CHICAGO Dec 11 Mandatory safeguards to prevent
automated traders from illegally acting as buyer and seller in
the same transactions would be harmful to the trading industry
by exposing firms to unnecessary risk, a futures-industry group
said on Wednesday
Such transactions, known as wash trades, are barred under
U.S. regulatory and exchange rules because they can create the
appearance of an active market where there is none and
potentially be used to manipulate prices.
Still, mandatory controls to block the transactions "would
be not only difficult, but potentially dangerous," the Futures
Industry Association (FIA) said in a letter to the U.S.
Commodity Futures Trading Commission (CFTC).
The stance was among a number of positions the FIA took in
response to a call for comments from the CFTC about automated
and high-speed trading.
Citing a series of trading glitches as evidence that its
rules needed updating, the CFTC in September asked for industry
input on a long list of possible measures to make trading safer.
Wash trades, in particular, have been in focus. The CFTC,
concerned about the frequency with which high-speed traders
engaged in wash trades, earlier this year was reviewing the
banned self-dealing with an eye toward crafting new rules to
prevent it, a CFTC commissioner said in July.
The FIA said it did not believe "additional regulatory
standards will provide increased protection to markets and
market participants" because the CFTC and exchanges already have
effective rules to prohibit intentional wash trades.
"A 'one-size-fits-all' approach may result in unnecessary
financial exposure caused by the inherent blocking of legitimate
transactions," the FIA said in its letter.
Mandatory controls from exchanges, or designated contract
markets (DCMs), could be dangerous "due to limited options
surrounding DCM self-match prevention choices, coupled with the
diverse business structures," it said.
"The options for this type of functionality must be flexible
enough so that market participants can choose the method that
best suits their business and preserves legitimate trading," the
CME Group Inc, the largest U.S. futures exchange
operator, this year launched an optional feature on its
electronic trading platform designed to prevent wash trades by
allowing traders to block matching buy and sell orders.