Market Access Rule Debated
The rule banning naked or unfiltered sponsored access may create distortions in the market.
New rules prohibiting unfiltered, or “naked,” sponsored access by customers of broker-dealers may favor those who have access to advanced technology over those that don’t, some market participants say.
“I argue that the market access rule has the potential to create a two-tier market, in which the broker-dealers trade fast and customers trade slower,” Adam Afshar, president and CEO of Hyde Park Global Investments, said at Wednesday’s Global Markets Summit in New York. “This can potentially cause significant damage.”
Hyde Park Global Investments is a robotic investment and trading firm based on artificial intelligence (AI). The system is built primarily on genetic algorithms and other models to identify mispricings, arbitrage and patterns in electronic financial markets.
The SEC recently adopted Rule 15c3-5, which applies to broker-dealers with market access to an exchange or alternative trading system, as well as to broker-dealers that provide customers or other persons with access to trading securities directly on an exchange or alternative trading syste
Under the rule, the broker-dealer is responsible for having risk management
controls and supervisory procedures reasonably designed to ensure compliance with all laws, rules and regulations.
In Europe, MiFID II will require that an investment firm that provides direct electronic access to a trading venue shall have in place effective systems and controls, and that persons using the service are prevented from exceeding appropriate preset trading and credit thresholds, that trading by persons using the service is properly monitored, and that appropriate risk controls prevent trading that may create risks to the investment firm itself or that could create or contribute to a disorderly market.
For a hedge fund, compliance with the market access rule involves a delicate balancing act whereby pre-trade risk checks need to exhaustive without compromising speed.
One solution lies in speeding up the process by which data is stored and retrieved, which in the case of a large-scale trading shop can involve trillions of records.
If data can be stored and processed in one location, business latency is reduced, which gives firms an edge when reacting to market data.
Kx Systems’ kdb+ is a high performance, column-oriented database. With a single data format for real-time and historical data, kdb+ provides a unified database that eliminates latency across multiple data management systems.
Compliance is all about risk management, said Simon Garland, chief strategist at Kx Systems.
Kdb+ includes q, a general-purpose programming language that can access data directly, avoiding the performance degradation of first reading in data, then sending the data to an external routine.
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.
Streaming blocks change the basis of matching and price discovery so institutions can find new liquidity.