Feb 10, 2012
CFTC investigation to define HFT
The Commodity
Futures Trading Commission (CFTC), the US derivatives regulator, has formed a
new subcommittee of the Technology Advisory Committee (TAC) to focus on
automated and high-frequency trading (HFT) and provide a workable definition of
the practice.
Commissioner
Scott O’Malia, TAC chairman, said the new subcommittee’s role will be to
develop recommendations for delineating HFT in the context of electronic and
automated trading. O’Malia hopes the definition will serve as an first step
towards assessing the “presence and impact of HFT in CFTC regulated markets”,
so that the watchdog can consider regulatory and policy responses.
“I think the Technology Advisory Committee, through advice and
guidance from this new subcommittee on automated and high-frequency trading,
will provide a much needed holistic approach to identifying the criteria the
Commission needs to incorporate into any further decision-making regarding
automated trading and HFT,” said O’Malia.
The subcommittee will spawn four separate working groups tasked
with identifying issues associated with automated trading. The working groups
will focus on: defining HFT; examining whether there are multiple categories of
HFT; analysing oversight, surveillance and the economic of HFT; and
understanding how high-frequency traders behave as compared to other automated
systems.
O’Malia has tasked CFTC chief economist Andrei Kirilenko to
chair the subcommittee and is keen to examine distinctions in trading activity
and how such distinctions should be tagged by the exchanges.
The Commission wants individuals interested in participating on
this subcommittee to contact Kirilenko with their application. Candidates
should be qualified representatives from industry, exchanges, academia,
international regulatory or advisory bodies, government agencies or experts who
develop, design, or operate automated trading or HFT systems.
While some 70% of US equities trades are currently thought to be
executed by HFT firms, the practice is not usually associated with derivatives.
But studies by financial research firm TABB Group suggest upwards of 60% of
futures contracts currently traded on the CME Group’s Chicago Mercantile
Exchange were traded by HFTs.
The UK government’s Foresight project is also investigating HFT,
with aims to advise policymakers on the potential impact of computerised
trading on financial markets.
The Securities and Exchange Commission has requested HFT firms
provide details of their trading algorithms – a measure similar to recent
proposals due to be issued by the European Securities and Markets Authority
before the end of Q1 2012.
Bruce Love
+44 (0)20 7397 3818
bruce.love@thetrade.ltd.uk