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CFTC ponders rules to combat high frequency disruptions

08 October 2010  |  7912 views  |  0 stock quote

The Commodity Futures Trading Commission is eyeing new rules under the Dodd-Frank financial reform legislation to safeguard against high frequency trading disruptions to US financial markets.

The second meeting of the CFTC's Technology Advisory Committee is set to focus on computerised trade strategies and their role in the events of the May 6 flash crash.

Andrei Kirilenko, a senior financial economist at the watchdog will summarise the SEC/CFTC joint report into the causes of the crash and present a paper on the impact of high frequency trading on electronic markets. The session will also look at the role of technology in the futures and swaps markets.

"While I do not believe that the flash crash was the direct result of reckless misconduct in the futures market, I question what the CFTC could have done if the opposite were true," says CTFC commissioner Scott O'Malia. "When does high frequency or algorithmic trading cross the line into being disruptive to our markets? And, along those same lines, who is responsible when technology goes awry? Do we treat rogue algorithms like rogue traders? These are the issues I hope to explore."

Additional panels will focus on the role technology plays in pre- and post-trade transparency and how swap execution facilities (SEFs) and swap data repositories (SDRs) achieve these objectives. Commission staff will present on current rulemakings and the technological implications for interim data collection. Panelists will highlight the technological hurdles and their impact on trading behavior.

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