During a hearing Tuesday regarding oversight of the derivatives markets, Sen. Debbie Stabenow, D-Mich., Chairwoman of the U.S. Senate Committee on Agriculture, said the committee must fully consider all impacts of technological changes that have brought about high-frequency and other forms of automated trading in the markets.
The hearing, which featured testimony from several market stakeholders, is part of a larger effort to reauthorize the Commodity Futures Trading Commission. Stabenow said it's critical that the CFTC have the appropriate authority and tools to sufficiently protect the markets as the digital landscape changes.
"These markets have changed dramatically over the years," Chairwoman Stabenow said. "For a 21st Century market, we need a 21st Century regulator. That means the CFTC needs the right authority and the right tools to ensure that markets are working. That means they need enough people, and it means they need up-to-date technology."
High frequency trading, a form of automated trading, can use computer algorithms and advanced technological tools to conduct trades rapidly, in fractions of a second. The technology presents new challenges and questions of how best to regulate the markets to ensure fairness and integrity.
Stabenow said questioning the impact automated training has on futures markets is necessary as part of the larger CFTC reauthorization, because it helps determine what changes might be required for market protection.
Stabenow said several questions should be considered:
• Has automated trading improved price discovery in futures markets?
• Does automated trading make it easier to manage risk for our farmers, ranchers and end users; or does it create risk? and;
• Are the regulators, exchanges, and other market participants sufficiently managing these new challenges?
"As we move forward, we will continue to listen to the concerns of all market participants, including farmers and ranchers; pension funds and mutual funds; and proprietary firms and consumer groups, to best ensure stability in today's futures markets."
Witnesses who testified at the hearing included Mr. Vince McGonagle, Director of the Division of Market Oversight, Commodity Futures Trading Commission, Washington, D.C.; Mr. Terrence Duffy, Executive Chairman and President, CME Group, Chicago, Ill.; and, Dr. Andrei Kirilenko, Professor of the Practice of Finance, MIT Sloan School of Management, Cambridge, Mass.
An archived webcast of the hearing can be viewed on the Committee's website.