The Futures Industry Association Principal Traders Group issued the following response to an article in today's Wall Street Journal alleging that high-frequency traders are taking advantage of a "loophole" in the CME Group's market data systems.
“We were surprised and disappointed at the misleading article published today by the Wall Street Journal. The article has taken an inherent feature of all markets out of context, grossly distorted its significance, and created a false impression that the CME’s markets are fundamentally unfair. In our view, exchanges should be commended for reducing the latency and variability in their trading systems, which leads to better market quality and lower trading costs.
For years, exchanges have invested heavily to compress the amount of time it takes to match incoming trades and transmit trade details to their customers and the public. The CME specifically has succeeded in dramatically slashing this amount of time, vastly improving the quality of its markets for investors and hedgers.
“Yet the Wall Street Journal’s article ignores this progress and instead focuses on a slight gap in time between when a trader receives confirmation of his own trade and when the rest of the market sees that a trade has taken place. The article claims that this is a “hidden” “loophole” that some trading firms are unfairly exploiting. The reality is that there is nothing hidden about these timing differences; they are easily measured by any trader with a computer. Every market has timing nuances and these have been whittled down to almost nothing at the CME. Importantly, all market participants are free to use information from their own trade confirmations if they wish.
“Furthermore, the article ignores much longer reporting delays that are extremely common in other markets, and indeed, are expressly sanctioned by government regulators and welcomed by investors. Take for example the concept of block trades, where a large trade is negotiated away from a central market and then reported to the wider market after a specified delay. How much delay? The CFTC, after considerable public discussion, determined that up to 15 minutes is appropriate. That is 900,000 milliseconds! Yet the Wall Street Journal’s alleged “loophole” concerns one to ten milliseconds.
“In comparison to the time of manual trading, markets have never been more open and transparent than they are now. Gone are the days when a retail investor received 15 minute delayed stock quotes while specialists were privy to