CME Softens High-Speed Traders' Edge -- Update


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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