High-frequency trading should be defined before the U.S. Commodity Futures Trading Commission sets rules for what amounts to about half of the volume of futures markets, said Scott O’Malia, a member of the panel.
The CFTC needs a better understanding of the practices as it debates new testing and supervision rules for high-frequency and automated trading, O’Malia said in a speech prepared for a Securities Industry and Financial Markets Association conference today in New York.
“Before we implement a new regulatory regime on any continent or in cyberspace, I believe we need to agree on what and who compromises this growing segment of our markets,” said O’Malia, a Republican.
The CFTC, with the Securities and Exchange Commission, has scrutinized such trading since May 6, 2010, when $862 billion was erased from stock values in 20 minutes in the so-called “flash crash.” The agency has been drafting a release on new rules, a regulatory step prior to proposed rules.
The release may include testing, supervision and protections of participants with direct market access, CFTC Chairman Gary Gensler said in March.
The CFTC’s technology advisory committee, led by O’Malia, is meeting tomorrow to discuss definitions of high-frequency trading. Participants include Supurna VedBrat, managing director and co-head of electronic trading and market structure at BlackRock Inc.; Gary DeWaal, general counsel of Newedge USA LLC; and Charles Vice, president and chief operating officer of Atlanta-based Intercontinental Exchange Inc. Ben MacDonald of Bloomberg LP, parent of Bloomberg News, is a member of the technology panel.