* CFTC technology panel: Wednesday 1 p.m. ET (1700 GMT)
* Looking at rules for algorithmic, high-frequency trading
* CME: CFTC risks stunting market efficiency, competition
* Bates: CFTC needs HFT methods to police algo trading
* First meeting for committee since 2005
By Christopher Doering and Roberta Rampton
WASHINGTON, July 13 (Reuters) - The U.S. Commodity Futures
Trading Commission risks hurting markets if it is too
aggressive in flexing its regulatory muscle to rein in
high-frequency traders, exchanges and participants are expected
to tell the agency on Wednesday.
The U.S. futures regulator's technology committee will hold
the first in a series of public meetings with exchanges,
clearinghouses, trading firms, and other groups as it considers
how to adapt to the rapidly evolving world of algorithmic and
Lightning-fast computer strategies that determine how, when
and what to trade have added liquidity, depth and transparency
to markets, reducing overall costs, the chief operating officer
of the world's largest futures exchange said in a statement --
part of a 181-page information packet released by the CFTC
ahead of the meeting.
"Careful consideration should be given to any decision to
impose restrictions or limitations on algorithmic and high
frequency trading that would be harmful to the marketplace and
result in less efficient and less liquid markets," said Bryan
Durkin, chief operating officer and managing director with CME
High-frequency trading (HFT) accounts for about 35 percent
of U.S. futures volumes -- a number that some expect will reach
60 percent by the end of the year. [ID:nLDE66C11J]
The CFTC's arcane technology has been outpaced by the
state-of-the-art hardware and software used by the traders it
polices. It finds itself grappling with the complexities of
sub-millisecond trades and terahertz processors as technology
becomes an even more vital component of the futures and
The futures regulator still relies on fax machines to
receive some trade information, an anachronism it can no longer
afford as it grapples with a five-fold surge in U.S. futures
trading volume over the past decade and prepares to take
oversight of even larger over-the-counter derivatives markets.
"This new committee can play a vital role assisting the
Commission's efforts to better oversee the evolution of the
derivatives markets," said Commissioner Scott O'Malia, who will
lead the committee, in a statement ahead of the meeting.
O'Malia told Reuters last month the CFTC will look hard at
whether to impose new rules to limit strategies used by
high-frequency and algorithmic traders that threaten to distort
The meeting marks the first time the committee has met
since it was mothballed in 2005 and resurrected in May of this
year. For members of the panel, click on: [ID:nN1262075]
O'Malia has asked the committee's members to submit papers
on a host of topics, including rules and standards for swap
execution facilities and trade data repositories that will
figure prominently in the CFTC's oversight of over-the-counter
derivatives markets, soon to be granted by Congress.
The CFTC also wants to look at how to make better use of
technology for surveillance and enforcement.
The mammoth task became more high-profile in May, when a
"flash crash" hit the stock market, driving the Dow Jones index
down some 700 points within minutes, shaking investor
While there are many benefits to high-frequency trading,
there can be pitfalls, said John Bates, chief technology
officer for Progress Software
who founded Apama, a
platform used for algorithmic and high-frequency trading.
Technology can make it easier to carry out market abuses
such as fictitious "spoof" trades, Bates said.
"Algorithms may meet scenarios they have never been
prepared for," Bates said, noting algorithms likely
"accelerated and accentuated" the May 6 market plunge.
Rather than restricting the use of algorithmic trading, the
CFTC should improve its oversight, he said.
"Utilizing the same technology used in HFT for real-time
surveillance and monitoring gives regulators 'Ferraris as
police cars' to be able to keep up with the high-frequency
markets," Bates said in a document released by the CFTC.
(Editing by Sofina Mirza-Reid)