Regulators inward the United Kingdom (FCA) have warned that guidelines and rules for the fast growing algorithm trading manufacture are non being followed appropriately by roughly suppliers. Very oft, algorithm trading is poorly designed too non monitored, leaving traders too financial markets broad open up to disruptive trading, mistakes and market abuse. Algorithm trading oftentimes happens at rapid speeds which tin can amplify the risks fifty-fifty farther. The consultation between the Financial Conduct Authority too the Bank of England was position inwards place subsequently commentators queried the office of algorithm trades inward situations of market place turmoil too upheaval.
FCA Comments on Algorithm Trading
The regulators commented that inwards close to instances rules on algorithm trading were not being followed in addition to that “well defined in addition to understood deployment procedures are critical to bring down the errors inwards algorithmic trading”. The 2012 instance of the loss of £440m inward thirty minutes past the Knight Capital Group was highlighted every bit an case of the type of trading to live avoided. The loss was caused by an mistake inwards the Knight uppercase Group’s trading organisation too caused a knock on outcome for the stocks of virtually 150 companies.
Regulators accept warned that algorithmic trading companies should consider the potential effects of algorithmic trading upon marketplace integrity as well as monitor for issues while reducing risks of market place abuse. Firms are as well advised to employ robust testing too development processes to ensure potential issues are identified prior to the launch of whatever algorithmic trading platforms.
The regulators highlighted examples of senior staff at algorithmic trading firms having lilliputian or no understanding of how the algorithms work together with beingness unable to place whatever risks to the trading model or the wider markets.
The written report highlighted a number of issues inside the quickly growing algorithmic trading industry in addition to identified that companies sometimes failed to keep adequate records of incidents too breaches of the chance parameters. Other companies failed to correctly monitor issues of market abuse. The regulators highlighted that marketplace abuse alerts on issues such every bit insider trading or layering are existence maintained, still, issues such equally momentum ignition as well as reference cost gaming besides needed to be considered.