The FIA Principal Traders Group issued the following comment in response to the Commodity Futures Trading Commission’s Division of Market Oversight statement on the ICE Futures U.S. Passive Order Protection functionality:
The Passive Order Protection (“POP” or “speed bump”) functionality raises significant concerns for our members, as well as the marketplace. Accordingly, we raised objections to ICE Futures U.S. in advance of the original rule change filing, commented in response to the CFTC request for comment during the 90-day stay, and have continued to follow this matter closely.
In the statement issued earlier today, the CFTC staff gave their reasoning for not objecting to the exchange's self-certification of the speed bump. The staff’s statement demonstrated an understanding of the complexity of this issue and reached a responsible decision on how to reconcile the interest of the exchange in continuing to innovate and the interest of the marketplace in fair competition. In particular, we appreciate the staff’s limitation on the application of the speed bump and confirmation that this self-certification by the exchange sets no legal or policy precedent.
As active liquidity providers, FIA PTG members remain concerned about the potential impact that artificial latency mechanisms, including asymmetric speed bumps such as the ICE POP, will have on market quality, including execution quality, price discovery, and liquidity.
The ICE POP is specifically designed to impact competition between firms with different business models, advantaging some while disadvantaging others. FIA PTG believes that any mechanism designed intentionally to put certain segments of the market at a disadvantage to others, undermines the level playing field and highly competitive environment of today’s futures markets.
Although FIA PTG supports innovation, we believe that speed bumps present a threat to the function, fairness and stability of markets. While the ICE POP will seemingly only affect one small and obscure corner of the market to start, the broad language in the rule change made us very concerned that this could be like opening a Pandora’s Box of changes to market structure. For this reason, the statement's requirements for additional filings and processes around future speed bumps have helped alleviate our concerns.
FIA PTG is a strong supporter of data-driven decision making, and we are pleased to see the Commission staff intends to monitor and analyze the impact of the ICE POP functionality on an ongoing basis. We look forward to this analysis.
