FIA Principal Traders Group

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Principal Traders Group (PTG)
FIA logo.gif
Founded 2010
Products Lobby group formed by the FIA to represent principal traders that trade only on their own accounts

Principal Traders Group (PTG) is a lobby group formed by the Futures Industry Association (FIA) to represent principal traders (i.e. independent proprietary trading firms that trade only on their own accounts).[1] These firms came under heightened scrutiny for trading practices such as high frequency trading that may have contributed to Wall Street's May 6, 2010 "flash crash."

The group is chaired by Donald Wilson, the head of Chicago-based DRW Trading Group. Most of the 32 member firms are based in Chicago.[2] James Overdahl was appointed as the group's spokesman, he is the former chief economist of SEC and CFTC..

While FIA PTG members do not all trade in the same way, many of them rely on automated trading technology and high-speed connections to exchanges.

History

In June 2010, with high frequency trading getting a lot of controversy from the public, Principal Traders Group serves as an organized means to respond to inquiries about high frequency trading and allows the member firms to identify best practices within the financial industry.[3] The Principal Traders Group will get together to discuss issues, speak with media, and circulate proposals and research. The topics they discuss include proposed transaction taxes and position limits in oil and gas markets. [4]

Papers and Statements

In August of 2012, FIA Principal Traders Group and FIA European Principal Traders Association issued the following joint statement in response to the disruptions that occurred in the U.S. equity markets on Aug. 1, 2012:

“Our member firms share the concern expressed by many observers and market participants about the problems affecting Knight Capital and the disruptions these problems caused in the U.S. equity markets. Rapid advances in trading technology have brought very substantial benefits for those who use and rely on markets, but there is no question that they also have introduced new sources of risk.

Over the last several years, FIA PTG and FIA ETPA have devoted considerable time and effort to improving risk controls and establishing best practices to prevent market disruptions and strengthen market resiliency. We have issued several reports with specific recommendations for trading firms, brokers and exchanges, and we have worked with regulators and legislators in the U.S. and the EU to implement meaningful and effective reforms.

Earlier this year, the FIA PTG and FIA EPTA issued a paper that recommended a number of specific tests and controls that trading firms should consider whenever they change their technology systems. Technology is a core component of modern markets, and we strongly believe that managing technological change must be an essential element of risk management for all market participants. The recommendations draw on the extensive experience that our member firms have in the field of electronic trading and are designed to provide a framework that all trading firms can use to mitigate risk across the entire software life cycle.

It is not clear yet what caused the problems at Knight Capital, but once the facts are out, we will review our recommendations and amend if needed. Knight’s difficulties highlight how quickly the market punishes trading mistakes, but also how important it is for market participants to work with regulators to minimize threats to market stability. We stand ready to share our expertise with regulators as they examine what happened at Knight Capital and consider what reforms are necessary to safeguard our markets.”[5]


In November 2010, PTG published a white paper entitled Recommendations for Risk Controls for Trading Firms. The paper highlights its recommended policies and procedures for trading operations and electronic trading systems in such areas as:

  • Access and oversight of staff;
  • Testing and error control systems;
  • Pre- and post-execution risk management protections;
  • Contingency plans for trading interruptions; and
  • Physical and electronic security.[6]

Membership

PTG membership is limited to firms which trade solely their own capital. Members engage in traditional, hybrid, and high-frequency trading, in an assortment of asset classes. Member firms include:

Key People

References

  1. High-Frequency Traders Get A New Name. Forbes.
  2. US lobby group formed on high-frequency trade. Reuters.
  3. High frequency traders get an ally. Futures.
  4. High-frequency traders get a new name. Forbes.
  5. Press Release. Futures Industry.
  6. Recommendations for Risk Controls for Trading Firms. FIA Principal Traders Group.