The CFTC’s Technology Advisory Committee (TAC) proposed a broad definition of high-frequency trading (HFT) at a Wednesday meeting, defining it as a form of trading that uses sophisticated computer programs to make automated decisions in the markets, with no human decision-making involved in individual transactions. High-frequency traders fear that the definition is a prelude to onerous regulation that would make it difficult for HFT firms to function.
HFT generates more than half of all U.S. stock and futures trading volume. Regulators say that events such as the Flash Crash of 2010 highlight the need for regulation of the sector, and that regulation will target trading that is manipulative or undermines investor trust.
The TAC is headed by Commissioner Scott O’Malia, whose interest in the intersection of trading and technology is well-known.
Opponents of heavy HFT regulation have argued that regulators should identify the types of HFT activities they consider dangerous before defining high-frequency trading itself. This first step by the CFTC is a step in the opposite direction.
With much of the CFTC’s time occupied by Dodd-Frank-related rulemaking, however, it could be some time before HFT-related rules are fleshed out and go into effect.
