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Chilton urges greater scrutiny of HFTs

Thursday 9 December 2010 - by Andrew Hickley

Commissioner Bart Chilton

The US Commodity Futures Trading Commission has warned that regulators should go "where no man has gone before" in holding high frequency traders to account for their breakneck trades.

In a speech dotted with references to Hollywood cinema, including Denzel Washington's movie 'Unstoppable', Commissioner Bart Chilton suggested that "gee whiz" traders should face sanctions where their actions injure consumers or other firms.

"For regulators to keep up, we have to somewhat get in the mind of the mainframe. We have to be nimble and quick because even if we get a better handle on how to regulate this breakneck speed trading, the methods, the machines and the markets will continue to change."

The remarks, made in a speech at the High Frequency Trading World USA 2010 conference on Wednesday, follow the May 6 'Flash Crash', where a large algorithmic trade order caused havoc on automated systems. The chaos resulted in a 1000 point drop on the Dow Jones before an equally sharp recovery.

Apparently inspired by Washington's movie, Chilton recalled that the film's fictional train company has to assess whether derailing an out of control train would provoke legal liabilities. Chilton remarked that similar accountability should be displayed in the high-speed trading world.


"It struck me that the reason the company thought about those things was that there are laws that will hold them accountable. Shouldn't we do the same for algo[rithmic] robots and high frequency traders?"

Chilton said that increasing accountability "certainly seems like a reasonable proposition" when taking into account the effect of the May 6 crash.

He added: "Does anyone remember the movie Speed? It is about 15 years old but still popular after all that time.

"Sandra Bullock plays a passenger on a bus wired with a bomb. She is told the bomb will trigger if the bus slows down to 50 miles-per-hour. She winds up having to drive the bus and negotiate curves, off-ramps and traffic, all at a speed over 50 miles-per-hour.

"Well, as I said, HFT is taking place at warp speed. It is not ever going to slow down to 50 miles-per-hour. Is warp speed okay? Are there any negatives? Does that speed help markets?

"At the very least, as regulators, we need to keep up with what is going on."


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