The Commodity Futures Trading Commission has announced its intention to review high frequency and algorithmic trading.
In a speech at the New York Law School on 31 January, Republican CFTC commissioner Scott O’Malia proposed the formation of a subcommittee specifically charged with identifying and defining high frequency trading in futures, swaps and options.
O’Malia pointed to the flash crash of 6 May 2010 as a key reason why increased scrutiny of algorithmic trading was a necessity. He argued that the lack of a clear definition of just what constitutes high frequency trading was an issue that needed to be addressed.
Speaking of a meeting of the Commission’s Technology Advisory Commission that followed the crash, O’Malia said: “There was little to no understanding of the trading patterns on our markets. There was no consensus, e.g., on what constituted automated trading, what constituted algorithmic trading, and what constituted HFT. There was also no consensus on how each type of trading affected our markets. It was like having no consensus on what constitutes a broken window. I believe that this lack of consensus is impeding the ability to have a public debate on different trading patterns and their effects on our markets.”
Reuters reports that the new subcommittee would form part of the CFTC’s Technology Advisory Committee. It would be chaired by O’Malia with CFTC chief economist Andrei Kirilenko leading the panel.