The FIA Principal Traders Group and the FIA European Principal Traders Association today issued a set of recommendations to assist trading firms in establishing internal procedures, processes and controls for the development, testing and deployment of trading software.
FIA PTG and FIA EPTA member firms believe that in order for a firm to meet its regulatory obligations and manage and monitor risks, its trading software and technical infrastructure need to work as intended. These best practices were developed by representatives from a dozen FIA PTG and FIA EPTA member firms and are the latest in a series of best practices recommendations developed by FIA members for trading firms, brokers and exchanges.
"These recommendations draw on the extensive experience that our member firms have in the field of electronic trading," said Don Wilson, chairman of the FIA PTG. "Through these recommendations, we are providing a framework that all principal traders can use to mitigate risk across the entire software lifecycle. We also hope that this paper will provide regulators with a better understanding of the types of software development and change management processes and controls that are in place at our member firms."
"Managing the development, testing and deployment of trading applications and technology infrastructure is a complex and dynamic process," said Remco Lenterman, chairman of the FIA EPTA. "Proper application of these best practices will reinforce the role of our member firms as responsible market participants. We are committed to business practices that are consistent with relevant regulatory obligations and risk management requirements."
The recommendations cover three areas: software development, software testing, and the change management process. Rather than recommending specific policies and procedures, the paper offers principles to guide trading firms in establishing their internal procedures, processes and controls. For example, the paper recommends that firms should maintain a development environment that is isolated from the production trading environment and a "source code repository" to track software changes. The paper also recommends that trading firms should have a process for testing software components before they are released to the production environment, and recommends that firms test both discrete units of source code and combinations of software modules. The paper's most detailed recommendations relate to changes to software and technical infrastructure. The paper discusses the core components of change management and outlines the steps that trading firms should take when initiating and deploying a change.
Today the Futures Industry Association issued a separate paper that addresses order-handling practices of executing brokers. Both papers are posted on the FIA website and are part of a series of reports and recommendations aimed at improving risk management practices in the exchange-traded markets, including "Recommendations for Risk Controls for Trading Firms" (November 2010) and "Market Access Risk Management Recommendations" (April 2010)
The FIA PTG and the FIA EPTA bring together firms trading their own capital to define common positions on public policy issues and improve public understanding of the constructive role played by principal trading firms in the exchange-traded markets. FIA PTG and FIA EPTA members engage in manual, automated and hybrid methods of trading on exchanges around the world and in a variety of asset classes, such as equities, foreign exchange, commodities and fixed income.
FIA Principal Traders Group was founded in January 2010.