03.27.2012
By Markets Media

CFTC Ups Pressure On HFT

The evolution and adaptation of electronic trading have led the market to assume that the fastest execution possible is a must for all trading and brokerage firms. This is essentially true after all; who wouldn’t want their order executed before others?

The inability of smaller firms with smaller technology and infrastructure budgets has created an outcry of sorts towards high-speed electronic trading firms that are commonly given the “high-frequency trading” moniker. Some firms do rely on electronic market making and trading be it to beat scalp prices or create profits off liquidity rebates from the exchanges.

Ironically, the regulators are now beginning to crack down on so-called high-frequency trading firms despite essentially giving birth to them through Regulation National Market System and other means throughout the years. Both the Securities and Exchange Commission and the Commodity Futures Trading Commission are listening to market participants and taking comments, but the latter is moving more quickly on the matter as HFT gravitates from equities into the futures markets.

The CFTC now has a “Technology Advisory Committee” that is set to provide comments on automated and high-speed electronic trading and includes big players from both Chicago and New York including but not limited to: GETCO, AQR Capital Management, CME Group and Credit Suisse. Commissioner Scott O’Malia will head the new committee.

Whether the CFTC is going to take the route of encouraging or discouraging high-frequency traders is irrelevant according to one fund manager who trades futures contracts in size out of his Chicago office. The real sticking point is that there is no other liquidity provider for futures: HFT is the last straw.

“They will never take down the illusion. It would scare the mom and pop retail crowd,” he told Markets Media. “I had a discussion with a big FCM a couple months ago. The dirty secret is that there are NO other customers.”

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