CFTC: Too Early for HFT, Position-Limit Reform


Stances on high-frequency trading, position limits, and potential changes to the regulator’s US Person Rule were some of the many issues that came up during acting-CFTC Chairman Christopher Giancarlo’s nomination hearing before the US Senate’s Agriculture, Nutrition, and Forestry Committee.

Testifying before Committee Chairman Sen. Pat Roberts (KS-R), ranking member Sen. Debbie Stabenow (MI-D), Sen. Amy Klobuchar (MN-D), and Sen. Kirsten Gillibrand (NY-D), Giancarlo noted that the CFTC still needs to analyze all of its data before making informed decisions high-frequency trading or position limit reforms.

Christopher Giancarlo, CFTC

“We are getting the data, but we do not have the analytical tools to know whether the role in the market of these traders is harmful, benign, or what mixture of the two,” he said. “They do provide important liquidity in the markets. You could not have a market of just naturals you would not have a market.”

As part of the proposed CFTC budget that Giancarlo submitted to Congress is funding for 12 additional economists who will provide the necessary analysis that will drive policy decisions.

“If we need to make policy decisions that might restrict some participation the market that needs to be based on hard data,” Giancarlo added.

Regarding changing position limits rules, he testified that Congress had provided the CFTC with the appropriate tools to address excessive speculation,

However, Giancarlo wants to be sure that the regulator addresses the concerns of energy and agricultural producers. He cited Arkon, Ohio-based First Energy that trades six to seven times a day and never speculates.

“If they are buying forward, it is to protect the position,” said Giancarlo. “If there have been a couple of winters with polar vortexes and one of their generators goes down, they need to buy forward. They may have to break a position limit, and they need to know that they can do that. Otherwise, they are going to turn off the lights and some homes and turn off some heat.”

When responding to Sen. Gillibrand’s question of whether Brexit would lead the CFTC to re-visit its US Person rule, Giancarlo stated that would not be the case.

“We do need to take the view that risk that builds up anywhere in the globe can come back to the United States,” he explained. “When it comes to issues of mechanics, then I am in favor of a more territorial approach and not exporting our mechanical approach to say swaps execution abroad. However, on systemic risk concerns then I think we have to take a global approach.”

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