![*from public slide deck
[Withheld]
[Withheld]
[Withheld]
[Withheld]
[Withheld]
[Withheld]
[Withheld]
“We didn’t know the system could do that”
“Human identification of issue”
“Client oversight sophistication improving”
“Why are we still using Excel?”
“Technology before regulation”
“Reliance on automated systems”
“bad actors”
Fine* Learning](https://image.slidesharecdn.com/algorithmictradingincontext27062018-180628084511/85/Algorithmic-trading-in-context-27062018-26-320.jpg)
Algorithmic trading in context 27062018
- 1. Algorithmic Trading in Context 27 June 2018 Mike Booth Regulatory Director, ES Consulting
- 2. Algorithmic Trading in Context • How does governance work in multi- jurisdictional locations? • How should you take into account associated regulatory expectations? • What about Blockchain and FinTech? • What can be learnt from previous regulatory fines over office controls
- 4. Governance: Type of aircraft (Type of Algo) How high you are flying (Stress tests) Speed (number of messages per second) Fuel on board (size of positions) Number of passengers (what could happen if thigs went wrong) Distance to nearest airport (How quickly can you get out of trouble) Body check prior to each flight (regular information) Detailed check if something goes wrong (error resolution process that triggers detailed assessment)
- 5. Testing: Are you using it outside/inside (dictates type of testing) Blue and oil based (does it do what it says on the tin) Dry's in 1 hour (test for likely scenarios) Lasts for 10 years (test for exceptional circumstances) Good for hard wood only (what market conditions does it work in?)
- 6. Risk focused: Is the boat big enough? Controls need to be flexed to the complexity of the algo Simple algos do not always equate to low risk Does senior management know if you are catching small fry or whoppers?
- 7. Training and competence: Underlying everything is quality of people Is there a training program? How to articulate to senior management?
- 8. Don’t be slow on the uptake It is solving a problem It’s a must have Not a fad
- 9. Governance How does governance work in multi-jurisdictional locations?
- 10. How does governance work in multi-jurisdictional locations? Hub and spoke compliance a Retaining competence a Being alive to matrix reporting issues a Leveraging group technology a Group not just local conflicts a Tail wagging the dog a Control environment a Which market scenario? a Feet on the ground a Defined responsibilities a Hub and spoke compliance Reliance on common control environments Harmonised reporting with local accountability Demonstrating local accountability
- 11. How does governance work in multi-jurisdictional locations? Hub and spoke compliance a Retaining competence a Being alive to matrix reporting issues a Leveraging group technology a Group not just local conflicts a Tail wagging the dog a Control environment a Which market scenario? a Feet on the ground a Defined responsibilities a Retaining competence How to leverage competence outside local jurisdiction Plumber example – I don’t need to be a plumber to know if they have fixed my tap – output/test orientated compliance Consider reporting lines Key test: Do you know what could go wrong?
- 12. How does governance work in multi-jurisdictional locations? Hub and spoke compliance a Retaining competence a Being alive to matrix reporting issues a Leveraging group technology a Group not just local conflicts a Tail wagging the dog a Control environment a Which market scenario? a Feet on the ground a Defined responsibilities a Being alive to matrix reporting issues Corporate reporting lines V.S. local reporting lines Reporting lines between dooers and checkers 1st and 2nd line overlap
- 13. How does governance work in multi-jurisdictional locations? Hub and spoke compliance a Retaining competence a Being alive to matrix reporting issues a Leveraging group technology a Group not just local conflicts a Tail wagging the dog a Control environment a Which market scenario? a Feet on the ground a Defined responsibilities a Leveraging group technology Is this covered by ISAE type reports and internal audit? What about group changes that impact local needs? Do local jurisdictions have a say? Immediate access to records? Location of records
- 14. How does governance work in multi-jurisdictional locations? Hub and spoke compliance a Retaining competence a Being alive to matrix reporting issues a Leveraging group technology a Group not just local conflicts a Tail wagging the dog a Control environment a Which market scenario? a Feet on the ground a Defined responsibilities a Group not just local conflicts Obligation to consider group conflicts What if you are not in control of them? Are the different trading books understood?
