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 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
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.