Best Practices in Pre-Trade Risk Controls 2016

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Conducting Risk Control Assessments of Electronic Execution Systems

This report provides an update to GreySpark Partners’ Best Practices in Pre-Trade Risk Controls 2014 report, which assessed the ongoing challenges that increasingly complex electronic execution systems posed to healthy functioning of capital markets. The 2014 report provided a series of best practices for both sellside capital markets agency and principal flow businesses to utilise when designing and implementing pre-trade risk controls.

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In 2016, the financial markets industry is undergoing rapid change. Specifically, as the use of sellside hybrid agency/principal trading models for fixed income and FX markets grew in recent years, it became necessary for many market participants to update their original pre-trade risk controls practices. Increasing dependency on algorithmic trading systems poses undue risk to healthy market functioning. Additionally, the adoption of hybrid models and the commoditisation and standardisation of access to the infrastructure and e-trading technology used across multiple different trading venues marks a drastic industry shift.

GreySpark believes that the establishment of consistent operational and governance processes will help buyside firms and sellside market-makers prevent against risk in the form of human or technological error. This updated report will market participants with the awareness and know-how necessary to remain one step ahead of market competitors and regulators in their attempts to develop a string of pre-trade risk controls.

Published on: 21 Oct, 2016

Best Practices in Pre-Trade Risk Controls 2016 – Table of Contents

  • 1.0 The Present State of Pre-Trade Risk Controls
    • 1.1 The Past Challenges to Pre-Trade Risk Controls Implementation
    • 1.2 The Continuing Attempts at Pre-Trade Risk Regulation
    • 1.3 Industry Responses to Regulatory Implementation and Technology Utilisation Challenges
    • 1.4 The State of Affairs in 2016
  • 2.0 The Changing Landscape of Pre-Trade Risk Controls
    • 2.1 Defining Sellside Trading Models across Equities, Fixed Income and FX
    • 2.2 The Management of Hybrid Agency/Principal Trading Model Risks
    • 2.3 The Management of Agency Flow Risks
    • 2.4 The Management of Principal Flow Risks
  • 3.0 Operational and Governance Development: Business as Usual
    • 3.1 Governance support
    • 3.2 Compliance
    • 3.3 Electronic Policy
    • 3.4 Change Management
    • 4.0 Conclusions
    • 5.0 Appendices
      • 5.1 Glossary of Terms
      • 5.2 Table of Figures