Can the human regulators defeat the robot traders?

Traders on the floor of the NYSE on December 1, 2008.
Getty Images

The Commodity Futures Trading Commission is looking to build a regulatory framework around high-speed and algorithmic futures trading.

The announcement, made earlier this week, comes in the form of something called a "concept release." It's a 137-page document that requests public input on more than 100 questions about dozens of proposed ways to control risks from technology that allows for many more trades to be made much faster, with much less human interaction, than any time in the past.

Despite the report's length, however, the CFTC doesn't seem to be addressing this problem directly—by forcing the traders to accept responsibility for their trades.

(

Right now algorithmic traders can externalize the costs of their errors because the exchanges have agreed to a policy of canceling errant trades. This reduces the risk and the cost of trading electronically, which is one reason electronic trading has grown so large.

A simple rule that required all executed trades to stand would create a huge incentive to improve systems or restore the role of human judgment in trading.

Related Tags