By Scott Patterson
CME Group Inc. Chairman Terrence Duffy said in congressional
testimony Tuesday that the futures exchange operator has taken
steps to reduce delays in the time between when high-speed traders
receive market data and when other firms get the same
information.
Mr. Duffy, testifying before the Senate Agriculture Committee,
said CME has addressed such delays "across all contracts" traded on
the exchange.
The Wall Street Journal reported last year in a page-one article
that some high-speed firms were getting confirmations of executed
trades on CME's Chicago Mercantile Exchange fractions of a second
before other firms could see the trade. The firms are able to get
the information through superfast direct feeds that link their
computers directly with the exchange's computers inside its data
center in Aurora, Ill., just outside of Chicago.
CME Group said in a statement a day following the article that
the exchange operator would work to eliminate the delays.
Regulators and law-enforcement officials have been ramping up
scrutiny of ties between high-frequency traders and whether they're
exploiting speed advantages on exchanges. The issue has received
increased attention after the publication of Michael Lewis's book,
" Flash Boys," which claims that the stock market is rigged to the
benefit of high-speed traders.
The Justice Department and Federal Bureau of Investigation have
opened probes into high-frequency trading. New York Attorney
General Eric Schneiderman has launched a sweeping investigation of
high-speed firms, with an eye on whether the firms have gained
advantages from exchanges or other firms that operate off-exchange
trading venues known as "dark pools."
Congress is also stepping up its scrutiny of the practice. Sen.
Sherrod Brown (D., Ohio), referring to last year's Journal article,
asked Mr. Duffy if CME had taken steps to fix delays between the
time different firms get trade information, which he said could
"allow high-frequency traders to see which way prices are
headed."
Mr. Duffy said CME has "shrunk that latency dramatically,"
adding that there are still delays of as much as a millisecond in
certain contracts. He said he didn't believe that the delays gave
high-speed firms the ability to trade profitably on the
information. A millisecond is one-thousandth of a second.
Andrei Kirilenko, a finance professor at the Massachusetts
Institute of Technology and former chief economist of the Commodity
Futures Trading Commission, said such delays should be made public
to ensure other traders can compete with high-speed firms. Such
advantages have led to a market dominated by "a small number of
fast, opaque...and aggressive incumbents who earn high and
persistent returns," he said.
Such a "winner-take-all" market, Mr. Kirilenko said, could
"prevent improvements in market quality from being fully realized"
and could explain why "we may not be seeing gains in market quality
that we would otherwise see."
Write to Scott Patterson at scott.patterson@wsj.com
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