CFTC Working On High-Frequency Rule

May 7 2014 | 12:13pm ET

High-frequency trading has been called a lot of things in recent months, but if the Commodity Futures Trading Commission has its way, it will lose one epithet: unregulated.

The CFTC is preparing to propose a rule covering automated trading, which lies at the heart of high-frequency trading. The practice has long been somewhat controversial, but has been catapulted to the forefront by a recent book that alleges it is, in effect, insider-trading.

The CFTC has been looking into HFT for months, putting out a concept release on the subject in September and seeking input from industry players. It is not clear when a rule might be issued, or what, exactly, it will cover.

“I understand that commission staff is starting to work on a proposed rule,” Commissioner Scott O’Malia said.

O’Malia, a Republican, told a Tabb Forum conference that the CFTC needs more money to invest in the technology needed to detect market malfeasance. Currently, the agency lacks the technology needed to oversee the millions of messages sent by traders to futures exchanges every day.

“Without such tools, the commission cannot effectively oversee today’s automated markets,” He said. The CFTC needs to “design the 21st-century mousetrap to spot disruptive and manipulative trading practices—at any speed.”


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