Comment Text:
3/16/2016
Mr. Christopher Kirkpatrick
Commodity Futures Trading Commission
Three Lafayette Center
1155 21st Street, NW
Washington DC, 20581
RE: Regulated Automated Trading
Dear Mr. Kirkpatrick,
I appreciate this opportunity to comment on the proposed Regulation Automated Trading ("Proposal"), issued by the Commodity Futures Trading Commission.
In my seventeen years of trading exchanged based derivative products, the industry has changed by leaps and bounds. Having great experience in both floor based and electronic markets, there are clear advantages to both types. As in society, technology has unleashed great advances in speed and productivity. On the flip side, technology has also diminished the "social contract" in society (fake twitter users/anonymous commenting on web articles/etc). Anonymity has hurt the intrinsic value of exchanges where these derivatives are traded.
Take for instance a typical day at the CME:
1.2 billion quotes produce roughly 11 million contracts traded over 4 million total trades.
1.2billion quotes/4 million trades = 303 quotes/trade
That is 303 quotes per trade on the largest derivatives exchange in the world.
Why the CME does not charge a $.01 fee per quote is beyond me. That would be approximately $12 million a day, $2.7 billion a year.....but I digress.
These 303 quotes per 1 trade are spurred by machines which have been programmed to take advantage of some market opportunity or technological advantage perceived by the programmer. A programmer no one knows. We know when an algo goes rogue, great damage is done to market participants, the exchange itself as well as the financial system as a whole. There must be accountability in the game of trading. Rule 80 FR 78824 would add considerable intrinsic value back into the electronic exchange model. I understand it is with great pride these programmers write code performing their ideas. I wholeheartedly believe that this source code is the rightful property of the programmer or company he/she is employed by. The difference is when an algorithm is introduced to the market and either malfunctions or is weaponized. A weaponized algo would purposefully obfuscate and or disrupt trading in a manner that violates the Commodity Exchange Act or Rule 575. It seems many people and or firms against proposed rule 80 FR 78824 like to say the CFTC would be able to see their "secret sauce". They often use the analogy that no one should know the formula to Coca Cola. I agree with this on it's face. It does not take into account if Coca Cola were weaponized or produced wrongly, killing many American citizens. Surely the FDA would have the power to seize Coca Cola product, halt the selling of Coca Cola and perform the needed tests to see what agent is doing the damage. In trading terms, if the algorithm has caused damage to the market place and or has violated rules, the regulator not only should have the right to inspect that source code but it has the DUTY to inspect the source code for the health of market participants, the viability of the exchange and our total economic system.
Thank you.
Sincerely,
Neil C. Summers
