CFTC Investigating Preferential Treatment of High Speed Trading Firms

The Commodity Futures Trading Commission (CFTC) is looking into deals given to high speed trading firms by exchange operators.

The investigation is based on concerns that high speed trading firms are receiving incentives and discounts in the market that other investors don’t normally have access too.

Without these discounts, regulators are worried that less-influential investors are at an unfair disadvantage.

High speed trading firms utilize sophisticated trading platforms capable of making a large number of trades in less than a second. While making up close to half of total stock market volume, high speed firms have come under scrutiny a few times in the recent past, particularly after the role computerized trading played in the “flash crash” in 2010 where the stock market plummeted and made an almost complete recovery in a matter of minutes.

The CFTC will be looking at communication records between futures exchanges and certain traders, as well as checking payment records for discounts.

The commission is hoping to make sure that all deals offered to high speed trading firms were also made available to other traders.

Inscentive programs are common in most trading markets, and many say that they increase orders placed through the exchanges, increasing liquidity. The CFTC however, is worried that high speed trading firms may be able to take advantage, boosting volumes while harming other investors.