High-Frequency Trading “Speed Bumps” Coming To ICE To Stop Gold, Silver Manipulation

“…more interesting is where said delay will be implemented…the speed bump will be first used on exchange’s gold and silver futures contracts…”

from Zero Hedge

Now that it’s a widely accepted “conspiracy theory” that the next time markets crash, the blame will be laid squarely on algos and HFTs (as December demonstrated so vividly) if only to divert attention from the true central bank culprits for the biggest asset bubble in history, it is no longer perceived as a conflict of interest by exchanges to lash out against what until recently were some of their best clients.

As a result, several years after the protagonists of Michael Lewis’ “Flash Boys”, the IEX Group, introduced a “speed bump” delay on their stock exchange in 2016 to prevent frontrunning by high-frequency traders, it’s now the turn of the Intercontinental Exchange to join the battle against the fastest traders.

According to the CFTC, the Atlanta-based exchange plans to introduce a 3-millisecond trading delay, one which it calls Passive Order Protection. What is even more interesting is where said delay will be implemented: according to the regulatory filing, the speed bump will be first used on exchange’s gold and silver futures contracts “where the ICE currently does very little business”, effectively confirming that the gold and silver futures market is where market manipulation by algos has been most rife (something which we already knew thanks to such chronic market manipulators as Deutsche Bank and UBS).

An ICE spokesman declined to tell Bloomberg whether it would later be applied to other markets, although if the exchange which owns the NYSE admits it has a frontrunning problem in at least one asset class, it is safe to assume that’s true for all products offered by the company which operates 12 regulated exchanges and marketplaces.

Incidentally, as Bloomberg so vividly explains, three milliseconds, or 0.003 seconds, is about four times longer than a baseball stays in contact with a bat when hit, although it is an eternity in an era of computer-driven trading, and remarkably, is almost 10 times longer than the speed bumps used by IEX and NYSE American. Almost as if the ICE confirms its HFT infestation problem is far worse (time stamps on trades are often given in nanoseconds, and there are a billion of those in a single second.)

The delay seeks to prevent HFTs from both engaging in cross-exchange arbitrage, and frontrunning off stale quotes in ICE’s order book. The exchange’s rival, Chicago-based CME Group Inc., dominates the metals market. When gold and silver prices move at CME, the ICE speed bump could protect its customers.

 

Incidentally, if the ICE admits it has a “gold and silver” manipulation problem by HFTs, one wonders when the CME will do the same.

“This short delay helps level the playing field by giving all traders who have placed a resting order additional time to react to price changes in related markets,” according to the exchange’s filing with the CFTC.

The full filing can be read using this pdf link.