In a speech in Texas on Wednesday, CFTC Commissioner Bart Chilton called for high frequency traders, or “cheetahs” to face so-called kill switches that would shut down a broker dealer’s trading over erroneous orders or technology glitches. He said the SEC and CFTC’s efforts to create safeguards on electronic trading would help prevent damage to public markets and a repeat of events such as Knight Capital’s $440 million trading loss and the May 2010 Flash Crash. See: Kill switches may be too difficult to implement
“In September, the Securities and Exchange Commission held a roundtable with industry participants to discuss ways to promote stability in the markets. Some of the participants said errors from high frequency trading are inevitable because of the speed at which the trading is conducted. But Chilton said executives in high frequency trading firms should be accountable if their firms report false and misleading information.
“If there is another flash crash where people are damaged (they lose money) due to a rogue cheetah, I think there need to be steep consequences. And when I say consequences, I’m talking not just for the firm, but for individuals at the firm. If the cheetahs want to be involved in the high-flying, incomprehensible gambling world, okay, but if you cause harm to markets and consumers, we shouldn’t stand for it,” he said.
Chilton said in his speech that violations committed by high frequency traders should be penalized by the second.
“Under our statute, we can fine a miscreant $140,000 per violation — and that used to be sufficient. That dollar figure made sense in yesterday’s world of human-to-human trading. But it doesn’t work in these markets,” Chilton said.”