FOOTNOTE 75 See Clark & Ranjan, "How Do Proprietary Trading Firms Control the Risks of High Speed Trading," supra note 66, at 7. END FOOTNOTE
FOOTNOTE 76 See Carol Clark &
FOOTNOTE 77 The Commission notes that the
In addition, the Commission asks whether maximum message rates and execution throttles could be used as a mechanism to prevent individual entities from submitting messages or executing orders at speeds that are misaligned with their risk management capabilities. Execution throttles of this type would be unique to individual firms or accounts, and could be set by the exchange or clearing firm after reviewing the risk management capabilities of the entity to which the throttle will apply. For some firms, there may be a delay before effective risk management begins; in these cases, execution throttles may mitigate harm to the firm or other market participants prior to the firm's response to a malfunction. Last, message rate limits could be used to mitigate the risk of manipulative or disruptive messaging strategies such as "order stuffing," where firms use ATSs to submit large numbers of orders that are cancelled before execution in order to slow down the matching engine and create arbitrage opportunities in or across products.
8. If, as contemplated above, maximum message rates and execution throttles were used as a mechanism to prevent individual entities or accounts from trading at speeds that are misaligned with their risk management capabilities, how should this message rate be determined?
9. Message and execution throttles may be applied by trading firms (FCMs and proprietary trading firms), clearing firms, and by exchanges. The Commission requests public comment regarding the appropriate location for message and execution throttles.
a. If throttles should be implemented at the trading firm level, should they be applied to all ATSs, only ATSs employing HFT strategies, or both?
b. What role should clearing firms play in the operation or calibration of throttles on orders submitted by the trading firms whose trades they guarantee?
10. Should the message and execution throttles be based on market conditions, risk parameters, type of entity, or other factors?
11. What thresholds should be used for each type of market participant in order to determine when a message or execution throttle should be used? Should these thresholds be set by the exchange or the market participant?
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