Regulators turn focus on high-speed traders

The Commodity Futures Trading Commission (CFTC) issued a 137-page “concept release,” laying out the evolution of U.S. derivatives markets and soliciting input on how the agency should adapt.

“Automated trading systems, including high frequency traders, enter the market and execute trades in a matter of milliseconds without human involvement,” CFTC Chairman Gary Gensler said in a statement. “Our mission to promote transparency, ensure for market integrity and prohibit abuses is just as important in the fast-moving world of electronic trading as it was when people traded over the phone, in a pit or on a floor.”

Safeguards now in place were developed to correspond with such traditional trading platforms, and rely on human judgment.

The document issued Monday is based on recognition that those controls must be re-evaluated. It poses 124 questions involving current protections and how they could be updated to keep up with changes in the marketplace.

The CFTC is seeking to ensure that the regulations in place are sufficient to both hold traders accountable and protect against computer glitches, which have created havoc on a number of occasions in the last three years.

“Taken together, these events illustrate the importance of effective testing, circuit breakers, and error trade policies as vehicles for reducing the likelihood of disruptive events and mitigating their impact when they occur,” according to the CFTC document.

Interested parties and members of the public will have 90 days to weigh in on the issues, once the concept release is published in the Federal Register.