On Wednesday, March 27, 2019, the CFTC’s Market Intelligence Branch of the Division of Market Oversight issued a report on the impact of automated orders in futures markets to determine how technological change affects futures trading. Automated trading refers to orders that are generated or routed without human intervention. The CFTC presented the report before the Technology Advisory Committee, also on Wednesday.
In preparing the report, the Division of Market Oversight examined billions of data points from the CFTC’s own, internal transaction data for thirty futures contracts during the period from January 2013 through December 2018. The market data reviewed covered eight commodity groups including: Currencies, Equities, Financials, Energies, Metals, Grain, Oilseeds, and Live Stock. The report concludes as follows:
- The percentage of automatically placed orders has increased for all commodity futures markets;
- Automated orders are smaller in size than manual orders and their resting times are shorter than those of orders placed manually;
- Automated orders are almost always limit orders; and
- While automation has increased steadily each year, historical volatility of end-of-day prices has not exhibited a similar increase.
Commissioner Quintenz highlighted the report in his opening remarks before the Technology Advisory Committee, noting that the report would “become a substantial anchor and reference point in the journey to achieve an objective, data-driven understanding of the impact that automated and algorithmic trading have on our markets.”
Importantly, the report discussed automated trading generally and did not focus on high frequency trading. High frequency trading is a type of automated trading performed over extremely short timeframes.
The CFTC has previously examined how to regulate automated trading through the Technology Advisory Committee and a rule proposal, Regulation AT, proposed several years ago. While the current Chairman has stated that he will not pursue Regulation AT in its proposed form, the new nominee to serve as Chairman and Commissioner of the CFTC, Heath Tarbert, indicated during his nomination hearing before the Senate that he would like to see Regulation AT reconsidered. In any event, the use of technology in trading remains a focal point of the Commission and Staff.