Last week , regulators settled charges in a landmark case involving one of the new breed of superfast traders in fi nancial markets. These types of traders are known as “cheetahs” because they are the speediest — and sometimes the wildest — cats in the markets.
In the case, regulators in the U.S. and U.K. levied hefty fines on a company called (aptly) Panther, as well as against the firm’s owner. The case was the first effort by the Commodity Futures Trading Commission to flex its muscles using relatively new authority to prosecute “spoofi ng” — an illegal market practice involving placing trades you don’t intend to execute just to move the market in a favorable position.
Spoofing is illegal for a good reason: it can distort and contort prices, and that ultimately hurts consumers. So this was a historic success, not just for regulators but for markets generally.
And the case was important for another reason: the CFTC’s charges specifically referred to Panther’s use of “algorithmic” trading to carry out its abusive practice. In these “millisecond markets,” the improper use of high-powered, high-tech, high-frequency trading can wreak havoc in the blink of an eye. In addition, as this case showed, the market abuse can travel around the world with a mouse click.
Furthermore, the cheetahs, while relatively new to markets, are proliferating around the globe like, well, cats. They already comprise a large percentage of the daily trading volume — roughly 30 percent to 50 percent. That’s an average. There are times — feeding frenzy times — when they have a much greater percentage of the volume. These are the times when markets are volatile and the cheetahs can make the most money.
In fact, a study last year documented that when a cheetah trades with smaller retail traders, they make a killing. They make roughly $3.50 for every trade.
And guess what? Sometimes, the cheetahs trade hundreds of time per second. Per second!
Do we really want millisecond markets? Do those help consumers get a better price, or are the cheetahs just the new middleman in our 24-7-365 techno markets? These are all things policymakers and the public need to consider.
Here’s what we do know: this noteworthy international regulator crackdown on spoofi ng by the cheetah Panther — as well as on other prohibited activities by these big cats — sends a signal alert: our global financial markets are not a feline playground, and they are certainly not a litter box.
The cats better clean up their act, or we’ll shut them out of the house — permanently.