(Adds detail on Senate hearing, from speech)
By Douwe Miedema
WASHINGTON May 6 The U.S. derivatives regulator
is working on a proposed rule for computer-driven trading, a
commissioner at the agency said on Tuesday, after the agency
asked market participants for insights on a long list of issues
on the controversial practice.
Staff at the Commodity Futures Trading Commission, which
oversees derivatives trading as well as futures and swaps
markets, is working on a proposal based on a study last year on
risk controls and safeguards for automated trading systems, on
which it has requested public comment.
"I understand that commission staff is starting to work on a
proposed rule," Commissioner Scott O'Malia said in a speech at a
conference in Chicago.
Separately on Tuesday, a Senate panel said it would hold a
hearing next week on high-frequency trading and other forms of
automated trading in futures markets to see how the CFTC can
keep the market safe.
Computer-driven trading has again become a hot topic
following publication of the book "Flash Boys," by best-selling
author Michael Lewis, who argues that equity markets are rigged
in favor of high-frequency traders.
Many banks and hedge funds use sophisticated computer
programs to send large batches of orders into equity and futures
markets in fractions of a second, a practice known as
Proponents of HFT say the firms make it easier for other
buyers and sellers to meet each other in the market, but critics
argue it can cause sudden market crashes and easily mask market
manipulation or other illegal activity.
Futures markets are also a common hunting ground for speed
traders, and the CFTC is probing them to see if they are
breaching CFTC rules
The agency in September also put out a so-called concept
release on computerized trading, which was seen as a possible
first step toward drawing up formal rules.
The Senate Agriculture Committee, which oversees the CFTC,
said it would call the meeting on May 13 and said it would
disclose a list of witnesses at a later stage.
(Reporting by Douwe Miedema; Editing by Steve Orlofsky and