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

    FCA Consults on Regulation of International Firms in UK

    FCA is consulting on its approach to the authorization and supervision of international firms operating in UK.

    September 23, 2020 WebPage Regulatory News
    News

    MAS Amends Notice on Capital Adequacy Requirements of Banks

    MAS published amendments to Notice 637 on the risk-based capital adequacy requirements for reporting banks incorporated in Singapore.

    September 23, 2020 WebPage Regulatory News
    News

    FCA to Begin to Move Firms to New Data Collection Platform RegData

    FCA announced that it will move firms to RegData from Gabriel in the coming months in stages, based on the reporting requirements of firms.

    September 23, 2020 WebPage Regulatory News
    News

    APRA Reviews Repayment Deferral Plans, Identifies Best Practices

    APRA has concluded its review of the comprehensive plans of authorized deposit-taking institutions for the assessment and management of loans with repayment deferrals.

    September 22, 2020 WebPage Regulatory News
    News

    ESAs Assess Risks to Financial Sector After COVID-19 Outbreak

    ESAs (EBA, EIOPA, and ESMA) published the first joint report that assesses risks in the financial sector since the outbreak of the COVID-19 pandemic.

    September 22, 2020 WebPage Regulatory News
    News

    BoE Confirms Withdrawal of COVID Corporate Financing Facility

    BoE and HM Treasury confirmed that the COVID Corporate Financing Facility (CCFF) will close for new purchases of commercial paper, with effect from March 23, 2021.

    September 22, 2020 WebPage Regulatory News
    News

    ESAs Launch Survey on Templates for Product Disclosures Under SFDR

    ESAs launched a survey seeking feedback on the presentational aspects of product templates under the Sustainable Finance Disclosure Regulation (SFDR or Regulation 2019/2088).

    September 21, 2020 WebPage Regulatory News
    News

    ECB Proposes Integrated Reporting Framework to Reduce Burden for Banks

    ECB published input of the European System of Central Banks (ESCB) into the EBA feasibility report on reducing the reporting burden for banks in EU.

    September 21, 2020 WebPage Regulatory News
    News

    EC Deems UK Framework for CCPs Temporarily Equivalent to EMIR Rules

    EC adopted a decision determining, for a limited period of time, that the regulatory framework applicable to central counterparties, or CCPs, in the UK and Northern Ireland is equivalent to the requirements laid down in the European Market Infrastructure Regulation (EMIR or Regulation 648/2012).

    September 21, 2020 WebPage Regulatory News
    News

    EBA to Phase Out Guidelines on Loan Repayment Moratoria

    EBA has decided to phase out the guidelines on legislative and non-legislative moratoria of loan repayments, in accordance with the earlier specified end of September deadline.

    September 21, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5829