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Algorithm Risk Control Management and Reporting – Integration with Model Risk Management Process

Client

US Investment Bank

Function

Algorithmic Trading; Quantitative Trading

Asset Class

Commodities; Fixed Income; FX

Geography

Europe; US

Duration

6 months

The Ask

For regulatory purposes, the client’s electronic FX and Fixed Income businesses have identified a need to document and evidence their catalogue of eTrading algorithms, detailing and evidencing a series of predefined control metrics. The client had 52 algos in scope, covering pricing, hedging and trading. The complexity of each execution algorithm varied from simple to complex.

The majority of the algorithms did not have sufficient supporting documentation and were not sufficiently integrated with the model risk management process.  A true definition of an execution algorithm owner did not exist; the process called for the product owner to manually complete a template to model risk and model validation process. This process created regulatory risk and execution algorithm control approval issues which needed to be remediated quickly.

Methodology

GreySpark deployed a team of experienced subject matter experts in risk management and electronic trading. For each algorithm, the GreySpark team:

  • Gathered all relevant documentation, technical schematics, business logic, SDLC and management workflow processes from client’s technology and quant teams.
  • Reviewed the data and performed a code deep dive of the corresponding source code, if necessary.
  • Assessed the conformance of the execution algorithm’s risk controls against regulations and industry best practices.
  • Raised any observations or recommendations arising from the review to client teams and management.
  • Completed a risk control registry document for each algorithm in scope.

Outcome

GreySpark delivered a series of risk control register documents for each algorithm in scope.

For each completed and documented algorithm, a number of sign-offs are enacted, moving from quant teams to business, compliance and IT teams.

GreySpark Delivered Benefits

  • GreySpark developed a recurrent process that identified common themes and standards across the various algorithm types and host platform/frameworks that support them.
  • The quality and timeliness of each deliverable were vastly improved as a result of GreySpark’s work.
  • The client was able to meet reporting requirements in a timely fashion and adhere to compliance standards.

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