CFTC Investigates The "Secret" HFT-Exchange Incentive Programs
You are missing trading opportunities:
- Free trading apps
- Over 8,000 signals for copying
- Economic news for exploring financial markets
Registration
Log in
You agree to website policy and terms of use
If you do not have an account, please register
It would appear that yesterday's announcement by NY AG Schneiderman (who appeared to find Virtu's practically flawless trading record too much to bear) has prompted further investigations into HFT shenanigans by regulators. As WSJ reports, regulators are taking aim at the relationship between high-frequency trading firms and major exchanges, examining whether the preferential treatment market operators offer the firms puts other investors at a disadvantage. The CFTC probe is focused on complicated, often opaque incentive programs that give high-volume trading firms financial benefits such as discounts on fees the exchanges charge to execute trades.
Regulators are taking aim at the relationship between high-frequency trading firms and major exchanges, examining whether the preferential treatment market operators offer the firms puts other investors at a disadvantage.
The Commodity Futures Trading Commission is investigating deals between large high-speed firms and the two futures-exchange operators, CME Group Inc. CME -0.87% and IntercontinentalExchange Group Inc., ICE -1.05% according to people familiar with the matter.
The probe is focused on complicated, often opaque incentive programs that give high-volume trading firms financial benefits such as discounts on fees the exchanges charge to execute trades, the people said.
Separately, Securities and Exchange Commission enforcement officials are investigating whether stock exchanges provide advantages to certain clients, including high-frequency traders, by designing software programs that can give preferential treatment to their orders, and whether such details have been fully disclosed, people familiar with that inquiry said.
The probes come amid heightened concerns among institutional investors, lawmakers and regulators that superfast traders have access to advantages on stock and futures exchanges not typically available to regular investors.
Regulators are concerned that less-savvy or less-influential investors aren't aware of the benefits and advantages that exchanges are providing to certain clients, making it difficult for them to compete fairly, according to people familiar with the investigations.
High-speed firms use sophisticated computer systems to move rapidly in and out of markets in fractions of seconds.
So far, market watchdogs have done little to curb such trading, which has boomed and now makes up about half of all stock-market volume. Computerized trading has come under scrutiny in recent years and has been tied to market mishaps such as the May 6, 2010, "flash crash," when stocks nose-dived and then recovered in a matter of minutes.
The CFTC probe is looking at whether the exchanges created discount programs that benefited financially important customers in ways that disadvantaged other customers, people familiar with the probe said. The CFTC has asked for communications between the futures exchanges and certain customers, as well as trading firms' internal documents on pricing discounts and related transactions, according to the people.
Spokeswomen for CME and IntercontinentalExchange, or ICE, declined to comment. ICE last year purchased NYSE Euronext, making it one of the world's largest operators of exchanges, including the New York Stock Exchange and Liffe, a London futures exchange.
The CFTC probe is focusing on contracts tied to high-volume commodities such as crude oil, among other trading, and whether exchanges are pressuring some clients to trade such contracts exclusively on their venue, according to the people familiar with the probe. It also is targeting deals struck privately between exchanges and trading firms that aren't disclosed to other trading outfits.
tread more