Off The Wire
ICE gets CFTC nod for 'speed bump' on U.S. futures exchange
NEW YORK, May 15 (Reuters) - Intercontinental Exchange Inc can introduce the first "speed bump" in the U.S. futures markets, the Commodity Futures Trading Commission said on Wednesday, prompting concerns by some market participants that market quality will suffer as a result.
The speed bump will pause incoming orders for ICE's Gold Daily and Silver Daily futures for three milliseconds if they would otherwise immediately match against a resting order on the exchange. Other incoming orders sent with instructions to rest at a given price on the exchange will bypass the speed bump.
ICE declined to say when it might introduce the speed bump.
The exchange operators said the new Passive Order Protection (POP) feature was designed to reduce the speed advantages that the fastest players in the market have over other participants, creating a more level playing field.
"We are very pleased with the CFTC's decision to allow our rule amendment for passive order protection - or what is commonly referred to as a speed bump - in futures markets to become effective," ICE spokesman Damon Leavell said in a statement.
Critics say the move will harm market quality, as firms that provide liquidity on the exchange will be able to modify or cancel their resting quotes while incoming orders are paused, especially when markets are volatile, making it harder to access displayed liquidity.
"The Asymmetric Delay applies only to liquidity taking orders, effectively giving liquidity providers a 'last look' structural advantage that allows them to selectively decide whether to honor firm, displayed quotations based on current market conditions," Citadel Securities said in a letter to the CFTC.
Two of the five CFTC commissioners, Dan Berkovitz, a Democrat, and Brian Quintenz, a Republican, opposed allowing the speed bump.
"Asymmetric speed bumps, such as POP, that purposely disadvantage particular trading entities, strategies, or technologies, are discriminatory, anti-competitive, and facially inconsistent with the fundamental objectives of the Commodity Exchange Act," Berkovitz said in a statement.
But in deciding not to object to ICE's plan, the CFTC pointed out that ICE's Gold Daily and Silver Daily futures contracts almost never trade and that allowing the speed bump on those contracts only would give the agency data on how the functionality affects the market with minimal impact.