CFTC’s O’Malia plans test to define HFT
“…the CFTC must develop a precise and reasoned definition of who is and who is not an HFT.”
Commissioner proposes definitions for industry
My 2 cents. HFT’s are traders who submit and cancel orders in response to changes in the state of the order book. They could be responding to changes in a different market or for a different product. But the defining characteristic is that profitability depends on being the first to respond to a particular change in the order book state.
Your definition captures the spirit of HFT very well. The challenge for US lawmakers is to define HFT in rules. Scott O’Malia’s current attempt (according to the FT) is below.
• The use of extraordinarily high-speed order submission/cancellation/modification systems with speeds in excess of five milliseconds or generally very close to minimal latency of a trade;
•The use of computer programmes or algorithms for automated decision-making where order initiation, generating, routing, and executionare determined by the system without human direction for each individual trade or order;
•The use of co-location services, direct market access, or individual data feeds offered by exchanges and others to minimise network and other types of latencies;
•Very short time-frames for establishing and liquidating positions;
•High daily portfolio turnover and/or a high order-to-trade ratio intraday;
•The submission of numerous orders that are cancelled immediately or within milliseconds after submission;
•Ending the trading day in as close to a flat position as possible (not carrying significant, unhedged positions overnight).
the second bullet can be used to describe me as a swing trader that carries positions over night, I also use hosting servers near the exchange, but my time limit is on the minute levels. I am about as far away from the HFT as anyone is. But #2 does have me concerned that my business would be regulated out of existence.
If you only satisfy 1 out of 7 criteria then hopefully you will fall safely out of the HFT net. http://www.ft.com/cms/s/946cfc22-0f89-11e1-88cc-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F946cfc22-0f89-11e1-88cc-00144feabdc0.html&_i_referer=http%3A%2F%2Frereferyned#axzz1e4OeA6YKBottom of Form
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