* Critics say practice gives high-frequency traders leg up
* Exchanges moving forward with co-location offerings
(Adds quote from Buttonwood CEO, paragraph 8)
By Mark Weinraub
BOCA RATON, Fla., March 11 U.S. regulators will
propose a rule, aimed at high-frequency traders, to ensure all
market participants have equal access to market data, the head
of the Commodity Futures Trading Commission said on Thursday.
"We are doing a proposed rule on co-location to best
promote ... open access," CFTC Chairman Gary Gensler told
reporters on the sidelines of the Futures Industry Association
annual conference. "If there are such facilities (we want to
ensure) that they be open and fair and consistent access."
Critics have charged that high-frequency traders, who place
their computers next to exchange servers, a practice known as
co-location, have an unfair advantage by getting an early peek
at buy and sell orders.
Despite the prospect of increased regulation, U.S.
exchanges are moving ahead with plans to ramp up products to
serve high-frequency traders, who use computer algorithms to
execute large blocks of trades at lightning-fast speed.
Rapid trading, estimated to account for some 40 percent in
U.S. futures volume and 60 percent of cash equities, was one of
the most profitable lines of business throughout the financial
Proprietary traders who use their own money to quickly
enter and exit the market are a growing percentage of the
volume on U.S. exchanges.
Imposing new rules could prompt high-frequency traders to
move their trades to overseas exchanges, market participants
have said. Traders contend that the loss of liquidity would
reduce the efficiency of U.S. markets.
"The more knowledgeable the CFTC becomes about liquidity in
the markets the less chance they'll do something egregious,"
said David Dugan, chief operating officer at Buttonwood Group
Trading LLC, a proprietary high-frequency trading firm based in
Chicago. "We have a great market, and the government will see
that proprietary firms have no interest in destabilizing it."
Gensler declined to give a time table on the co-location
proposal, but market watchers scoffed at the possibility of
curbing the growing practice.
"The concept of abolishing, diminishing electronic
proprietary trading is really like saying you do not like
gravity," said Jane Gladstone, senior managing director of
investment banking firm Evercore Partners.
Exchange operator CME Group (CME.O) said on Wednesday it
would start offering co-location services early in 2012.
(Additional reporting by Jonathan Spicer; editing by Carol