CME May Steer More High-Frequency Traders Toward Risk Controls

CME Group Inc. (CME) may push more high-frequency traders to use its in-house risk-control measures.

CME estimates that proprietary trading firms account for as much as 40% of its volume, and the rise of high-frequency strategies has seen regulators turn more attention to their risk profile.

The Chicago exchange operator offers tools such as pre-set credit limits to minimize the risk of erroneous trades, but their use is voluntary.

Bryan Durkin, Chief Operating Officer, said CME may take a "more aggressive stance" in pushing high-frequency traders to use this protection.

He stopped short of suggesting any mandatory use, but said that CME may soon be "taking a stronger stance" about expecting traders to use them.

"We're looking at taking more aggressive stance, in terms of those that are availing themselves to what's in our system today and those slower to gravitate toward using those tools," he said in an interview at a Futures Industry Association event.

High-frequency traders use computer-driven trading systems to execute orders at a fraction of a second, seeking profits from minute movements in securities and derivatives prices.

They play a key role as liquidity providers at exchanges and other trading venues, standing ready to take customers' orders in an instant, helping to reduce price spreads and reduce trading costs for average investors.

Automated erroneous trade policies have proven "quite effective" in minimizing the possibility of a mistaken order throwing a market out of whack, according to Donald R. Wilson, Chief Executive and founder of Chicago-based DRW Trading Group.

"It's a fact that these markets becoming computerized reduces some of these possibilities," Wilson said.

Tom Anderson, chief commercial officer of Fortis Clearing, said exchanges should work toward global standards in preventing erroneous trades on their platforms.

"The policies out there right now differ by exchange, by product, and whether you're trading in a pit or an exchange," Anderson said. The market could use "simple solutions to take out some of the confusion that exists from exchange to exchange," he said.

-By Jacob Bunge, Dow Jones Newswires; 312 750 4117;

Jacob.bunge@dowjones.com

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