High-frequency trading (HFT) firms should not face tougher rules compared to other participants, the Futures Industry Association (FIA) has declared in a comment letter on automated trading send to the chief US derivatives regulator.
On Wednesday the association, which counts HFT firms as part of its member base within subsidiary the FIA Principal Traders Group, submitted a comprehensive response to a September Commodity Futures Trading Commission (CFTC) concept release on automated trading.
The submission called the CFTC to form principles, as opposed to rules, for risk controls and stated the automation of trading functions had vastly increased the quality of US derivatives markets, due in large part to industry best practice.
Jim Overdahl, an FIA advisor who helped craft the comment letter, cited exchange programmes to reward participants that send fewer quotes per execution as evidence the industry could adapt to HFT activity without regulatory input.
Overdahl also said a minimum resting time for orders – a potential mechanism to limit predatory HFT behavior – would hurt the industry by pushing costs up for end-investors.
He said the Commission had the data required to decide whether HFT activity was a negative force that required attention though an audit trail that had developed with automated trading.
“The CFTC has all the information they need because of tags associated with every trade,” he said.
The FIA letter also called for the CFTC to push for exchange-level risk checks to concentrate on any erroneous behavior in automated trading systems.
“For risk controls requirements to be effective they should be principles-based and consideration should be given to the location where they are implemented within the trading lifecycle,” Walt Lukken, president and CEO, FIA, wrote in the CFTC submission.
The FIA letter was one of 25 comment letters sent to the CFTC, which formed the concept release to guide potential new rules on automated trading, which the industry will again have an opportunity to comment on before final rules are issued.