Dr. Holly A. Bell on Effects of CFTC Proposal to Regulate High-Speed Trading (with Lofchie Comment)
Mercatus Scholar and Associate Professor of Business and Economics at the University of Alaska Anchorage, Holly Bell, published an article discussing the recent efforts by the CFTC to control automated, high-frequency trading.
According to Professor Bell, there are significant issues with the CFTC's proposed Concept Release on Risk Controls and System Safeguards for Automated Trading Environments. Professor Bell discussed the negative market effects that could result from the CFTC's attempt to impose a one-size-fits-all regulatory structure on high-speed trading technology, which she states may be unnecessary due to existing market safeguards, as well as the self-monitoring and self-regulation that "legitimate" market participants already employ. Among other concerns regarding regulatory intervention, Professor Bell fears that the burden of compliance may drive business offshore and cause traders to abandon U.S. markets for emerging high-frequency and algorithmic trading markets.
Lofchie Comment: This article constitutes a rebuttal to CFTC Commissioner Chiton's assertions that greater regulation of high-frequency traders is required. Fundamental questions remain: (a) what are the problems that we are trying to resolve (if in fact they exist at all); (b) what will be the costs of the regulation in terms of (i) direct costs to market participants and (ii) direct costs to the regulators in administration; and (c) what will be the effect on the markets in terms of liquidity and volatility or in terms of discouraging participation?
Click here to read the full discussion of the CFTC proposal at the Mercatus Center website in Holly A. Bell's comment letter, "CFTC Proposal for High-Speed Trading May Drive Business Offshore." A shorter version of the Professor's commentary first appeared as an article in American Banker.
Related News: "CFTC Publishes Concept Release on Risk Controls and System Safeguards for Automated Trading Environments (Fed. Reg.)" (September 13, 2013); "CFTC Concept Release on Supervision and Regulation of Automated Trading (with Delta Strategy Group Summary and Lofchie Comment)" (September 9, 2013).