💎 Fed’s first rate cut since 2020 set to trigger market. Find undervalued gems with Fair ValueSee Undervalued Stocks

Runaway algo shows new rules needed-CFTC's O'Malia

Published 08/26/2010, 05:18 PM
Updated 08/26/2010, 05:20 PM

* 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.


Link [ID:nN25119290]

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)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.