It’s been 90 days, so February 17th’s news is May 17th’s news all over again. Here are the details…
Three months ago was this news:
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).
Fast forward to this week and the 90-day mark, and now we are again seeing news about the “end” of HFT gold & silver manipulation:
Futures Exchange To Introduce Gold, Silver “Speed Bump” To End HFT Manipulation
The CFTC had a chance to block the proposal within 90 days, but that period ended on Tuesday. Now, ICE is free to do as it pleases. The CFTC’s Division of Market Oversight said it’s going to watch carefully to analyze the impact of the new “speed bump” saying it “does not view the certification of the ICE Rule as establishing a precedent with respect to the legal and policy merits of speed bump functionalities generally.”
HFT giants like Citadel Securities LLC and DRW Holdings LLC, which make the bulk of their revenue from frontrunning slower retail and “dumb money whale” orders, were opposed to the idea, along with trade group Managed Funds Association, which represents hedge funds. Stephen Berger, global head of government and regulatory policy for Citadel Securities said: “We appreciate the commission’s confirmation that today’s rule change is limited in scope to two specific contracts and that any future expansion will require a new rule filing and legal analysis.”
The best hot take on the speed bump belonged to Tom McClellan, who said that “high-frequency algo traders spent all that money, locating their offices closer to ICE server farms and buying high-speed fiber connections to get an edge on trading, and now ICE is introducing a 3-millisecond delay trying to level the playing field.”
Which also explains why they are all so furious.
The functionality essentially gives market participants engaged in arbitrage a very short window to
modify their Exchange orders where there is a price change in a related market. All other market functions
remain the same, first-in-first-out (“FIFO”) execution priority will still apply, meaning that the first
incoming order to match with the resting order in the ETS will transact with the resting order to become a
deal, if the resting order is still in the ETS after the latency has expired. In order to maintain FIFO priority,
the Exchange will apply the same latency for all incoming requests to enter, change, or cancel/replace orders
during the latency period for any order(s) on the same side of the market as the aggressor order. POP will
not impact passive orders resting in the ETS.