FCA publishes paper on algorithmic trading compliance

Algorithmic trading is set to come under more intense scrutiny, as United Kingdom financial authorities have today demanded that institutions increase awareness and safety controls surrounding the electronic trading mechanisms.

In an explanatory document accompanying its 28-page report, as well as the PRA's document, the FCA acknowledges that automated technology "can amplify certain risks" for the markets, in addition to offering "significant benefits to investors, including increased execution speed and reduced costs".

"This report summarises our key areas of focus, and highlights examples of good and poor practice", the FCA adds, noting that it is based on a number of "cross-firm reviews on themes related to alorithmic trading".

Banks and other firms may have to meet tougher requirements to manage risks stemming from algorithmic trading in the U.K.as markets become increasingly computer-driven, the Bank of England said on Monday.

Although this offers obvious efficiency benefits, the PRA is anxious that trading "can occur at rapid speeds, which means that existing risks could be amplified if risk management and other controls are not effective". It is therefore essential that key oversight functions, including compliance and risk management, keep pace with technological advancements. Firms should consider and act on its content in the context of good practice for their business.

The FCA said it will focus on five areas regarding algorithmic trading, including making sure firms can define it and ensuring firms can monitor for potential conduct issues and reduce market abuse risks from algorithmic trading. This is an area of continuing collaboration and we will continue to work with the PRA to ensure we are coordinated in our approaches going forward.

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