Party On!! Maybe Not: Bart Chilton Discusses HFT

Speaking like only he knows how, CFTC Commissioner Bart Chilton delivered the keynote address at the High Frequency Trading Leaders Forum in Chicago earlier today. Chilton began by referencing to “Wayne’s World” and took the conversation from there to Dodd Frank, and eventually his view on HFT reform. (read the whole speech) Throughout the speech he peppered some Wayne’s World lines, such as “As Wayne says to Alice Cooper at one point, “We’re not mental or anything, so don’t be afraid.” (author’s note: I am a little nostalgic as I was at the concert in San Diego where they filmed the live Aerosmith footage for the second movie)

https://www.youtube.com/watch?v=o5FT3IGXtAk

He finally got to his point when Chilton stated

There is a time in the movie—in Wayne’s World—where Wayne unexpectedly leaves Garth to fend for himself in front of the live television camera. Garth doesn’t know what to make of the situation and he is sort of frozen. His head starts buzzing and I think smoke comes out of his ears. He simply can't get a grip on the reality of the circumstances in which he finds himself. His brain is short-circuiting. Deciphering Chaos Well, there's a reason I bring that up. Many people today can't comprehend—like Garth—what is going on in electronic super-fast trading—cheetah trading. They may think it seems like chaos. In fact, deciphering the market chaos is exactly what the cheetahs and their programs try to do.

Chilton has long coined High Frequency Traders cheetahs, and used today’s occasion to offer his thoughts on the industry. Basically, Chilton believes that HFT does add efficiency and Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term (albeit in a fleeting “cheetah” way) to the markets. Also, he added the fact is that technology has advanced to allow traders to do what they do, so we can’t just ban the innovation. However, due to the technical glitches which have increased more often, some sort of balance needs t be made. In this regard, Chilton created a “To Do List” for what he believed would help create a balanced, safer marketplace.

On the list:

1. Registration: Will help the CFTC and SEC follow the Cheetah’s books
2. Testing: All programs need to be tested
3. Kill Switches: Self understood
4. Wash Blocker Technology: Risk controls to prevent wash trades (US regulators have gotten big on this recently)
5. Compliance Reports: To increase accountability in case of glitches or fraud
6. Penalties: Steep penalties to firms and individuals that had program glitches that affected the public

Missing from the plan is what frequency characterizes a trader as a cheetah. Also, the increased rules would presumably require more hands on deck to supervise the cheetahs, but there was no mention of how these extra expenses will paid for.

Overall, Commissioner Chilton is trying to convey the message that he isn’t against HFT, and seemingly has no problem with traders exploiting opportunities to make money. However, he wants to raise the responsibility and safeguard factor which he believes will lead to safer markets for all participants.

For traders, the big worry is that HFT Regulation Regulation Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Read this Term will lead to laws that slow down trading or tack on extra trading fees for quick trades. As such, by mentioning neither of those ideas, Chilton’s plan, if enacted, would lead to a huge sigh of relief from the HFT community.