“Welcome to the Machine”

Statement of CFTC Commissioner Bart Chilton

October 19, 2012

Today is the last day of open outcry trading in the Intercontinental Exchange’s cotton, coffee, sugar, and orange juice options pits. It’s an example of how markets are constantly evolving.

Computerized trading came on strong more than a decade ago. And, it’s certainly not all bad. The machines provide access—you don’t even need to be physically close to an exchange to trade. They provide a data record far superior to the little slips of paper that collect on trading room floors. And, they provide speed.

But, on that last point—speed—we need to keep our eyes open. There have been dozens of mini-flash crashes since the big one in 2010, almost always because a machine or an algorithm ran wild. Isolated instances of run-away machines may be inevitable. But, we can do much to protect markets. High-frequency “cheetah” traders should be registered with regulators. The programs need to be tested before they go live and they need kill switches to stop them if they go feral. And, if somebody causes a market anomaly with a runaway cheetah, they need to be held accountable. In this new algorithmic-driven trading world, we need to re-think how we assess penalties:  fines for bad conduct in millisecond trading should be assessed on a “per second” basis.

So, yes, markets continue to evolve. Their oversight needs to also.

Last Updated: October 19, 2012