3. The definition of HFT provided above uses "recurring high message rates (orders, quotes or cancellations)" as one of the identifying characteristics of HFT, and lists three objective measures ((i) cancel-to-fill ratios; (ii) participant-to-market message ratios; or (iii) participant-to-market trade volume ratios) that could be used to measure message rates. Are these criteria sufficient to reliably distinguish between ATSs in general and ATSs using HFT strategies? What threshold values are appropriate for each of these measures in order to identify "high message rates?" Should these threshold values vary across exchanges and assets? If so, how?
4. Should the risk controls for systems and firms that engage in HFT be different from those that apply to ATSs in general systems? If so, how?
Reductions in Latency
5. Discussions on latency often focus on the how quickly an exchange processes orders, the time taken to submit orders, and how quickly a firm can observe prices of trades transacted on the exchange. The Commission is interested in understanding whether there are other types of messages transmitted between exchanges, firms and vendors wherein differences in latency could provide opportunities for informational advantage. Recent press reports have highlighted such advantages in the transmission of trade confirmations by a specific exchange. Are there other exchanges and trading venues where similar differences in latency exist? The Commission is interested in understanding whether the extent of latency in any such message transmission process can have an adverse impact on market quality or fairness. Should any exchanges, vendors and firms be required to audit their systems and process on a periodic process to identify and then resolve such latency?
Financial Integrity of the DCO
6. Are there distinct pre-trade risk controls, including measures not listed below, or measures in addition to those already adopted by the Commission, that would be particularly helpful in protecting the financial integrity of a DCO?
Risk Controls Applicable in the Case of DMA
7. Are there distinct pre-trade risk controls, including measures not listed below [ See section III.C.], or measures in addition to those already adopted by the Commission, that should apply specifically in the case of DMA?
Message and Execution Throttles
8. If, as contemplated above [ See section III.C.1], 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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