Charlie Rose Talks to CFTC Commissioner Bart Chilton

The CFTC commissioner discusses the Twitter crash, high-frequency traders, and a way to boost funding for the regulator
“The exchanges like it when there’s thousands of trades a second, but is that good for markets?” Photograph by Brendan Hoffman/Bloomberg

The Twitter crash on April 23 briefly erased $136 billion from the markets. What’s your take on it?
It looked like we had trouble on our hands right away. Whenever you see market volatility acting so rapidly, our antennas go up big-time.
How did it happen?
I can’t speak for the FBI. I know the press reports just like everybody else that the Syrian Electronic Army took credit for it. But I can tell you with regard to the markets what happened is a lot of traders, particularly these high-frequency traders, who I call cheetahs because they are so fast, go after markets when there’s volatility, when there’s something that we call “ignition momentum.” They don’t care if the market’s going up or the market’s going down. In this case, it went down, then it went right back up. That’s when the cheetahs feed. Unfortunately, a lot of average investors had things like stop-loss provisions where they just got out of the market when prices went down, and never got back in. They’re out money.
Can that be regulated?
It might be to some extent. For example, you’re a company, and you’re about to put your earnings report out, and somebody hacks in and says it’s going to be way lower or way higher, and it impacts your stock price. Those things can impact real people. And we have the ability, and the SEC has the ability, to try to insure that … they increase levels of security so that even an unintentional or reckless attack from the outside can’t be used to impact markets and ultimately hurt investors or consumers.
As high-speed trading grows, does our exposure and the danger of this type of event go up?
It does. Nobody wants to be against technology, but I think that regulators should not—and people should not—assume that faster is always better in markets. We need to question technology to insure that markets continue to perform their fundamental purposes. Sure, the exchanges like it when there’s thousands of trades per second, but is that good for markets? And [the high-frequency traders] are making the most money off of the smaller retail guys. So maybe the cheetahs are the new middlemen. They’re replacing the old floor traders, and maybe that’s the way it’s going to go. But I think people should want their regulators to anticipate these things.
Can you police what sources of data traders are including in their own trading algorithms?
We can’t. You don’t want to get too involved in the free market. But they do things like scrape data from Twitter. Then they listen to you having an interview and how many times did you say a certain word. So it’s a very complex algorithm, and that’s their economic edge.
You’ve spoken out about what you see as market manipulation in gold and silver. What’s going on?
We’re looking at it. When we see large moves, like with the hack attack, that’s something that should raise our antennas. And I’m concerned about what we’ve seen recently in gold and silver. When I have people send me e-mails and say, “Watch tomorrow at a certain time; the price of X is going to go down,” and it happens, that’s not just happenstance. And that makes me think we need to do a better job of investigating these things and insuring that there’s not outright manipulation. But I can’t really comment further on it at this point.
Tell me the changes you’re proposing for the Commodity Futures Trading Commission and the swaps market.
It’s not just swaps, it’s for futures. These markets performed a fundamental purpose all the way back to 1848, when agriculture folks were trying to hedge their risk. These were people that have skin in the game; they have a physical commodity. I want to ensure that we’re doing the most we can to insure that markets are fair, that the end users aren’t mauled by the cheetahs.
You say there are more high-speed traders today with more to gain. Is that just a question of technology?
It’s not just technology, actually. It’s really oversight and enforcement. We don’t have enough people to go after them. When you think about these scandals like Libor, where Barclays and UBS and Royal Bank of Scotland manipulated this benchmark interest rate, it impacts about everything anybody in the world purchases on credit. It took us years and years to get to the bottom. That’s why I think a transaction fee would be helpful in funding the agency and trying to put bad actors in jail.


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