Comment Text:
Hello,
Concering the subject, I have become interested in algorithmic trading of forex to the extent that I have been conducting research into its viablility, as well studying for the Series 3 and 34 licenses. In the process, I have discovered some discrepencies that may bear further attention.
Briefly tangential but related, the regulating authorities prohibit dealing ahead of, or against, the client. However, several account agreements I have encountered have explicit, capitalized, acknowledgement that the holding firm is a counterparty to all transactions, etc.; does this not imply that the firm intends to deal ahead/against the client? Is that a back door to the regulation?
Concerning the subject of disruptive practices and spoofing. There is a popular forex trading platform "metatrader 4" (MT4) by the metaquoutes company, that enables algorithmic trading. The platform is offered by many forex firms. The MT4 terminal and related algorithms are dependent on market data fed to them via the firm and the firm's metaquotes platform. For those that are ECN firms, there are "bridges" (specificalyl Boston Technologies) built to accomodate feed to the MT4 platform. The firms offering the platform disclaim any responsibility for the platform and related algorithmic trading programs, as they are not the firms products. However, my understanding via internet articles, (apologies for not providing the references) is that the platforms and the bridges include controls to manipulate the content and quality of the data feed, as to enable the disruption of algorithmic trading. Hypothetically, from a technology perspective, this can take the form of adding various types of noise, spoofing, or muting of the data, such that the algorithms and models in use are induced to churn and/or trade against their purposes and interests. While this is currently a hypothesis, evidence can be easily created via a relatively simple investigative experiment; Given a single MT4 algorithmic trading program (referred to as an "expert advisor"), and its related parameter set, implement across numerous brokers providing the platform. There are controls that would be required for evidenciary consistency, but most would be superfluous to the result. The naive expectation would be to achieve grossly similar results, favorable or not. However, my relatively narrow experimentation yields widely disparate result, well beyond what would be minor techological or timing differences.
While it is in the firms interest to disclaim liability for technology not their own, having and utilizing such controls to enable spoofing against algorithmic trading would seem to create responsibility for their application, from a regulatory perspective. It would appear to be a deceptive and manipulative practice to offer clients a platform and data, to be regulated against trading ahead/against and against spoofing, but to then exercise controls to spoof the data, and then again disclaim responsibility. It would seem that a regulated firm should be prohibited from such action, or at least we required to disclose that the data is deliberately corrupted.
I am admittedly new to this domain, trying to make a new career, and some sense of it all. It is pure coincidence to view the interpretive order on the CFTC website today, in consideration of the closing period for comments. Please minimaly acknowledge receipt of this correspondence, and any further resources that may be relevant.
Thanks for your time.
Best regards,
Mark Hampton
Hampton Technology Resources Inc.
