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As electronic markets are sprouting up and are being developed to
replace traditional open outcry markets, should the physical limitations
of the open outcry markets become components of new electronic markets?
Case in point, should a book of resting orders be displayed in some
manner. And should the same information be available to all traders,
regardless of whether they are members of an exchange.
Currently there is some information generated in the trading pit, which
is only available in real time to traders standing in those pits. Who
are the buyers and sellers. What is the size of the bid. What is the
size of the offer, etc. Access to that information and use of it is
part of what gives the exchange memberships their value. However,
because of the physical limitations of open outcry trading and the
technology used in it, this information is not disseminated in real time
to off the floor traders.
With electronic trading, some of this information is or could be made
available to off the floor traders in the same real time manner it is
available to exchange members. Should off the floor traders have access
to this information? Is it fair if they don't and exchange members do?
If exchange members have exclusive right to this information, does this
meet the spirit of the law of the Commodity Exchange Act, which requires
fairness and honest dealing in futures trading.
(From the CFTC web site) The responsibility of the CFTC might best be
summarized by saying that its purpose is to ensure fair practice and
honest dealing in futures trading, in order to permit accurate price
discovery and opportunity for efficient hedging through competitive,
manipulation-free markets.
Technological advancement is producing plenty of strains on the futures
industry as new electronic trading competitors abound for U.S. futures
exchanges. In fact, most if not all of U.S. futures and stock exchanges
are looking at becoming for profit corporations, rather than country
club like political associations. This change could make a world of
difference for the future fairness of the markets depending on what the
new structures look like and the oversight decisions of the CFTC.
Accurate price discovery and competitive markets require all traders to
be on equal footing for exchange produced market information where
possible, IMHO. Whatever the rules are should be applied to all,
members and non-members.
It will be up to the CFTC to judge what is fair and what is not fair as
futures exchanges restructure and must bring new rules and products for
CFTC approval. With the CFTC up for reauthorization, now is the time to
let them know what you think a fair and honest open outcry and
electronic market should be like. There has never been a better
opportunity for the public to have it say in the future direction of the
CFTC and the upcoming CFTC reauthorization because of the number or
issues in play and the number of changes likely to occur.
Think about what fair and honest open outcry and electronic futures
markets should be structured and let the CFTC know what you think. You
can e-mail any comments to secretary@xxxxxxxx or the office of public
affairs at opa@xxxxxxxxx
Regards,
John J. Lothian
Disclosure: Futures trading involves financial risk, lots of it!
Disclosure: John J. Lothian is the President of the Electronic Trading
Division of The Price Futures Group, Inc., an Introducing Broker.
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