CME’s Bryan Durkin: “High-Frequency Traders Significant Providers of Liquidity, Particularly as Market-Makers”

Bryan T. Durkin, Chief Operating Officer and Managing Director, Products & Services

Bryan T. Durkin, Chief Operating Officer, CME

As reported by Dow Jones’ Jacob Bunge, a senior executive of CME Group Inc. (CME) said that a lengthy study of the futures exchange company’s markets showed no evidence that algorithmic traders drive up volatility or increase costs for investors.

An evaluation of trading over a two-year period in CME‘s commodity, interest-rate and stock-index derivatives markets found that as algorithm-driven firms did more business, prices became less turbulent and liquidity improved, according to Bryan Durkin, chief operating officer of CME. “There is considerable evidence that algorithmic traders increase liquidity, narrow spreads and enhance the efficiency of markets,” Durkin said.

The world’s largest futures exchange operator is rebutting assertions that computer-driven trading firms–which represent its biggest customer group–are behind spikes in volatility and disadvantage slower-moving investors. Brokers have eyed sudden price swings, most recently in commodity markets like crude oil, looking for evidence that high-frequency trading firms are behind the moves.

Durkin said that CME‘s study compared the amount of daily trading driven by such firms with the going bids and offers for contracts tied to crude oil, the euro, 10-year Treasury notes, the Standard & Poor’s 500 stock index, and the London interbank offered rate. Over a two-year period, he said, algorithmic trading activity was “positively correlated” with more efficient markets and less abrupt price swings.

“The collective research broadly underscores the fact that algorithmic traders are significant providers of liquidity, particularly when acting in a market- making capacity,” concluded Durkin.

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