Michael Lewis’ book “Flash Boys” stirred up debate about high frequency trading like no other. Regulators, such as the Commodity Futures Trading Commission (CFTC) are taking a more in-depth look at the trading method to determine if there might be problems with HFT in the futures space as well.
CFTC Commissioner Scott O’Malia, speaking to John Lothian News for its market structure series, said that HFT has been on the agency’s radar screen for some time, and has created a sub-committee to bring experts on both sides of the debate.
Lewis’ book has raised intense debate in the equities space as well as within the derivatives arena. More individuals are now talking about the structure and rules of the market, and whether they allow for a level playing field. In recent years, algo trading has exploded in financial markets, as exchanges have offered to house computer servers in close proximity to the exchanges, while some clearing firms have granted trading firms direct market access to those exchanges, all the in the name of speed.
“We’re going to stay on it,” O’Malia said. “We’re going to take the issues raised in Michael Lewis’ book Flash Boys, and we’re going to take them head on. We’re going to understand if those same issues that apply to the securities market also apply to the derivatives markets.”
O’Malia said that things such as “data asymmetry and trading ahead of orders, which is illegal today,” are on the list the commission is examining.
“We want to make sure the people entering the market test their algorithms,” he said. “We want to make sure they have good safety checks at the trader level, at the intermediary and obviously at the exchange level to make sure we have all the bases covered.”