By Roberta Rampton
BOCA RATON, Florida (Reuters) - High-frequency traders have become a convenient scapegoat as markets for sugar, coffee, cocoa and cotton react to tight supplies and surging demand, the president of ICE Futures US <ICE.N> said on Wednesday.
"They get blamed for everything under the sun," Tom Farley told a Futures Industry Association conference.
"When that volatility goes up, independent of the facts, people like to blame high-frequency traders, where on the contrary, we love them. We think that they dampen volatility."
But the traders account for only about 10 percent of the volume in soft commodities, which trade on ICE, Farley noted, arguing high-frequency traders who use algorithmic programs to make split-second trades actually dampen volatility.
"I spend a good deal of my day fending off complaints that I get, say, 'Your fill-in-the-blank ... market has run amok, it's all high-frequency traders,'" Farley said, noting algo traders were initially fingered for a spike in the sugar market a few weeks ago.
"In reality, it was one guy on the floor who decided to put $30 mln of sugar in as a market order," Farley said.
Many traditional traders complain that computer-driven trading has caused dramatic and abrupt price swings in the softs, which are relatively small and illiquid markets.
"Ten percent of the volume isn't that much, really," said Sterling Smith, an analyst Country Hedging Inc. in Minnesota.
"The problem with the algo trading is that it shows up at an inopportune moment. If a market is suddenly weak and something trips an algo-related trade and they really force the selling or buying into the market that will cause an abnormal move," Smith said.
(Reporting by Roberta Rampton; Editing by Alden Bentley)