February was a bellwether month for the futures industry. Volume on U.S. Treasury futures topped 10 million at the CME for the first time ever, and former PFG boss Russell Wasendorf Sr. moved into his new digs at the U.S. Penitentiary in Terre Haute, Indiana. His former customers, meanwhile, learned they were getting most of their money back — as are those of MF Global, although that company’s former CEO, Jon Corzine, dodged a lifetime ban from the National Futures Association (NFA), at least for now.
But the industry both men blemished still faces a slew of new regulations — and not just those flowing from their actions. High-frequency trading (HFT) is under fire from both regulators and practitioners, while Financial Transaction Taxes (FTT) are being implemented across Europe and new collateral requirements are being contemplated and implemented for banks and even FCMs.
Europe, meanwhile, is gearing up for a turf battle between its existing exchanges and two new ones, courtesy of CME Group and Nasdaq OMX.
On the HFT front, Germany looks set to begin regulating practitioners under its Banking Act (Kreditwesengesetz, or “KWG”), which means anyone practicing HFT on a German exchange might soon be required to have an office there. That also could make HFT practitioners subject to a proposed EU-wide FTT even if they’re trading futures.
That might be bad news for Eurex, which gets 30% of its volume from HFT — or it might not. Some say HFT has peaked, regardless of what regulators do. Rosenblatt Securities, for example, has long questioned the profitability of most HFT strategies, and in February they published research indicating that HFT volume is down more than 50% over the last three years, with average profits per trade plunging 75%. Like the computer-generated options strategies that Chicago Research and Trading created in the late 1970s, HFT is here to stay – but its growth appears to have hit its limits.