The Commodity Futures Trading Commission (CFTC) will take a broad approach to defining high-frequency trading, according to a “working definition” released by a CFTC subcommittee on Wednesday.
High-frequency trading currently makes up roughly half of US equity volume and futures markets. Proponents argue that it adds critical liquidity to these markets, but the dangers of this practice are becoming increasingly clear, particularly after the May 2010 “flash crash” temporarily wiped-out $1 trillion in paper value in the stock market in just a few minutes.
A definition from the CFTC will be a small step forward towards acutally cracking down on this contentious trading practice. Proponents of a broad definition say it’s necessary to cast a wide net to make it hard to game. Some within the CFTC, however, believe such a broad definition could make it hard to enforce and leave it open to challenge in court.
Gensler said the CFTC is aiming to release later this summer a “draft concept release” on potential risk controls and system safeguards for high-frequency trading to help ensure the safety and soundness of the markets.