The FIA convention is taking place in Florida and sometimes big news is released there. Yesterday, the CFTC said it was going to monitor high frequency traders (HFT) a lot more closely.
Regulators are ramping up oversight of high-frequency trading, which some fear could disrupt or distort financial markets with aggressive, rapid-fire trading strategies. Some more traditional institutional trading firms worry that uncompleted orders are sometimes used to manipulate markets by making it appear there is more interest in buying or selling a contract than there is in reality.
Better late than never. They have been so pre-occupied with sinking their fangs into the spoils left to them by Dodd-Frank that they forgot they needed to regulate a marketplace. Hey, CFTC, last October there was this bankruptcy that rocked the futures world. Had something to do with MF Global. Maybe it’s time you get cracking on that. Customers were defrauded and executives still roam the streets freely. Gary Gensler has been one of the worst chairs the futures world has seen.
The market place has definitely changed since the advent of computerized algorithms began trading. Long term traders anecdotally say the volatility has changed. Moment to moment or, “marginal volatility” is a lot different. In statistics, you might say the bell curve around any particular mean price has greater variance. They also say that the bid/ask spread is a lot thinner than it used to be. It used to be that if you got nailed with a bad trade, you could get out or could count on a place to spread the trade off. No more.
One long time futures trader remarked to me once, “When we didn’t have computerized trading I was right 70% of the time, and wrong 30%. I always bought the high and sold the low of the day. But it was never fatal. Now, no matter what trading strategy I employ, no matter how I time my entry, I am always 100% wrong.” He is not alone in his sentiment and I think the CFTC ought to listen to the long time traders, and not exchanges or brokerage house executives.