Chicago Federal Reserve Bank Senior Policy Advisor, John W. McPartland, authored a paper in which he discussed altering the financial markets in order to slow trading and allow market participants more chances to compete with some High-Frequency Trading (“HFT”) strategies. According to the paper, although HFT may in general be a good thing, HFT strategies run counter to good public policy and inflate transaction costs with limited benefits for liquidity and pricing. McPartland argues that his proposals would help make security and derivatives markets fairer to mutual funds and individual investors while not restricting high-speed firms’ ability to rapidly quote prices. The proposal would also scale back pricing information which his research indicated adds millions of dollars per year in data management costs, according to his research. He further makes six recommendations in the paper that, if implemented, would alter competitive advantage in the market.
Lofchie Comment: Among other things, the article provides very clear definitions of layering, spoofing and quote stuffing. It is somewhat ironic that the CFTC’s definitions (in its final guidance, published yesterday) were ambiguous. They would have benefited from considering and possibly incorporating Mr. McPartland’s definitions.
As to the substance of Mr. McPartland’s comments, if they in fact ring true to business people, I wonder if some exchange somewhere in the world would not be willing try out his proposal without government mandate.