Featured Product

    HKMA Issues Risk Management Practices for Algorithmic Trading by Banks

    March 06, 2020

    HKMA published sound practices on the management of risks associated with algorithmic trading by the authorized institutions. These practices are based on the results of an HKMA survey from 2018 and a round of thematic onsite examinations conducted in 2019. The survey on algorithmic trading suggested that algorithmic trading may become more prevalent in the banking industry. Thus, HKMA considers it useful to set out its supervisory expectations around algorithmic trading and share the sound practices observed during the thematic examinations with all authorized institutions.

    Authorized institutions engaged in algorithmic trading activities are expected to give due consideration to these supervisory expectations and sound practices when developing their risk management framework, having regard to the nature, scale, and complexity of their algorithmic trading activities. Some of these sound practices have been adopted by the more advanced institutions, as observed by HKMA in the thematic examinations. Seven authorized institutions, mainly international banks using algorithms for making investment decisions, were covered in the thematic examinations. The objective of the examinations was to assess the adequacy and effectiveness of the risk management practices of authorized institutions in relation to algorithmic trading activities, including governance and oversight, development and testing of algorithms, and risk monitoring and controls. The sound practices set out by HKMA cover the following areas: 

    • Proper governance and risk management frameworks, effective and independent control function, regular reviews of algorithms and relevant governance and controls, and regular internal audit reviews
    • Effective framework governing development and testing of algorithms and robust algorithm approval policy and procedures
    • Comprehensive and prudent pre-trade controls, robust post-trade controls, proper kill functionality to suspend trading, effective business continuity arrangements, adequate controls on access rights, and robust incident-handling policy and procedures 
    • Proper documentation for audit trials and comprehensive inventory of algorithms

    Keywords: Asia Pacific, Hong Kong, Banking, Securities, Algorithmic Trading, Governance, Sound Practices, Fintech, Artificial Intelligence, HKMA

    Related Articles
    News

    US Agencies Issue Several Regulatory and Reporting Updates

    The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.

    January 04, 2023 WebPage Regulatory News
    News

    ECB Issues Multiple Reports and Regulatory Updates for Banks

    The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.

    January 01, 2023 WebPage Regulatory News
    News

    HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements

    The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.

    December 30, 2022 WebPage Regulatory News
    News

    EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR

    The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.

    December 29, 2022 WebPage Regulatory News
    News

    CBIRC Revises Measures on Corporate Governance Supervision

    The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.

    December 29, 2022 WebPage Regulatory News
    News

    HKMA Publications Address Sustainability Issues in Financial Sector

    The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.

    December 23, 2022 WebPage Regulatory News
    News

    EBA Updates Address Basel and NPL Requirements for Banks

    The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.

    December 22, 2022 WebPage Regulatory News
    News

    ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite

    The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.

    December 22, 2022 WebPage Regulatory News
    News

    FCA Sets up ESG Committee, Imposes Penalties, and Issues Other Updates

    The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.

    December 20, 2022 WebPage Regulatory News
    News

    FSB Reports Assess NBFI Sector and Progress on LIBOR Transition

    The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.

    December 20, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8697