CFTC Sets its Sights on High Frequency Trading

The Commodity Futures Trading Commission (CFTC) is beginning to look into regulating high frequency trading over the coming months.

High frequency traders rely on computer software to make trades in only fractions of a second. However, there have been instances where glitches have hurt the market, and the CFTC has decided that many of its regulations are in need of an update.

Having issued a report on high frequency trading last fall, the CFTC is now looking to get feedback on the many suggestions it has put forth for better regulating the industry.

In the report, the CFTC mentions things like power outages and computer errors as the main cause for concern. Even just last year, thousands of Nasdaq OMX group’s stocks were frozen for three hours due to technological issues.

Among the more notable errors in high frequency trading is the 2010 “flash crash” where an algorithm led to the futures and securities market to drop 5% and then almost entirely recover within just a few minutes.

While the list of suggestions is sizable, the CFTC seems particularly interested in implementing “kill switches” that could halt malfunctioning programs as a last resort scenario.

The deadline for comments on the matter is February 14th. The CFTC is currently reviewing responses and will be making recommendations on the next steps afterwards.

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