September 9, 2013
While I concur in the concept release, am most appreciative of the staff work, and am largely pleased at the result, this has taken far too long to come to fruition.
In general, those involved in financial markets seem to have blindly accepted that technology is almost always a good thing. Yet we continue to see major technology problems, like NASDAQ shutting down twice in as many weeks. Last year it was NYSE. In the futures world, we see technology glitches that simply should not occur. I acknowledge that, with the staggering volume of trading, some might simply be astounded that—in the main—it works so well. But it doesn't work well enough if we continue to see aberrations—particularly if they are market missteps that could have been avoided. That's to say nothing of the high frequency cheetah traders who have, some I am convinced intentionally, contorted markets in a manipulative fashion. In addition, there are a shocking number of transactions that appear to be wash trades—that also has the possibility of impairing the fair and effective functioning of financial markets.
I'm pleased we are moving this concept release forward, but given this environment it has taken way too long. If we continue at this pace, Rip Van Winkle could keep up with any possible action we might take. We need to understand that some of these issues are urgent and need action now. They can't wait another year or more.
At the same time, there is one thing that can be done now. In fact, I suggested this policy shift be included in the concept release, but since it is a larger issue than just a technology-related matter, it was decided to omit it. That's fine, because my suggestion is really an action for the Congress.
As long as we have a puny penalty regime at the CFTC, we are going to see traders risk getting caught because the potential profits are so great. We can only impose a civil monetary penalty (CMP) of $140,000 per violation. That's the law. Furthermore, the case history suggests that a "violation" may be only once per day. In these millisecond markets where we have seen a million change hands in a minute, $140k is a joke—and it's not very funny.
This Agency is hampered by staffing needs due to a lack of funding. We have hundreds of cases being investigated right now. The least Congress can do, so that we can try and keep up—and if need be, cage the cheetahs and others who violate the Commodity Exchange Act—is to increase the CMPs. Specifically, I've suggested increasing the maximum penalty levels to $1 million per violation for individuals and $10 million for firms. That would be a deterrent. That would stop some of the cheetahs and others out there who are tempted to use powerful technologies in unlawful ways.
I look forward to receiving comments, and hope that we let no moss grow on this matter.
Last Updated: September 9, 2013