Comment Text:
Mini-proposal to create automated high frequency trading abuse detection system and risk management dashboard
The secret behind HFT abuses is they are not clear
On November 2, 2010, nearly one year before the MF Global collapse would scare the non-bank listed derivatives industry forever, CFTC Chair Gary Gensler was meeting in Chicago with a representative from the European Commission and derivatives exchange leaders to discuss transparency in market regulation.
It was nearly 6 months after the May 6, 2010 flash crash, in incident initially blamed on several issues, including a “fat finger” mistake by humans. At the center of the algorithmic crash, however, was a little-known aspect of the market making software colloquially known as an electronic eye that pulled bids and offers from the market. It was in this aftermath market practitioners were hoping for clear regulations that were understood by all market participants equally.
What they got was something very different.
Today high frequency trading (HFT) abuses are unclear to many market participants because the regulations are unnecessarily complex. This makes following the regulations as difficult to stay on the right side of the law as it does for prosecutors enforcing the issue.
This brief mini-proposal seeks to offer suggestions to implement clearly understood market regulations and at the same time provide an algorithmic method and software system to police for market abuses and provide regulators a solid and consistent framework for reviewing potential cases.
