CFTC’s Chilton Calls For Derivatives ‘Bill Of Rights’, Including HFT Registration And Conduct RulesApril 3, 2013
Washington DC – Commissioner Bart Chilton of the Commodity Futures Trading Commission (CFTC) has suggested a “bill of rights” for end users in the derivatives markets, including a call for high frequency trading firm registration and conduct rules.
Below are the “rights” Chilton set out:
1. Right to reasonable Dodd-Frank implementation. “Dodd-Frank needs to be implemented and needs to be implemented quickly, but that does not mean it should be done so harshly,” he said,
2. Right to legal certainty. “End-users and other market participants should have little doubt as to the status of their activities and the Commission and staff should respond thoughtfully and diligently to requests for legal certainty.” He said he would not support an action against an end-user, exchange, or anyone else on an issue deserving clarity that is the subject of an outstanding request for interpretive guidance.
3. Right to compete in the markets. “To protect end-users’ right to compete in the markets, the Commission should start with two common sense rulemakings: First, we need high-frequency trader registration and conduct rules to prevent cheetahs from going feral. We should also provide the public market quality metrics designed to help end-users and other non-cheetahs from distinguishing between false cheetah liquidity and true liquidity.” (Chilton often refers to high frequency traders as “cheetahs” due to their speed.) “Second, we need caps on speculation so that the commodity markets return to their principal role as risk management markets for end-users. The commodity markets worked best when end-users were the predominant players. The Commission should move quickly on a new proposal on speculation limits by May 1.”
4. Right to safe accounts. “We need strong rules and rigourous auditing to ensure that futures commission merchants (FCMs) don’t abuse their role as intermediaries while not imposing undue burdens on FCMs that provide end-users access to critical risk management markets (including a sensible compromise on residual interest).”
5. Right to have confidence in the commodity markets. End-users should be confident that their intermediaries, FCMs and SDs in particular, are appropriately regulated and supervised, Chilton said, noting that he has called for raising civil monetary penalty maximums to $10 million for entities and $1 million for individuals. “The current $140,000 maximum civil monetary penalty is simply an inadequate deterrence for an agency tasked with, among other things, deterring manipulation and preventing systemic risk.”