CFTC panel to review high-frequency trading

WASHINGTON Mon Jan 30, 2012 5:40pm EST

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WASHINGTON (Reuters) - The Commodity Futures Trading Commission is expected to review a rapid-fire technique that allows traders to buy and sell shares at lightning speed, a step that could help it better understand the impact of an activity critics say threatens market stability.

Scott O'Malia, a Republican CFTC commissioner, has proposed the formation of a subcommittee that would be tasked with defining and identifying high-frequency trading in futures, swaps and options.

So far there is little consensus as to what is algorithmic or high-frequency trading and how various trading patterns affect the markets.

The subcommittee would be part of the CFTC's Technology Advisory Committee, chaired by O'Malia. CFTC Chief Economist Andrei Kirilenko would lead the panel.

"I believe that this lack of consensus is impeding the ability to have a public debate on different trading patterns and their effects on our markets," O'Malia said on Monday.

In high-frequency trading, banks, hedge funds and proprietary firms use extremely fast automated programs to make trades in electronic markets. Such participants use programs to submit and cancel large numbers of trades, and are able to move in and out of positions quickly.

The popularity of high-frequency trading has surged, and growth is expected to continue as more swaps activity shifts to electronic platforms. High-frequency trading is estimated to account for half of the trades in Europe and roughly a third in the United States.

High-frequency traders were thrust into the spotlight on May 6, 2010, as the Dow Jones industrial average plunged some 700 points in minutes, before it sharply recovered.

Although a government review did not blame high-frequency traders, the Securities and Exchange Commission and CFTC came under pressure to rein in the practice.

(Reporting by Christopher Doering; Editing by Dale Hudson)

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Comments (2)
mmcg wrote:
Hey remember Front Running? It’a unethical and illegal!

Our Capital Markets were built on a foundation of transparency and fairness. Capital formation, the basis of Capitalism. It’s sad to say the rules were muted and the velocity of money is the short term thinking ..

Jan 31, 2012 10:00am EST  --  Report as abuse
hespirian wrote:
THE CFTC do anything that is fair and transparent,absoultly will do nothing,THE CFTC IF ANYTHING WILL SET THE FRAME WORK SO LARGE BANKS AND HEDGE FUNS CAN NOT BE HELD ACCOUNTABLE.WHAT A DISGRACE, IT IS EASY TO SET IN MOTION LIMITS TO THESE HIGH SPEED TRADES TO STOP THIS FRONT RUNNING SCALPING,THE CFTC ARE SIDED WITH THE BANKS AND NOT THE RIGHT OF THE PEOPLE AND GOOD.

Feb 03, 2012 10:41pm EST  --  Report as abuse
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