* Infinium's algo malfunction an example of need for rules
* CFTC technology committee discussing HFT risks
* New law gives CFTC power to prevent disruptive trades
WASHINGTON, Aug 26 (Reuters) - A malfunctioning algorithm that caused a $1 surge in oil prices earlier this year shows the need for regulators to zero in on the risks posed by high-speed trading, an official from the U.S. Commodity Futures Trading Commission said on Thursday.
The trading program, owned by Infinium Capital Management, was shut down after five seconds, but CFTC Commissioner Scott O'Malia said the incident should be treated seriously.
"The market was tainted and prices plunged as a result," O'Malia said in a statement, responding to a Reuters story describing how the algorithm ran amok on Feb. 3, incurring a million-dollar loss in about a second.
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Graphic http://r.reuters.com/cet86n
"It is examples like this that confirm to me the importance of continuing the discussion of implementing more robust risk functionality on exchanges and traders," said O'Malia, who recently revived a CFTC advisory committee on technology to examine how the regulator should adapt its rules, first developed to police traders working in open outcry pits.
The chief executive of Infinium is a member of the CFTC committee.
A source told Reuters that the CFTC is investigating the incident but O'Malia did not provide comment on the agency's involvement.
"We need to develop rules and regulations that are more appropriate to policing the high-speed nature of today's computer-aided trading styles, where computers can have a significant impact on the market in a matter of seconds, rather than trying to conform pit trading enforcement methods to today's markets," O'Malia said.
The new Wall Street reform law gives the CFTC power to write regulations to prevent disruptive trading practises, O'Malia noted.
"Whatever we do, the risks posed by high speed and algorithmic trading must be handled with great care because when things go wrong, five seconds can generate a lifetime's worth of trading, not to mention a toxic trail," he said. (Reporting by Roberta Rampton and Jonathan Spicer; Editing by Marguerita Choy)