- 15. How does governance work in multi-jurisdictional locations? Hub and spoke compliance a Retaining competence a Being alive to matrix reporting issues a Leveraging group technology a Group not just local conflicts a Tail wagging the dog a Control environment a Which market scenario? a Feet on the ground a Defined responsibilities a Tail wagging the dog Parent providing services to a subsidiary Culture change needed?
- 16. How does governance work in multi-jurisdictional locations? Hub and spoke compliance a Retaining competence a Being alive to matrix reporting issues a Leveraging group technology a Group not just local conflicts a Tail wagging the dog a Control environment a Which market scenario? a Feet on the ground a Defined responsibilities a Control environment Algo designers, testers and users doesn’t operate in isolation Is there one or several control environments? How should these be assessed? How are they reported on?
- 17. How does governance work in multi-jurisdictional locations? Hub and spoke compliance a Retaining competence a Being alive to matrix reporting issues a Leveraging group technology a Group not just local conflicts a Tail wagging the dog a Control environment a Which market scenario? a Feet on the ground a Defined responsibilities a Which market scenario Let the punishment fit the crime
- 18. How does governance work in multi-jurisdictional locations? Hub and spoke compliance a Retaining competence a Being alive to matrix reporting issues a Leveraging group technology a Group not just local conflicts a Tail wagging the dog a Control environment a Which market scenario? a Feet on the ground a Defined responsibilities a Feet on the ground How to get a feel of the control environment you are relying upon
- 19. How does governance work in multi-jurisdictional locations? Hub and spoke compliance a Retaining competence a Being alive to matrix reporting issues a Leveraging group technology a Group not just local conflicts a Tail wagging the dog a Control environment a Which market scenario? a Feet on the ground a Defined responsibilities a Defined responsibilities Who is doing what? Is this written down? Has everyone agreed? Too much detail?
- 20. Associated regulatory expectations The tsunami
- 21. The tsunami Post TradeSettlementExecutionOrder Application of investment strategy Allocation of investment opportunities Inside Information Best Execution Investment Research Pre-trade compliance Segregation of duties Segregation of duties Risk management Recordkeeping Recordkeeping Order Handling Pre-trade compliance Transaction reporting Transaction / Trade reporting Commission rates EMIR Reporting Trade Errors Short selling regulations EMIR Confirms Broker on- boarding Risk management Performance Review Clock Sync Algo Trading Buy side Dark Pools Trading Obligation DMA Tick Sizes Position Limits Market Data Algo Trading
- 22. The tsunami Buy side pressures (best ex and investment research) Transaction / Trade Reporting Senior Manages and Certification Regime FCA Business Plan
- 23. Blockchain and FinTech New world
- 24. Our view* *http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/treasury-committee/digital-currencies/written/81375.html Crypto-fuel Designed primarily to enable developers in creating blockchain- supported applications Ethereum, EC, NEM, NEO, Qtum, Cardano, EOS Crypto-Transaction Designed primarily for transaction value Bitcoin, Bitcoin Cash & Gold, Litecoin Crypto-Voucher Tokens carry right to predefined assets Airswap, Bancor Protocol, Filecoin, Tether
- 25. What can be learnt from previous regulatory fines over office controls
- 26. *from public slide deck [Withheld] [Withheld] [Withheld] [Withheld] [Withheld] [Withheld] [Withheld] “We didn’t know the system could do that” “Human identification of issue” “Client oversight sophistication improving” “Why are we still using Excel?” “Technology before regulation” “Reliance on automated systems” “bad actors” Fine* Learning
- 27. eversheds.com ©2015 Eversheds LLP Eversheds LLP is a limited liability partnership Contact Details Mike Booth Regulatory Director | ES Consulting | Eversheds Sutherland E: MichaelBooth@Eversheds-Sutherland.com T: +44 20 7919 0843 M: +44 7464 906 192