CFTC, SEC Face Data-Deficit in Coming High-Frequency Trading Fight

high-frequency trading

The U.S. Commodity Futures Trading Commission (CFTC) and the U.S. Securities and Exchange Commission (SEC) now have FINRA, the financial industry’s self-regulator body, helping to crack down on high-frequency trading (HFT). Yet, barring unforeseen technological changes or a reallocation of resources, it remains to be seen whether 2013 will become the year of HFT regulation.

SEC and Real-Time: Does it Matter for HFT?

Reportedly, the SEC will begin streaming real-time trade data into its headquarters this month.

The SEC’s new technology will reportedly cost $2.5 million in the first year. The adoption of new technology comes on the heels of an announcement by ASIC, the Australian Securities Investment Commission, that it will use high-frequency trading technologies in order to monitor HFTs.

Although the technology itself may help the SEC cover a lingering resources gap, it remains to be seen how the data will be used to monitor trading entities. There is also some speculation as to whether the SEC is currently staffed with analysts who can process the data.

Bad Data or No Data: Enter Kirilenko of CFTC

As it stands, arguments for unregulated HFT stand on a mountain of dubious or unverified analysis. Defenders of HFT routinely cite studies whose authors can be traced back to HFT funding; for example, James Angel, professor at Georgetown, later admitted that HFT data is a “big jumble” even though he published a report in favor of HFT for Knight Capital. This, of course, was prior to the flash crash earlier this year. Or there’s the case of Christopher Culp, hired by Virtu Financial LLC, who wrote a study against transaction taxes, the Wall Street Journal reports.

On the other hand, aside from a landmark study from CFTC economist Andrei Kirilenko, U.S. regulators have put together scant data on the vices of HFT.

The virtue of real-time data (in the hands of U.S. regulators) could be to clarify once and for all the positive or deleterious effects of HFT.

FINRA Comes Out Swinging

Today, FINRA announced their plan to crackdown on HFT and dark pools. TheWall Street Journal reports:

Finra on Tuesday said it implemented a system in 2012 that can track trading patterns that “address more than 50 threat scenarios” across about 80% of the stock market.

Read more.

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About the Author

Felix Shipkevich
Mr. Shipkevich’s practice focuses on regulatory, transactional, and enforcement matters in the fields of futures, commodities, and derivatives. He works with Futures Commission Merchants (FCMs), Retail Forex Exchange Dealers (RFEDs), Introducing Brokers (IBs), Commodity Pool Operators (CPOs), Commodity Trading Advisors (CTAs), Swap Dealers (SDs), Swap Execution Facilities (SEFs), and domestic and offshore hedge funds. Mr. Shipkevich guides clients on procedures related to registration with the U.S. Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA), as well as domestic and international regulators in local jurisdictions. Mr. Shipkevich prepares and helps implement compliance, anti-money laundering (AML), and Electronic Trading Systems (ETS) procedures for clients in the commodities and derivatives fields.