NCBA Working to Address Market Volatility
In December, the National Cattlemen's Beef Association hosted a meeting with producer-members to identify ways to address the concern of market volatility as a result of high-frequency trading. The meeting brought together industry traders, economists, and hedgers who all delivered evidence and first-hand accounts to support the shared concerns.
At the Cattle Industry Convention in San Diego CME Group Executive Chairman and President Terry Duffy will be speaking to NCBA's Cattle Marketing and International Trade Committee. In anticipation of the meeting, NCBA has identified and formally asked him to address several critical areas of interest:
1. Livestock contracts must be monitored, measured, and controlled through the CME Globex Messaging Efficiency Program. Grain, currency, and index contracts have limits regarding messaging. Livestock contracts must have the same.
2. A one second latency or delay between trade actions (cancel, cancel/replace, etc.) is imperative to make automatic trading work. Implementing latency will make messaging much more difficult as there will be greater risk of order execution. High frequency trading occurs at a rate faster than any human can analyze. Latency would therefore level the playing field so that everyone sees the market at the same speed.
3. The CME Group has to be more proactive regarding spoofing. Identifying spoofing concerns and bringing them to light, rather than waiting until they are reported, would go a long way in showing stakeholders your commitment to addressing this issue.
4. In order to better analyze and understand market action, the CME Group must release audit trail data for analysis that includes firm-level generic identification. This would be utilized by industry and researchers to better understand trading behavior which could possibly be damaging. Release of the previous year's data each month should be acceptable in providing researchers with adequate information while also protecting the confidentiality of traders.
5. As a self-regulated organization, CME Group has the responsibility of regulating and policing any misuse of futures contracts. There are concerns that the CME Group bases most of its investigations from tips or concerns brought forth from those who use the contracts. The CME Group has to actively engage in monitoring and acting upon violations or market manipulation. More importantly, CME Group should be vocal in reporting these actions to stakeholders
NCBA is committed to working directly with the CME group to find a solution to the concerns our members. To read the full letter, click here.