CME Group Executive Chairman and President Terry Duffy will appear before the U.S. Senate Committee on Agriculture, Nutrition & Forestry, Tuesday, May 13, to discuss high-frequency trading (HFT) in the futures markets.
“Electronic trading has opened the markets in a fundamental way by increasing liquidity and tightening bid/ask spreads to the benefit of every global market participant,” stated Mr. Duffy today in a corporate statement prior to his forthcoming appearance before the committee. “The market structure and multi-leveled protections in the futures markets strikes the right balance of regulating the market without inhibiting true price discovery. This balance of regulation and surveillance, liquidity and access, gives farmers and businesses, and money managers and traders, the confidence to rely on our markets to effectively manage risk.
“At CME Group we are always looking at ways to enhance and improve our markets. We support a continued dialogue about how the industry and regulators can enhance and improve the global derivative marketplace, including consideration of issues related to high frequency trading.”
The hearing is scheduled for 10 a.m. Eastern time in the Russell Senate Office Building. Duffy’s written testimony will be available on www.cmegroup.com at that time.
CME Group is a derivatives marketplace which not only has a significant vested interest in the direction which HFT and algorithmic trading takes with regard to regulatory rulings, but is also a conglomerate which is well-versed in the management of risk. All major asset classes are covered, including futures and options based on interest rates, equity indexes, foreign exchange, energy, agricultural commodities, metals, weather and real estate and more recently across the pond in Europe the group has concentrated on an exchange-based derivatives marketplace.
The tightening of spreads has been a major concern for FX companies worldwide, as margins have tightened and end users increasingly demand raw spread. Opinions vary on how this can be managed, and whether B-booking trades at times of market volatility in order to appease clients and ensure that their automatic algorithms are able to continue to execute trades within the parameters that they were designed to operate, or whether running a pure A-book model and exposing clients to widening spreads in times of news broadcasts and volatility is a much debated subject.
Operating trades via an exchange removes any element of trade warehousing, and many institutional trading desks execute trades via algorithmic methodology on venues across the world, with a high concentration in Chicago, the city which also hosts CME Group’s worldwide headquarters.
Whilst European regulatory authorities continue to bear down on the use of algorithms and attempt to curb HFT, North American governmental agencies are taking the pragmatic approach by involving some of the most experienced industry participants in the procedure of assessing how to oversee it comprehensively yet effectively.