Stock market background design

The U.S. derivatives regulator is allowing an exchange to adopt the first “speed bump” in futures trading as it seeks to nullify the advantages of high-frequency traders.

The U.S. Commodity Futures Trading Commission (CFTC) announced that its market oversight division will not oppose a proposed trading rule amendment from ICE Futures U.S., Inc. that would introduce a three-millisecond processing delay designed to reduce the speed advantage of certain traders in ICE’s daily gold and silver futures markets.

The CFTC says this is the first time a futures exchange has sought to implement a trading speed bump, and that there is not much data on its likely impact.

The regulator indicates that its staff believes speed bumps could significantly affect markets, both positively and negatively, in several ways. So, it intends to monitor and analyze the impact of the ICE speed bump.

To that end, it says the ICE proposal represents an opportunity to “evaluate the impact of speed bump functionality on, among other things, futures market liquidity, price discovery, competition, and the potential for manipulation and abusive trading practices.”

The decision follows a 90-day review period when the regulator analyzed the legal and policy implications of the change, consulted with market participants, and studied speed bumps in other markets (certain equity markets have introduced speed bumps in recent years).

In the meantime, the CFTC says the ICE proposal does not establish a precedent on the merits of speed bumps generally, and that it will evaluate future proposals from other exchanges on their own merits.