New algorithmic trading regime for wholesale banking

New algorithmic trading regime for banks

After news of London City trading scandals, the Financial Conduct Authority (FCA) has published new algorithmic trading accountability rules this week, which also cover managers in wholesale banking.

A form of high frequency trading and algorithmic trading caught regulators’ attention after the book about a Wall Street revolt Flash Boys was published, which has now become more widely used in banking dealing. However, this form of trading is known to be a major reason why US equities crashed five years ago and in an attempt to avoid this occurring again, the Bank of England is looking to review controls in this area.

Employment partner at law firm Allen & Overy said that the new rules would make big changes for senior level members of the financial industry. “The level of individual accountability will be greater and a much wider population will be caught than was previously the case,” Henchoz said.

This new regime would add algorithmic trading bosses and programmers to its certification regime which ensures that banks investigate and verify whether employees are suitable for their jobs, according to The Financial Times. “It is important that the individuals responsible for the deployment of trading algorithms are fit and proper, for example to ensure that the algorithms are adequately tested through comprehensive testing to assess their potential behaviour, in particular to ensure they are resilient, do not contribute to disorderly markets or breach market abuse or trading venue rules,” the FCA said.

The regime that includes senior managers will cover around 75,000 of the City’s CEOs, anti-money laundering officers and other high level staff, forcing them to account for their mistakes. In order to avoid a ban or a fine, they will have to provide evidence that they took all possible action to prevent any wrongdoing.

The Bank of England also suggested last year, with the aim of fully cleaning up the wholesale markets after scandals of foreign exchange rigging, that the rules should cover asset managers and dealers also. Alongside this, the Building Societies Association question whether this regime is proportionate and whether or not it should also extend to junior staff. “What we are still looking for is some sensible parity between senior and junior staff; and a code of conduct for junior staff that is part of a firm’s owm management or disciplinary process,” the Building Societies Association as quoted in the FT.

According to the FT, discussions around the new regime will close in September and the final rules will start to be adopted by next year, after being advised by a parliamentary commission.