A governance framework for Algorithmic Trading

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A major Global investment bank requested Avantage Reply to assist with the delivery of a Governance framework and Global policy for electronic trading to satisfy the PRA SS 5/18 requirements. This covered the agency client electronic trading and principal algorithmic trading businesses across Equities, FX, Rates, Credit and Commodities in EMEA, US and Asia.

THE CHALLENGE

In order to meet PRA SS 5/18 requirements, formal approval was sought from the firm’s Board for the Electronic Trading Governance framework and identification of Senior Managers as part of the overall Governance framework. In order to meet PRA requirements, enhancements were also required to the Global Electronic Trading Governance Policy to cover Algorithm approval (including multi regional and remote booking algorithms), structure / ownership of the inventory of algorithms and risk controls, algorithm decommissioning, testing/validation by the 1st and 2nd line, algorithm documentation standards and extension of the risk and control framework to include Liquidity and Cyber risks.

APPROACH AND SOLUTION

Avantage Reply delivered the Governance framework and Global policy following the stages below:

Gap Analysis: Enhancements to the Governance framework and Global policy were identified through a gap analysis against PRA SS 5/18 requirements
Bilateral discussions: Meetings with stakeholders in the 1st and 2nd line to socialise changes to the Governance framework and Global policy.
Governance Framework Approval: Presentation of the Governance Framework at the electronic trading and risk committees for approval with ultimate approval by the Board
Global Electronic Trading Governance Policy Approval: Presentation to the electronic trading committees for approval with Global 1st and 2nd line representation

RESULTS AND BENEFITS

Enhanced Governance Framework for Electronic Trading to include the approval of multi regional and remotely booked algorithms and extension of Senior Manager responsibilities in the equity and fixed businesses to encompass Algorithmic Trading

Enhanced Global Governance Policy including enhanced roles and responsibilities, algorithm approval processes, testing procedures and risk appetite framework to include Liquidity Risk (Funding and Market Liquidity) and Cyber risks.

Deliverables:

Board Approved Electronic Trading Governance Framework
Global Electronic Trading Governance Policy

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