Flash-Boys Regulation Fight Returns to U.S. Derivatives Agency

(Bloomberg) -- Two top officials at the main U.S. agency that regulates derivatives are rekindling a fight over how aggressively it should police computer-driven trading strategies that dominate markets.

Brian Quintenz, a Republican commissioner at the Commodity Futures Trading Commission, said Wednesday the watchdog should only focus on specific threats tied to automated trading, instead of proposing broad regulations for the industry. He also expressed skepticism about forcing high-frequency trading firms to register with the agency.

Quintenz’s light-touch approach, outlined at a public meeting held by the CFTC, was contrasted by Rostin Behnam, the agency’s lone Democratic commissioner. Behnam called for “immediate action,” arguing that automated traders pose a substantial threat to other market participants.

“The question of a market event, flash crash or otherwise, is not if, but when,” he said.

During the Obama administration, the CFTC proposed regulations that would have subjected high-frequency traders to stiffer oversight. The most controversial aspect of the rules would have given regulators access to firms’ source code -- the secret sauce that fuels their trading profits.

The regulator eventually punted on the proposal after an outcry from industry and Republican policy makers including current CFTC Chairman J. Christopher Giancarlo, who as a commissioner in 2016 called it a threat to liberty. The agency seems even less likely to pass a rule at a time when President Donald Trump’s deregulatory agenda is sweeping through Washington. But the debate between Quintenz and Behnam shows the issue hasn’t died completely.

As chairman, Giancarlo controls much of the agency’s agenda. He hasn’t said whether the CFTC will reconsider issuing new rules for automated traders.

To contact the reporter on this story: Ben Bain in Washington at bbain2@bloomberg.net.

To contact the editors responsible for this story: Jesse Westbrook at jwestbrook1@bloomberg.net, Gregory Mott

©2018 Bloomberg L.P.