“Risky Business”

Statement of Commissioner Chilton

February 24, 2011

I support the proposed interpretive order regarding disruptive trading practices that we are considering today. At the same time, I want to be clear that we need to do more than merely this order. We need explicit rules to address trading using advanced analytics. Cheetah traders (High Frequency Traders or HFTs) and algorithmic traders are relatively new to markets and deserve special consideration and action to ensure that they do not disrupt the fundamental purposes of futures markets.

Cheetah and algo traders are an important component of markets; they provide liquidity, super-fast access, and an audit trail—something our enforcement folks really appreciate. At the same time, there are concerns about this type of trading and they merit special attention.

Specifically, I think we need some sort of basic cheetah and algo program testing to determine who can be operating these advanced analytics to ensure that they work properly. Second, we need some sort of market parameters (like limit up and limit down rules). Third, we need in-house supervisory pre-trade prudential parameters to ensure that cheetahs and algos play by the rules.

At the same time, I want to once again make a point that none of these rules and regulations will make much of a difference if the agency does not have the resources to oversee and enforce them. Yesterday, I sent a letter to Members of the U.S. House and Senate regarding the need for adequate resources to implement our many new rules. Disruptive trading practices are a good example. We will not be able to stop the very practices we are charged with prosecuting without adequate resources. 

In the letter, I said without adequate funding, it would be an impossibility to oversee and enforce these reforms, given the sweeping nature of the new law and the mammoth size of over-the-counter and existing markets. To not fund this agency would result in risky business for consumers, market participants, and ultimately our national economy. Without the funding, we could once again risk another calamitous disintegration.

Last Updated: February 24, 2011