to CFTC systems and information, and the adequacy of related documentation,” the CFTC said. “To date, we have not confirmed any specific incidents of improper or unauthorized data disclosure.”

The agency in December began looking at the role of non-public data in the research program, which is aimed at studying markets the CFTC regulates. The program was suspended and the agency is barring anyone other than full-time employees from access to the data, according to the statement.

Academic Paper

The program was overseen by the CFTC’s Office of Chief Economist. Until the end of last year the office was led by Andrei Kirilenko, who left for a post at the Massachusetts Institute of Technology. Kirilenko didn’t respond to a request for comment.

CFTC chairman Gary Gensler also asked the agency’s internal watchdog to conduct a review.

The agency didn’t identify the research that sparked its concerns.

A search of academic literature shows that a research paper by Adam Clark-Joseph, a doctoral candidate at Harvard University, relied on “novel electronic message data” at the CFTC to examine high-frequency trading strategies. Clark-Joseph declined to comment today and referred questions to the CFTC.

Agency spokesman Steve Adamske declined to comment on Clark-Joseph’s paper. “He was invited to aid the agency in market research and economic analysis,” Adamske said in a telephone interview.

The agency oversees data on derivatives trades by firms including Goldman Sachs Group Inc. and JPMorgan Chase & Co. that take place on exchanges including the one operated by CME Group Inc.

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