In December, the National Cattlemen's Beef Assn. (NCBA) hosted a meeting with its producer-members to identify ways to address concerns of market volatility as a result of high-frequency trading. The meeting brought together industry traders, economists and hedgers, who all delivered evidence and firsthand accounts to support the shared concerns.
At the upcoming Cattle Industry Convention in San Diego, Cal., CME Group executive chairman and president Terry Duffy will be speaking to NCBA's Cattle Marketing & International Trade Committee. In anticipation of the meeting, NCBA has identified and formally asked Duffy to address several critical areas of interest.
First, NCBA said livestock contracts must be monitored, measured and controlled through the CME Globex Messaging Efficiency Program.
“Grain, currency and index contracts have limits regarding messaging. Livestock contracts must have the same,” NCBA said.
Second, NCBA said a one-second latency or delay between trade actions (cancel, cancel/replace, etc.) is imperative to make automatic trading work.
According to NCBA, implementing latency will make messaging much more difficult as there will be a greater risk of order execution.
“High-frequency trading occurs at a rate faster than any human can analyze. Latency would, therefore, level the playing field so that everyone sees the market at the same speed,” the group noted.
Third, CME Group has to be more proactive regarding spoofing, NCBA said.
“Identifying spoofing concerns and bringing them to light, rather than waiting until they are reported, would go a long way in showing stakeholders your commitment to addressing this issue,” the group explained.
Fourth, NCBA said in order to better analyze and understand market action, CME Group must release audit trail data for analysis that include firm-level generic identification.
“This would be utilized by industry and researchers to better understand trading behavior that could possibly be damaging,” NCBA said, adding that release of the previous year's data each month should be acceptable for providing researchers with adequate information while also protecting the confidentiality of traders.
Last, NCBA said as a self-regulated organization, CME Group has the responsibility of regulating and policing any misuse of futures contracts.
“There are concerns that the CME Group bases most of its investigations from tips or concerns brought forth from those who use the contracts,” the cattle group pointed out.
NCBA said CME Group has to actively engage in monitoring and acting upon violations or market manipulation, and more important, it should be vocal in reporting these actions to stakeholders.
NCBA said it is committed to working directly with CME Group to find a solution to the concerns of its members.