Buy Side Supports Automated Safeguards
Buy side trading companies and hedge funds are supportive of the Commodity Futures Trading Commission’s Concept Release on Safeguards for Automated Trading.
“My firm has consistently supported a regulatory environment that promote fair competition, encourages innovation, enhances transparency, manages systematic risk, lowers costs for investors and gives regulators the tools they need to detect and deter abuses,” said Richard Gorelick, CEO of RGM Advisors, in a comment letter.
As markets have become increasingly electronic, market quality has improved dramatically, as has been reflected in dozens of empirical studies using diverse methodologies and metrics, Gorelick noted.
Responsible risk management requires a multilayered structure of independent safeguards. “The futures industry has, on its own imitative developed and put in place risk controls and safeguards,” Gorelick said. “Nonetheless, some are concerned that the combination of electronic markets and computer trading has increased the risk of certain kinds of market disruptions.”
Still, “the vast majority of evidence is clear that automation, competition and high frequency trading improve market quality,” he said.
The Managed Funds Association stated that with the evolution and automation of the U.S. derivatives markets, it is important to ensure that appropriate risk controls and system safeguards are in place to address operational, infrastructure and security risks.
MFA believes that the Commission has implemented a robust derivatives market framework and supports recently adopted rules that require FCMs, SDs and MSPs that are clearing members to establish risk-based limits based on position size, order size, margin requirements, or similar factors; and requiring those entities to use automated means to screen orders for compliance with the risk limits when such orders are subject to automated execution.
The CFTC has also adopted rules that require DCMs to establish and maintain risk control mechanisms to prevent and reduce the potential for price distortions and market disruptions, and that require SEFs to establish and maintain risk control mechanisms to prevent and reduce the potential for market disruptions.
In general, MFA believes that marketplace risks should be addressed in two ways: (1) by requiring that trading platforms have appropriate risk control mechanisms, and policies and procedures to ensure that they operate as intended; and (2) by requiring FCMs, SDs and MSPs that are clearing members, as the gateways to the markets, to have financial and regulatory risk management controls to reduce risks associated with market access.
“We strongly believe that such a framework, which requires risk controls at both the trading platform and intermediary- levels, optimizes customer protection, market integrity and the promotion of responsible innovation and fair competition,” said Stuart Kaswell, MFA executive vice president and general counsel.
Agency broker moves beyond execution to offer a broader suite of services.
Algorithms have become more prevalent in the spot FX market.
QB’s Algo Suite for futures market trade execution is also being co-located to HKEX.
Breaking data silos is key to deploying automation beyond 'nuisance' orders.
They can be used on quantum hardware expected to be available in 5 to 10 years.