FIA PTG And FIA EPTA Issue Statement In Response To August 1 Market Disruptions
by 03 Aug 22:13
FIA Principal Traders Group and FIA European Principal Traders Association today issued the following joint statement in response to the disruptions that occurred in the U.S. equity markets on August 1.
“Our member firms share the concern expressed by many observers and market participants about the problems affecting Knight Capital and the disruptions these problems caused in the U.S. equity markets. Rapid advances in trading technology have brought very substantial benefits for those who use and rely on markets, but there is no question that they also have introduced new sources of risk.
Over the last several years, FIA PTG and FIA ETPA have devoted considerable time and effort to improving risk controls and establishing best practices to prevent market disruptions and strengthen market resiliency. We have issued several reports with specific recommendations for trading firms, brokers and exchanges, and we have worked with regulators and legislators in the U.S. and the EU to implement meaningful and effective reforms.
Earlier this year, the FIA PTG and FIA EPTA issued a paper that recommended a number of specific tests and controls that trading firms should consider whenever they change their technology systems. Technology is a core component of modern markets, and we strongly believe that managing technological change must be an essential element of risk management for all market participants. The recommendations draw on the extensive experience that our member firms have in the field of electronic trading and are designed to provide a framework that all trading firms can use to mitigate risk across the entire software lifecycle.
It is not clear yet what caused the problems at Knight Capital, but once the facts are out, we will review our recommendations and amend if needed. Knight’s difficulties highlight how quickly the market punishes trading mistakes, but also how important it is for market participants to work with regulators to minimize threats to market stability. We stand ready to share our expertise with regulators as they examine what happened at Knight Capital and consider what reforms are necessary to safeguard our markets.”
[more details about the industry recommendations below]
About FIA PTG
FIA Principal Traders Group was founded in January 2010 and is composed of firms that trade their own capital in the exchange-traded markets. Member firms engage in manual, automated and hybrid methods of trading and are active in a variety of asset classes, such as futures, equities, foreign exchange, commodities and fixed income. These firms are a critical source of liquidity in the exchange–traded markets, allowing those who use these markets for investment and risk management to enter and exit the markets efficiently. More information on FIA PTG is available at http://www.futuresindustry.org/ptg/.
About FIA EPTA
FIA European Principal Traders Association is an association of European principal traders established under the auspices of the Futures Industry Association. FIA EPTA members represent a substantial part of the traded volume on European regulated markets and multilateral trading facilities. FIA EPTA’s mission is to support transparent, robust and safe markets with a level playing field for all market participants. More information on FIA EPTA is available at http://www.futuresindustry.org/epta/.
Editors Note: Below are summaries of the reports and recommendations issued by FIA, FIA PTG and FIA EPTA to manage the risks of electronic trading. These reports and recommendations are designed to raise industry standards, reinforce best practices, and provide regulators with a better understanding of the types of software development and change management processes and controls that can and should be used by market participants.
FIA EPTA Acts to Preserve Market Integrity (July 25, 2012)
As part of ongoing efforts to safeguard market integrity, FIA European Principal Traders Association today published a report called Market Integrity Framework: Best Practices to Preserve Market Integrity. The report recommends a set of best practices to help principal trading firms prevent market manipulation and reduce risks. The recommendations build upon existing European regulation and provide guidance to principal trading firms as they establish their internal policies, procedures and codes of conduct. Click Here for Best Practices
FIA PTG and FIA EPTA Issue Recommendations for Software Development and Change Management (March 14, 2012)
The FIA Principal Traders Group and the FIA European Principal Traders Association today issued a set of recommendations to assist trading firms in establishing internal procedures, processes and controls for the development, testing and deployment of trading software. FIA PTG and FIA EPTA member firms believe that in order for a firm to meet its regulatory obligations and manage and monitor risks, its trading software and technical infrastructure need to work as intended. These best practices were developed by representatives from a dozen FIA PTG and FIA EPTA member firms and are the latest in a series of best practices recommendations developed by FIA members for trading firms, brokers and exchanges. Click Here for the Recommendations
FIA PTG Recommends Risk Controls for Trading Firms (Nov. 4, 2010)
The FIA Principal Traders Group today released a report setting out a number of recommended risk controls for trading firms that have direct access to exchange matching engines. The report expands on a previous set of recommendations published in April 2010 and includes recommendations for risk controls applicable to trading operations and electronic trading systems. The recommendations covers such issues as access and oversight, pre-trade risk management, trading interruptions, post-execution and back office functions, physical security, electronic security, and business continuity. Click Here for the Recommendations
FIA Issues DMA Risk Recommendations (April 27, 2010)
The FIA has issued a report that recommends a number of principles for managing the risks in direct access to exchanges. This type of arrangement has become increasingly common among derivatives exchanges in many parts of the world. The report recommends that exchanges establish certain risk controls and apply those risk controls across all trading firms. This will ensure a level playing field in terms of the latency of trading and avoid creating competitive pressures among clearing firms and trading firms to reduce the latency of trading by applying fewer risk controls. The report was drafted by a working group consisting of representatives from derivatives exchanges, clearing firms and trading firms. The report is the latest in a series of FIA initiatives that promote best practices in the listed derivatives markets worldwide. Click Here for the Report