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Felix Shipkevich October 7, 2011

CFTC Commissioner Bart Chilton called for the registration and regulation of so-called “cheetah” traders once again while speaking at an energy conference in Texas. Chilton suggested that high-frequency traders be subject to registration and information-sharing requirements, and promised harmonization with the SEC and international regulators.

High-frequency traders rely on advanced computers and hyper-sensitive algorithms to exploit minute market opportunities. Their ability to chase and capture profits in milliseconds lead Chilton to call them after the animal kingdom’s fastest sprinter. These traders have been linked to the 2010 flash crash, as well as a number of mini-crashes, and regulators in the U.S. and abroad are ready to trap and track the cheetahs. In his remarks, Chilton specifically advocated registration protocols, due-diligence tests or other educational standards, and the submission of algorithm details to regulators. The Commissioner’s language suggested he would like to prohibit unregistered foreign traders from participating in U.S. exchanges.

Chilton also reiterated concern over the undue influence of “massive passives”–another Chiltonian nickname for large funds that have price-insensitive, passive trading strategies. The number of futures contracts held by these types of traders has increased dramatically since 2008, and Chilton argues that they are a source of market volatility. He recommends imposing position limits, specifically spot month limits for on-exchange trades and over-the-counter trades, before finishing the broad position limits currently under consideration.

Read the full text of Chilton’s speech.
Creative Commons License photo credit: eggshapedkath

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