Brendan Hoffman/Bloomberg NewsBart Chilton of the Commodity Futures Trading Commission.Bart Chilton, a Democratic member of the Commodity Futures Trading Commission, has plans to tame the cheetahs — cheetah traders on Wall Street, that is.
Mr. Chilton called for new rules on Tuesday to require high-frequency traders, a group he nicknamed “cheetahs” because of their speed and fearless nature, to register with the agency. For now, regulators have little oversight powers over high-frequency traders.
“With registration, my hope is that we begin a process of looking at these market participants in a thoughtful way,” he said in a speech at Golden Networking’s high-frequency trading conference in Chicago on Tuesday.
Mr. Chilton circulated a memo this week to his fellow commissioners, suggesting that the agency enforce new registration rules by next year. His plan also would include accreditation standards, testing and periodic supervision of the traders, who use powerful computers to spot investment opportunities that come and go in a matter of milliseconds.
Regulators worry that these rapid fire trades can rattle markets.
On May 6, 2010, the Dow Jones industrial average dropped roughly 900 points in 20 minutes before climbing back later that day to erase most of the earlier losses. The commodities agency and the Securities and Exchange Commission investigated the curious drop, ultimately concluding that high-frequency firms did not incite the so-called flash crash, although some did accelerate the free-fall.
Mr. Chilton acknowledged that the S.E.C. had put in place circuit breakers that would halt the trading in certain securities that experience rapid price changes. But he questioned the toughness of such safeguards, noting that most circuit breakers shut down in the last 35 minutes of trading.
“The bad news is that with trading at such warp speeds, we still can’t rule out another major flash crash,” he said.
Mr. Chilton likened high-frequency trading to the new hit movie “Moneyball,” starring Brad Pitt, which chronicles a baseball general manager’s use of computer models to scout players.
“That’s the kind of money ball we’re playing today in financial markets,” he said.
Now, he is calling for regulators to keep a closer watch on the speed trading.
“Some, like me, are seeking to better understand the cheetahs and look to what should reasonably be done to protect market participants, markets in general, and most importantly, consumers,” Mr. Chilton said.