The Commodity Futures Trading Commission will likely not pursue a definition of high-frequency trading (HFT) as initially flagged in a concept release on automated trading, participants at a meeting discussing the plan heard yesterday.
The CFTC’s technology advisory committee (TAC) met yesterday to discuss the concept release, including submissions to the 124-question survey accompanying the release, which the Commission will use to form rules to establish best practice in US listed derivatives markets.
Jim Overdahl, partner at consultancy Delta Strategy Group and former chief economist for the CFTC, who was present at the meeting, said there was general agreement that efforts to establish a definition of HFT would be of little value.
“Most committee members agreed any rules established for automated trading should affect all participants, not particular segments,” he told theTRADEnews.com.
“Summarising the industry feedback to the concept release received so far, (CFTC Commissioner Scott) O’Malia said there was not as much value in defining HFT as original thought,” Overdahl added.
The meeting covered three broad areas: the CFTC concept release on automated trading; use of data for the CFTC’s market oversight activities; and new swap execution facilities (SEFs).
Market participants have until 14 February to submit a response to the release, after the deadline was extended in January.
At yesterday’s meeting the committee supported a submission by the Futures Industry Association’s Principal Traders Group recommending the Commission avoid developing overly-detailed rules on risk controls.
“There was a lot of sympathy for the principles-based approach for risk controls where by policymakers establish broad goals but the trading venues define and implement the final rules,” Overdahl said.
The committee also discussed the concept of frequent batch auctions as an alternative to a continuous limit order book, which was addressed in one of the questions in the concept survey.
Take-up of such a model should be decided by the market rather than government, participants agreed. Academics from the University of Chicago have championed the structure as superior to traditional limit order books through sealed-bid double auctions conducted at frequent time intervals.
SEF moves
The meeting also discussed the role of SEFs, ahead of the introduction of mandatory trading next week for certain interest rate swaps under the ‘made available to trade’ (MAT) rule.
Commissioner O’Malia told the committee key areas of the MAT framework needed to be addressed, reiterating recent comments around OTC derivatives trades that include a number of swaps, known as packaged transactions. O’Malia said finalising MAT determinations ahead of defining rules on packaged swaps was contradictory and called for greater analysis before a final ruling.
“While I am frustrated that we are conducting the analysis on package transactions after making the MAT determinations, I am pleased that this meeting will initiate the process for identifying and resolving the issues associated with such transactions,” he said.