In the past year we have seen increased pressure globally from the large statutory bodies on firms taking this particular area of compliance and regulation seriously. In Hong Kong, the SFC issued their specific electronic trading rules in January 2014 and there is no illusion that they expect firms to follow these rules to the letter. The SEC has made serious noise about Algo trading and has for a number of years scrutinised firms’ internal control framework in this area. Closer to home, the FCA has enhanced its internal skillset, and because they are highly skilled at monitoring the markets through transaction reporting using Zen, they clearly have a view on what is going on.

The FCA however, seems to require a more holistic approach to its regulated firms’ response to the wider Market Conduct agenda and wants to see robust controls in all areas of trading/market conduct. This often should start with a market conduct risk assessment. As always with regulation, prevention is better than cure. SFC intervention, for example, tends to be an expensive and time consuming exercise even if there is no formal enforcement action. The FCA clearly has a number of tools at its disposal to force firms to take this seriously. We have seen them use informal quasi S166 style reports to date, and following their recent thematic review we may well see enhanced focus in this area.

 

Eoin Treacy's view

We don’t often hear from compliance personnel but they play a vital role in highlighting where the trend of regulation is heading. The boom in algorithmic trading systems has resulted in fortunes being made by the leading firms but not without calls of foul play from other quarters, often with justification. Their high profile existence means that regulators are belatedly moving to ensure the sector’s excesses are contained and this can be viewed as a positive development in terms of governance.