FIX Protocol Ltd. (FPL) today announced the completion of an initial set of guidelines which recommends risk management best practices in electronic trading for institutional market participants.
In the third quarter of 2010, FPL launched a group to raise awareness regarding the implications of electronic trading on risk management and to develop standardized best practices for industry consideration. Over the last few months, the group, which consists of a number of senior leaders in electronic trading from the major sell-side firms, has been working on developing this set of guidelines to encourage broker dealers to incorporate a baseline set of standardized risk controls.
The objective of the guidelines is to provide information around risk management and encourage firms to incorporate best practices in support of their electronic trading platforms. In today's volatile marketplace, the automation of complex electronic trading strategies increasingly demands a rationale set of pre-trade, intra-day and pattern risk controls to protect the interests of the buy-side client, the sell-side broker and the integrity of the market. The objective of applying electronic order risk controls is to prevent situations where a client, the broker and or the market can be adversely impacted by flawed electronic orders.
"We believe it is important for the industry and our clients to establish core risk management standards in electronic trading for all institutional market participants," said Timothy Furey, Managing Director, Goldman Sachs.
The scope of the particular set of risk controls included in these guidelines is for electronic orders delivered directly to an algorithmic trading product, or to a direct to market (DMA) trading destination. The recommended risk controls included provides the financial services community with a set of suggested guidelines to follow that will systemically minimize the inherent risk of executing electronic algorithmic and DMA orders.
"It was agreed that although the majority of market participants currently apply their own internal risk checks, it would be beneficial to define some base standardization an across the industry which would not only be helpful to the industry participants but be looked at positively by the regulatory bodies," said Neal Goldstein, Managing Director and US Head of Electronic Product Development, Nomura Securities International.