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CFTC’s Chilton talks increased regulation for high-frequency trading

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Modern Money

CFTC Commissioner Bart Chilton

Commissioner Bart Chilton is never shy when asked how he thinks the Commodity Futures Trading Commission can improve its regulation of commodity markets, and this week at the 37th International Futures Industry Conference was no exception. Chilton joined a panel discussion, “The Evolution of Commodity Markets,” and offered the following thoughts.

The most significant change to affect markets in recent years

“There is a clear winner in my book. … Changes in technology have transformed not just our markets, but the global financial markets.”

The reason he continues to shine a spotlight on high-frequency trading

“I’ve just tried to say there are things we should watch for. We shouldn’t blindly accept all technology as good without at least questioning it. That’s naive at best, and for a regulator I think its dangerous. Even though [HFT] is creating lots of volume for the exchanges, even though this is creating liquidity — for like half a second — it doesn’t mean we should assume they are all OK.”

What increased regulation of HFT might look like

“It used to be on [CME Group] that the third-largest trader by volume was an HFT in Prague. Great for them, but it’s not like the guys in Prague are going to give us their books and records. At least registration is a first step. And then doing what most reputable cheetah traders already do, and that’s at least doing pretesting of these things and having a kill switch. Most of them do, but not all of them, and it seems like it would be a simple requirement.”