Former Regulator Urges CFTC to Track All Automated Trading Systems

Fri Dec 23 17:39:00 EST 2011
A Q&A with NERA Industry Affiliate and former SEC and CFTC Chief Economist Dr. James Overdahl

In this Financial Regulation Bloomberg Brief, NERA Industry Affiliate Dr. James Overdahl participates in a Q&A on the US Commodity Futures Trading Commission's (CFTC) attempt to define high-frequency trading (HFT). Dr. Overdahl, a former Chief Economist at both the CFTC and the US Securities and Exchange Commission, describes the background on the controversy surrounding HFT and discusses the proposed regulatory definition of HFT offered by a CFTC commissioner. Dr. Overdahl discusses an alternative definition suggested by the Futures Industry Association's Principal Traders Group, which Dr. Overdahl advises. Dr. Overdahl argues that the CFTC's regulatory concerns would be best served by adopting a new term of "direct automated trading system (ATS) participant." The term captures any futures market participant who is directly connected to an exchange using an automated trading system. Dr. Overdahl notes that this approach would avoid having to make arbitrary distinctions on how many trades meet the definition of "high frequency." The immediate benefit to the CFTC is that, by defining market participants in this manner, the CFTC can readily use data that are already collected by the exchanges.