The US futures and options regulator, the Commodity Futures Trading Commission (CFTC), has proposed new rules to ensure all market participants have fair and equal access to co-location and proximity hosting services.
The move is the first attempt from a regulator to create a more level playing field between high-frequency traders and traditional market participants by controlling access to technology-based services.
Co-location and proximity hosting services allow traders to minimise trading latency by placing systems as close as possible to an exchange’s matching engine. These services are typically favoured by high-frequency traders, for which high-speed, high-capacity execution capabilities are vital for executing arbitrage and other trading strategies.
The new rules from the CFTC, which were published in the Federal Register at the end of last week, would require derivatives exchanges to make provisions relating to equal access, fees, latency transparency and third-party solutions for co-location and proximity hosting services.
This includes the requirement to make such services available to any qualified market participant willing to pay for them and ensuring that costs are not used as a way to price certain types of participant out of the market.
The CFTC has also proposed rules to make the longest, shortest and average latencies for each connectivity option readily available and for third-party providers to guarantee that they can supply exchanges with sufficient information about market participants’ systems and transactions to meet self-regulatory obligations.
The CFTC is currently seeking comments to the rules until the middle of July. The regulator is also evaluating other issues related to high-frequency trading, including its impact on price discovery and risk management.