CFTC wants proximity-based advantages available to all

Proposed rule would seek to provide equal access to co-location and proximity hosting services for all qualified market participants willing to pay for the services.

These services are becoming increasingly popular with high-frequency traders whose profits can be affected by how closely their computers are physically located to exchange servers that handle trade-matching services.

The press release is below.

Washington, DC – The Commodity Futures Trading Commission (Commission) today announced the publication in the Federal Register of a proposed rule that specifies requirements for Designated Contract Markets, Derivatives Transaction Execution Facilities and Exempt Commercial Markets that list significant price discovery contracts (collectively referred to as “exchanges”) and offer co-location and/or proximity hosting services to market participants. The proposal includes provisions relating to equal access, fees, latency transparency and third party proximity hosting service providers.

Specifically, the provision relating to equal access would require that co-location and proximity hosting services be available to all qualified market participants willing to pay for the services. The provision relating to fees would ensure that cost is not used as a means to deny access to some market participants by pricing them out of the market. The provision relating to latency transparency would ensure that the longest, shortest and average latencies for each connectivity option are readily available to the public. The provision relating to third-party providers would ensure that they can continue to provide hosting services and that exchanges could obtain information about market participants, their systems and their transactions from third-party providers sufficient to carry out self-regulatory obligations.

The Commission continues to study other issues related to high frequency trading, including evaluating the impact of high frequency trading on Commission regulated markets and firms and on price discovery and risk management functions.

Comments regarding the proposed rule should be received by the Commission within 30 days of publication in the Federal Register.

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