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“Cheetah” Traders

23

May, 2012

CFTC commissioner Bart Chilton is not usually shy about telling the investment world his opinions about high frequency trading.  He has coined the term “cheetah” traders when referring to HFT.  In this must watch Bloomberg television interview  , Chilton holds nothing back:

“Technology in markets isn’t always what its cracked up to be.  As regulators, we need to take a step back and say “Is there more that we need to be doing?”

 “There are 160 million financial transactions per day around the globe.  And its these traders, that I call “cheetah traders”, that are just trying to scoop up dollars in milliseconds.  I’m not saying their bad, but their new to the market and there are bound to be problems.  They are not even required to be registered at the SEC and CFTC.”

 “The claim from these cheetah traders, the high frequency traders, is the they add liquidity and of course, they do because somebody is on the other side of those trades.  But its fleeting liquidity.”

 Are they adding long term liquidity, deep liquidity, that helps markets?  I question it.”

 “I’m not saying they are bad but regulators need to know at least who these folks are.”

 The third largest trader by volume at the CME is one of these cheetah traders in Prague.  We are never going to get any books or records from Prague from these traders.”

 “We need to get a better handle on these guys and know who they are and the first step is registration.”

While it’s great to see Commissioner Chilton speaking out and trying to find out more information, we wonder what has been taking the regulators so long.  It’s been over two years since the flash crash and the SEC still does not have a consolidated audit trail and has not made any meaningful reform.  It appears, unfortunately, the only way that something is going to get done is if another flash crash or market damaging event occurs.  And if that happens, no matter how much the regulators try playing catch up, the confidence of investors will likely be totally destroyed and will not come back any time soon.

 

 

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