US stocks regulator increases scrutiny of algorithmic trading
[NEW YORK] Employees of US trading firms responsible for designing algorithmic trading strategies will be required to register with regulators as securities traders under a new rule approved on Thursday aimed at reducing risky and manipulative trading.
People who design, develop, or significantly modify a firm's automated trading systems, which generate or route stock orders, will have to register with Wall Street's self-funded watchdog, the Financial Industry Regulatory Authority, the US Securities and Exchange Commission said in a filing.
Those employees, as well as those responsible for day-to-day supervision of the algorithm's activities, will have to pass a securities trading qualification examination as part of the process.
Algorithmic trading relies on complicated mathematical formulas, with little to no human intervention, to buy or sell stocks. The automated strategies have made trading cheaper and more efficient, but the speed at which they operate can cause glitches to cascade quickly through the market. They can also make market manipulation difficult for regulators to detect.
FINRA said the new rule and enhanced education requirements should reduce "problematic conduct" stemming from algorithmic trading strategies, such as failure to check for order accuracy, inappropriate levels of messaging traffic, and inadequate risk management controls.
Separately, the SEC recently said it plans to propose a rule to enhance the record-keeping requirements of broker-dealers as part of its efforts to boost the oversight of algorithmic trading.
REUTERS
BT is now on Telegram!
For daily updates on weekdays and specially selected content for the weekend. Subscribe to t.me/BizTimes
Capital Markets & Currencies
Vietnam delays launch of new stock trading system
Hong Kong bourse regains favour on hopes of a market revival
Asia: Markets rise as strong US tech earnings offset poor data
Singapore shares open lower on Friday; STI down 0.1%
Stocks to watch: CLI, Great Eastern, MIT, Sheng Siong, iFast, OUE, Far East Orchard
Europe: Stocks retreat on earnings gloom, weak US economic data