Futures Exchange Reins In Runaway Trading Algorithms

Discussion in 'Financial Futures' started by ETJ, Oct 29, 2019.

  1. ETJ


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  2. guru


    The relevant part, if anyone cares:

    Emergent tweaked its algorithms to ensure it always had the largest quote—but its rival did the same. So if Emergent posted a quote for 2,000 contracts, the other firm would post a quote for 2,010 contracts a split-second later, for instance. The two firms raced until they hit a maximum size limit, then dropped down and started over, multiple times a second, Mr. Richardson said.

    That generated reams of data. On Friday, daily message volume in CME interest-rate futures, which include Eurodollars, reached more than half a billion, from an average of around 50 million a day for the first week of September, CME data show.

    Starting this week, CME will fine traders $10,000 whenever their messaging exceeds a certain threshold and cut off their connections to the exchange after repeat violations. Such connections are comparable to phone lines or data cables running from a trading firm’s computers to an exchange’s systems, and firms can have many of them simultaneously.

    Mr. Richardson said the policy benefits large market makers, because they can establish dozens of connections to CME, while a smaller firm such as Emergent might get less than 10. So if two firms get into a similar fight again, they will both burn through their connections, but the smaller firm will be pushed completely off CME first. “It’s fundamentally rigged against a small player,” Mr. Richardson said.

    Asked about the measures, the CME spokeswoman said the exchange operates “in the best interests of all market participants.”
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