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CFTC Official Questions Legality of HFT Practices

An official at the Commodity Futures Trading Commission (CFTC) has written a paper questioning the legality of certain high-frequency trading (HFT) tactics.

Greg Scopino, who works in the Division of Swap Dealer and Intermediary Oversight at the CFTC, published a paper in the Connecticut Law Review arguing that, “Despite the common perception that high-speed pinging and related tactics are legal, four CEA provisions and one CFTC regulation arguably prohibit at least some of those kinds of trading practices.”

Scopino claims that high-speed pinging is potentially analogous to wash trading and banging the close, both of which are deemed to be illegally manipulative and deceptive devices.

“Even more, high-speed pinging inevitably involves submitting, and then almost immediately cancelling, orders for trades, a fact that makes the practice likely a violation of the CEA’s new anti-spoofing provision, if not other provisions banning false reports and the reporting of non-bona fide prices,” he says.

He concludes: “HFT firms might arguably be the fastest sharks swimming in the oceans of financial data, but the CFTC and private plaintiffs might have nets – in the form of relevant statutory and regulatory provisions – capable of catching them.”

A spokesperson for the CFTC could not be reached for comment.

galen@profit-loss.com Twitter: @Galen_Stops

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