CFTC Weighs New Rules for High-Frequency Derivatives Trading

Gary Gensler
Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission (CFTC), testifies at a House Financial Services joint subcommittee hearing in Washington, D.C., on Wednesday, Jan. 18, 2012. Photographer: Joshua Roberts/Bloomberg

The U.S. Commodity Futures Trading Commission, which is working to complete Dodd-Frank Act rules for derivatives markets, is weighing new rules and oversight of companies that use automated and high-frequency trading systems.

CFTC members may vote to issue a so-called concept release in the next few months to gather public comment on potential regulations, according to CFTC Chairman Gary Gensler and Commissioner Bart Chilton, a fellow Democrat. The agency also plans to set up an advisory panel to help define high-frequency trading, according to Republican commissioner Scott O’Malia.

“We could look at individuals in the pit and tell you what they were doing, but we don’t have a good handle on what we’re dealing with in the automated trading space,” O’Malia said in a telephone interview yesterday. There is no consensus on how to define high-frequency trading, he said.

The increased focus on automated trading comes as the CFTC this year looks to complete rulemaking under Dodd-Frank, the regulatory overhaul that expanded oversight over derivatives markets after largely unregulated transactions helped fuel the 2008 credit crisis.

The concept release would seek comment on how to test and supervise high-frequency traders, Gensler said in a Jan. 27 speech. The release could also seek comment on registration systems and pre- and post-trade methods of ensuring transparency in markets, Chilton said yesterday.

“To date, I don’t think U.S. regulators have been aggressive in considering how this super-fast trading can impact markets,” Chilton said.

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