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UPDATE 1-ICE says policy has cut risky high-frequency trades
2012年2月29日 / 晚上10点09分 / 6 年前

UPDATE 1-ICE says policy has cut risky high-frequency trades

* High threshold violations dropped 93 pct-ICE

* HFT policy not seen eliminating flash crashes-analysts

By Marcy Nicholson

NEW YORK, Feb 29 (Reuters) - IntercontinentalExchange said on Wednesday its efforts to curb erratic high frequency trades (HFT) that cause massive volatility in commodity markets have cut excessive out-of-market orders in the first full year since implementing a new policy.

The ratio of orders that were far from market value has fallen by 63 percent in the U.S. futures market and 19 percent in Europe, the Atlanta-based exchange said on Wednesday.

It said the number of violations of the highest thresholds of this new policy, which charged traders a higher fee for trades further away from the current market value, dropped by 93 percent.

In addition, high frequency traders have made improvements to their algorithms and the quality of streamed orders in response to implementation of the policy, it said.

But Spencer Patton, founder and chief investment officer of Steel Vine Investment in Chicago, said high-frequency trading remained risky.

“I don’t think this has eliminated the flash crash type of event. That is here to stay as long as we have high frequency trading,” Patton said.

Last March, after this policy was in place, the small ICE cocoa futures market sank $450 in 60 seconds before rebounding a whopping $349 a minute later, with many suspecting computer-generated dealings. The exchange canceled some trades as traditional players complained of market distortion.

ICE’s high frequency trader messaging policy, aimed at discouraging inefficient and excessive messaging without compromising market liquidity, targeted its most heavily traded futures and over-the-counter (OTC) contracts.

High-frequency traders are sometimes blamed for causing extreme and fast market moves without fundamental reasons, particularly in small agricultural futures markets. Still, the exchange has consistently said high-frequency trades provide essential market liquidity.

Many dealers, however, said that although high frequency traders have been blamed for distorting the smaller agricultural markets on ICE, they don’t believe there is a lot of high frequency trading in those markets due to the small open interest and daily volume.

The policy, implemented in January 2011, applies to ICE’s cocoa, arabica coffee, cotton No. 2, sugar No. 11, U.S. dollar and Russell Index futures contracts; to firms that have direct access to the electronic platform; and who enter more than 100,000 messages in any of these in a particular day, ICE said last year.

“Before 2011, ICE’s messaging policy, like many other exchanges, was a simple order-to-trade ratio with published benchmarks above which high frequency traders were assessed a fee,” said Mark Wassersug, vice-president of operations, in an exchange notice.

“However, this simplistic approach didn’t differentiate between orders that ‘added to liquidity’ and those that were far out of the market.”

The policy overweights orders far away from the market relative to those orders that are near the best bid or offer when it is entered.

This ratio of orders using the weighting scale to lots traded is called the weighted volume ratio (WVR). Market participants who exceed this WVR benchmark are charged a fee, and the fees increase as higher WVR thresholds are exceeded.

“While this may work to contain flash crashes and wild swings it cannot eliminate them in total,” said Sterling Smith, analyst with Country Hedging in Minneapolis.

The fees are not considered large. A firm that meets or exceeds a WVR of 100:1 for seven or more sessions within one month, faces a $1,000 surcharge. If the WVR is 500:1, the firm faces a $2,000 surcharge for each day that this occurred, ICE said in a previous notice.

“This framework has been extremely successful in managing the high frequency traders in our markets,” Wassersug said.

ICE’s policy came amid mounting pressure for futures exchanges to introduce measures to prevent wild intraday swings, so-called flash crashes, in commodity markets.

ICE, which is a major operator of futures exchanges, clearing houses and OTC markets, believes its weighted scale helps to curb such distortions while maintaining much-need liquidity from this active community of traders.

“Ultimately, the result is it’ll hurt liquidity. In a fast moving market, you may still unintentionally exceed the threshold. But to penalize in any shape or form is always going to impact liquidity,” a source in the high frequency trading industry said.

Increased regulatory oversight, including fees for unfilled orders as mooted by policymakers, would be drastic and could arbitrarily limit trading activity, ICE warned on Wednesday.

“The likely result would be impaired liquidity leading to increased hedging costs for commercial end users. Instead, ICE hopes to continue developing sound policies for all market participants, including HFTs, to maintain and grow confidence in our markets,” said Chuck Vice, ICE president and chief operating officer, in the statement.

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