March 1, 2011
Thanks to all of you for your participation today. Thanks especially to Chairman O’Malia for leading this committee and his support of the need for technological advances at CFTC.
I’ve been calling high frequency and algo traders cheetahs because of their incredible speed. While technology in trading is great, and it really is, I’m concerned about being able to keep up with the cheetahs from a regulatory perspective. Cheetahs are fast because they are predators. I want to make sure that cheetah traders aren’t preying on slower commercials that are using these markets to hedge business risk.
Even if there’s no predatory intent, we know these programs can get away from us sometimes. That’s why I want to continue to explore three ways of protecting markets from such anomalies.
First, I believe new programs need to be tested in some basic fashion before they go live. Call it the “Jiffy Lube ten-point testing plan.” We need some entity, not the CFTC, but the exchanges or NFA, some entity with the appropriate capability for testing to check what’s under the cheetah hoods so that we don’t have an expensive problem down the road.
Moreover, adjustments need to be made after something bad happens. When a plane crashes, the airlines reprogram their simulators so that pilots can train to avoid a similar problem. We need to be able to do that with market technology.
Second, we need to continue to fine tune exchange controls such as limit up, limit down rules and circuit breakers. The TAC subcommittee work, which I very much appreciate, spoke to some of these types of things.
Third, we need to consider pre-trade prudential firm controls, which the subcommittee also addressed and is on the agenda today.
So, thanks again to the TAC members. I look forward to our discussion.
Last Updated: March 1, 2011