CFTC's Chilton wants more oversight of high-frequency trading

Section:

By Christopher Doering
Reuters
Wednesday, December 9, 2010

http://www.reuters.com/article/idUSTRE6B72GF20101208

WASHINGTON -- A top official at the U.S. futures regulator said Wednesday he supported tougher oversight of the high-frequency trading market, including measures that would require exchanges to review and monitor these computer programs.

Bart Chilton, a commissioner at the Commodity Futures Trading Commission, said in prepared remarks that traders responsible for high-frequency or algorithmic trades that damage the market and consumers should be held accountable.

"One way to address the matter is to include such a provision in our new anti-disruptive trading practices authority," Chilton said in a speech obtained by Reuters.

... Dispatch continues below ...



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"We should prohibit certain conduct that is specific to algo robots and high frequency trading. Taking into account what happened on May 6, this certainly seems like a reasonable proposition," he said.

The May 6 crash sent the Dow Jones industrial average down some 700 points in a matter of minutes, before it sharply recovered. Although a government review did not blame high-frequency traders, the Securities and Exchange Commission and CFTC are under pressure to rein in the rapid traders, who use computer-driven algorithms to buy and sell shares at lightening speed.

Economists at the CFTC estimate high frequency traders account for roughly a third of all trading volume on regulated U.S. futures exchanges.

In his remarks, Chilton said the CFTC, as part of its core principles, should require exchanges to have "certain due diligence" and review these computer programs from the start.

"I'd also like to ensure that all exchanges have the ability to monitor individual programs trading and aggregate and slice, dice and chop up data to get a better handle on what is and could go on in market," he said.

Chilton said high-frequency programs are a key part of trading today, but he added commercial firms trying to hedge their risk have complained the number and speed of high-frequency trades has made it difficult for them to enter the market. Without commercial firms, Chilton said price discovery and risk management will suffer.

He proposed the idea of adopting a definition of what high-frequency trading is, and even creating a "Good Housekeeping Seal of Approval." But Chilton said questions remain including whether in fact it is a good idea and who should be put in charge of doing it.

Chilton also supported limits on high-frequency trading. "We certainly should not allow some situations to exist," he said.

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