Today, the FIA Principal Traders Group submitted a letter to the Commodity Futures Trading Commission in response to a request for comment on a proposed seven-part definition of high-frequency trading that was issued by CFTC Commissioner Scott O’Malia on Nov. 14.
In the letter, the FIA PTG agreed that the CFTC needs to understand the characteristics and behaviors of various types of market participants, but warned that the proposed definition would be too arbitrary to be useful. The FIA PTG suggested that the CFTC instead should create a new classification called “direct ATS participant”. This classification would apply to any firms or traders that use an automated trading system that is connected directly to an exchange. The advantage of this approach, the FIA PTG said, is that it would leverage data that are already collected by the major U.S. exchanges. For example, CME’s Globex electronic trading system requires each order to indicate whether it originated from an ATS.
The FIA PTG also noted that risk controls should apply to orders submitted by all market participants, rather than a narrow subset that meets a definition of HFT, and encouraged Commissioner O’Malia to form a working group to further consider what types of risk controls should be applied to automated trading systems.