Trading Firms Question Proposed CFTC Rules

Jul 15, 2016  | 2 min  | Ep4147

The drive to cover your bets was echoed in the halls of Congress. Efforts to stop a 50-state patchwork of GMO labelling laws was averted as the House passed the Senate’s version of the controversial bill, sent it off to the White House, and adjourned for a 51-day recess.

Before the rush to the exits, the House Agriculture Committee took a closer look at setting-up cameras on the high-speed trading super-highway.

The House Agriculture Committee took testimony this week from trading firms who oppose new rules proposed by the Commodity Futures Trading Commission. If adopted, the new rules would affect a broad swath of the automatic trading, or AT, infrastructure.

K. Michael Conaway, R TX “What percentage of market participants do you think would you qualify as AT persons?”

Mr. Greg Wood, Chair, FIA Market Access Committee  “Automated trading is used by a lot of different types of market participants in one form or another. There are people who use highly sophisticated systems they develop themselves, there are people who also increasingly use systems that are provided by software vendors for them to execute more efficiently in the futures markets. Trying to quantify how much of the market is truly algorithmic in nature it’s actually going to be a very high percentage.”

Both witnesses and Representatives were concerned that adhering to the regulations would force small traders such as local co-ops out of futures markets.

The benefit of electronic automatic trading to customers has been a lowering of costs in the trading process.

Richard Gorelick, CEO, RGM Advisors “If you look at the data of end user costs for a variety of end users in markets that have become increasingly electronic, increasingly automated and in turn increasingly competitive, the result is that the costs for the end user are much lower.”

A primary concern of trading and investment firms is a requirement to share trade-making algorithms with the Commission. Those summoned to Capitol Hill to discuss the matter say the regulations would be ineffective and a breach of their intellectual property rights.

Michael Ryan, General Counsel, Trading Technologies “It is highly proprietary trade secret information that could expose the fundamental aspects of a business that provide economic advantage over competitors. Making such valuable intellectual property readily available to the commission is unnecessary to fulfill the intent of the regulations.”

Despite concerns over the high-speed nature of electronic trading, investment firms maintain that the electrification of trading mechanisms has increased transparency, and allows for easier auditing of the trading process after a questionable trading event.

For Market to Market, I’m Peter Tubbs

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