‘Flash Boys’-Style Speed Bump Planned for Futures Markets

(Bloomberg) -- Intercontinental Exchange Inc.’s futures market wants to join the battle against the fastest traders.

The Atlanta-based exchange plans a 3-millisecond trading delay, or speed bump, for its gold and silver futures contracts, according to a regulatory filing. The U.S. Commodity Futures Trading Commission on Wednesday asked for public comment on the proposal.

Michael Lewis’s 2014 book, “Flash Boys,” popularized the idea of using speed bumps to curb the light-speed pace of modern financial markets and prevent alleged abuses of so-called high-frequency traders. Lewis’s protagonists, the founders of IEX Group Inc., introduced a delay on their stock exchange in 2016, and a tiny equities market ICE owns, NYSE American, also has one. But this latest move would bring a speed bump to derivatives markets.

The delay would be introduced “initially” for gold and silver, areas where ICE currently does very little business. An ICE spokesman declined to say whether it would later be applied to other markets. ICE is a leader in other products such as oil futures.

Three milliseconds, or 0.003 seconds, is about four times longer than a baseball stays in contact with a bat when hit. It’s a long time in this computer-driven era of trading, almost 10 times longer than the speed bumps used by IEX and NYSE American. Time stamps on trades are often given in nanoseconds, and there are a billion of those in a single second.

The delay could prevent the fastest traders from picking 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.

“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.

--With assistance from Ben Bain.

To contact the reporter on this story: Nick Baker in Chicago at nbaker7@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Dan Reichl, David Scheer

©2019 Bloomberg L.P.