FTF News reaches out to former CFTC Commissioner Bart Chilton to sort out the impacts of the current market correction.
(Editor’s note: Global financial markets have been rising and falling dramatically over the past two weeks and many industry observers say that markets are going through a correction/selloff. Ultimately, volatility returned to markets and many analysts say that it may become the new normal. “We suspect that the volatility will likely continue in both directions over the next several months, in a more normal long-term pattern compared to the low volatility of the past two years. This could take some getting used to,” says Bob Dickey, a technical strategist for RBC Wealth Management, in a public research note. In light of the new volatility, FTF News is reaching out to industry observers and participants to gather insight into this return to volatility. One such industry participant and observer is former CFTC Commissioner Bart Chilton, who is an author and financial, political and policy writer, commentator, speaker and consultant. He is also the 2014 winner of the Editor’s Choice award of the FTF News Technology Innovation Awards (which are underway for 2018). At the CFTC, Chilton led the energy and environmental advisory committee and the global markets advisory committee. After his time at the CFTC, Chilton served as senior policy advisor at the global business law firm DLA Piper. He has also previously served on the boards of directors of Bion Environmental Technologies and the Association of Family Farms.)
Bart Chilton, former commissioner, CFTC
Q: How would you describe the current market volatility? Is it a correction or something else?
A: We’ve had ‘Bubblicious’ speculation in these markets for many months. It was just a matter of time when we would see a correction. I’d been saying so for many months.
That said, it certainly came more fast and furiously than most expected. That is, in part, due to the Cheetahs, the high frequency traders who go in and out of markets in milliseconds scooping up micro-dollars.
The Cheetahs add important liquidity to markets, and as market makers they usually do so at times when it is most needed. … When markets move, they can and do move in a huge hurry — that’s what we’ve seen on a few of the recent days.
Don’t get me wrong, they could just as easily move up, due to the Cheetahs. But we have not come to grips with the super speeds of markets. It’s time to reassess circuit breakers and look at how markets are working in concert with each other and see how the newer products on the block are working out. Some of them are not so good, in my opinion.
Q: Should IT, operations and compliance staffs that support securities trading and regulatory reporting be concerned about the market correction? If so, why?
A: We should, for sure, be not only concerned about, but look at how markets have moved.
I’m not suggesting that anything nefarious has taken place — although I wouldn’t put that out of bounds.
I have some very credible folks claiming manipulation in a few products — but overall, I think this was an expected and now widely accepted correction.
Q: Will a market correction cause financial services firms to stall much-needed IT overhauls as cost-cutting measures?
A: IT is an increasingly key component of all financial service firms. Those who don’t invest and continue robust IT programs will regret doing so in my view.
Things are simply moving too fast to assume the status quo is cool. It’s not.
Q: Should IT and operations be ready to create new systems that will handle rising interest rates and a big market swing toward fixed income instruments?
A: Being nimble and quick has always been a competitive advantage for traders.
IT helps traders be able to look around the corner, but it is more than that, it keeps them more secure and safe, and that, in turn, helps steady their risk tolerance.
Integrated IT is indispensable for firms and well-functioning markets.
Q: How will a tougher market with tighter margins impact staffing for securities IT and operations?
A: It is always a balancing act for financial firms to place staff resources appropriately.
That will always be the case, but markets move so fast these days, IT simply must have a top place on a firm’s ‘To Do’ lists.
For more in-depth discussions on this topic, join us in Chicago at DerivOps North America 2018 on April 16-17. Bart Chilton, former CFTC Commissioner will be the keynote speaker at this event!
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