U.S. Commodity Futures Trading Commission (CFTC) commissioner Bart Chilton delivered an address to the High-Frequency Trading Leaders Forum in Chicago, Illinois, on Tuesday. Chilton’s address outlined the CFTC’s position on a range of topics related to the regulation of controversial high-frequency trading practices.
The address included Chilton’s trademark wordplay—Chilton coined the term “cheetah” to describe high-frequency traders—and repeated reference to the film Wayne’s World.
“It doesn’t matter if you’re an algo trader, a cheetah, a pit trader, an investor or a consumer—you want to know the rules of the road when it comes to financial reform,” Chilton said.
He continued, “I’m not going to go over all the individual rules (you’re very welcome, I’m from the government and here to help), but summarize what we are doing by putting all the rules into four buckets: Transparency, Lowering Systemic Risk, Accountability, and Market Integrity.”
Chilton’s “buckets” amount to a “to do list” for the CFTC going forward with the regulation of high-frequency trading.
- First, Chilton says that HFT need to be registered under the aegis of Dodd-Frank, so that “we [can] command their books and trading records.”
- Chilton also claims that HFT platforms, algorithms, and other technologies should be tested prior to entering a live production trade environment.
- Chilton claims that HFTs should be “required to have kill switches in the event that cheetah programs go feral.” He goes on to add that he is “pleased tthat the SEC [and the CFTC] have had some exchanges.” This is interesting because the SEC announced that very day that it is against kill switches.
- HFTs should implement wash blocker technology to prevent self-trading.
- The days of he said she said accountability in financial markets needs to stop, and now.” Chilton said, referring to compliance reports.
- The CFTC’s Chilton is also a big proponent of penalties, not only for firms, but for individuals at the firm. This time though, he listed “flash crashes” as penalty-worthy events.