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CFTC’s Chilton sets his sights on high-frequency traders

4 min read

Modern Money

CFTC Commissioner Bart Chilton is never shy about offering his insight on financial markets and regulation. The commissioner was very forth-coming with his opinions during this exclusive interview on the sidelines of this week’s 36th Annual International Futures Industry Conference.

What is your reaction to the talk on Capitol Hill surrounding the budget for the CFTC?

I think that those who are trying to reduce funding for the CFTC or not increase it to the levels that the president has proposed are also some of the very same individuals who voted against financial reform when it passed last July. They are using this as a vehicle – and people can decide if it is a legitimate vehicle – to slow down regulatory reform. I think it’s a dangerous approach and as we see commodity prices that are going through the roof, it’s even more dangerous now than it was several months ago when they started talking about short-cutting the budget for regulatory oversight agencies.

With all the focus on the vast number of rules in Dodd-Frank that are making their way through the rule-making and implementation, can you take a step back and tell me if there is anything that Dodd-Frank missed? Any issue that should have been addressed and wasn’t?

Plenty. High-frequency traders. There is no mention in the law about high-frequency trading. Matter of fact, there’s no mention in our rules or regulations anywhere. And they played a significant part in the flash crash. That’s an area where I wish Congress had done better. I’m not sure what they should have done exactly, but it is something that is totally unaddressed and we need to consider it. I also think the time-lines for some things may have been too strict and there should have been a little bit more flexibility. There’s flexibility on the back-end. There’s flexibility on when we require that these be implemented. The only construct is that it can’t happen less than 60 days after we file the rule. There’s no end time. But we are told to implement these rules by certain dates. Most of them are 360 days. For position limits it was 180 days. I think maybe those dates weren’t exactly right, but it’s easy to Monday morning quarterback and look in hindsight. I don’t know that I could have done better if I were there. We’re finding out things that surprise us as we go through this process. perhaps we’ll find out more as we go along.

What is your reaction to calls from Sen. Bill Nelson, D-Fla., for an investigation into speculation in the oil markets?

We certainly appreciate any Member of Congress when they ask and comment on our markets. We do look at the markets everyday, all the time. So we are looking for fraud abuse and manipulation in the oil market all the time. I feel comfortable with the staff’s work in that regard, but am certainly willing to consider anything that Sen. Nelson or anybody else would suggest to us.

As you work through the rule-making process for Dodd-Frank, what kind of input have you received from international interests – either firms or regulators?

A lot of input. Somebody on our staff speaks with folks in the EU probably everyday and with Asia. Yesterday I met with some Latin America folks – regulators. This is a very helpful process. I wasn’t aware for example that they had position limits in Brazil and that they are working well. This sort of shaking it up and talking with our brethren regulators has been very helpful. I think it will mean that we’ll have a more efficient and effective rule-making process and we’ll have rules that aren’t just good for consumers and markets, but good for our economy.