The US Commodity Futures Trading Commission (CFTC) is considering a proposal to establish a subcommittee to investigate the effects of high-frequency trading (HFT) on derivatives markets.
Part of the CFTC’s technology advisory committee, the subcommittee would be led by Andrei Kirilenko, chief economist at the CFTC. If approved, the unit would focus on defining HFT, developing HFT monitoring strategies and identifying potential market problems that could result from HFT participation in financial markets. The information would then be used to inform any regulatory or policy changes that the CFTC deems necessary, according to news sources. CFTC commissioner Scott O’Malia is understood to be championing the plan.
HFT is not usually strongly associated with derivatives. However, studies by financial research firm TABB Group suggest that upwards of 60% of futures contracts currently traded on the CME Group’s Chicago Mercantile Exchange are traded by HFTs – suggesting that the technology may be diversifying away from its equities stronghold. Some 70% of US equities trades are currently thought to be executed by HFT firms.
In France, high frequency traders are due to be subjected to the financial transaction tax introduced by president Nicolas Sarkozy in August 2012, which is expected to charge 0.1% for HFT equity trades and naked sovereign default swaps. A French senate proposal to introduce a levy for order cancels above 50% was quietly dropped last month.
The UK government is also sponsoring its own investigation into HFT – the Foresight project – which aims to advise policymakers on the potential impact of computerised trading on financial markets. Meanwhile in the US, the Securities and Exchange Commission (SEC) has requested that HFT firms provide details of their trading algorithms – a measure similar to recent proposals on automated trading which are due to be issued by the European Securities and Markets Authority before the end of Q1 2012.