Regulators would harm U.S. equities trading if they toughened restrictions on computer-driven strategies that have largely replaced human market makers, CME Group Chief Executive Officer Craig Donohue said.
Market efficiency has been improved by the process known as high-frequency trading, Donohue said in an April 21 letter to the Securities and Exchange Commission. In January, the SEC published a paper asking whether fast trading strategies yield better or worse prices for investors, and this month proposed a rule that would ease tracking and monitoring of large firms' transactions.
Mr. Donohue, whose company runs the world's largest futures market, joined the CEO of NYSE Euronext, who said in an interview last week that high-frequency trading has helped markets. Lawmakers including Sen. Ted Kaufman, D-Del., as well as broker TD Ameritrade Holding Corp. have criticized the practice, saying it harms the ability of investors to get the prices they see quoted and undermine confidence in the markets.
“Any attempt to place significant restrictions or limitations on HFT would be harmful to the marketplace,” Mr. Donohue wrote in his letter to the SEC. Firms could “shift the trading they currently conduct in the United States to Europe and other foreign jurisdictions that are already well-equipped to handle additional growth in both equities and futures.”
High-frequency trading represents about 65% of equities volume, according to research firm Aite Group LLC in Boston. In futures, proprietary trading firms that use their own money to buy and sell contracts rapidly account for 25% of volume. Aite expects that to increase to 40% by 2015. Other firms also use high-frequency-trading strategies to transact customer orders.
Chicago-based CME doesn't operate exchanges subject to SEC oversight. The company's four markets — the Chicago Mercantile Exchange, the Chicago Board of Trade, the New York Mercantile Exchange and the Commodity Exchange — are regulated by the Commodity Futures Trading Commission. CME said it submitted a letter to the SEC to comment on topics that are also important in the futures industry.