How We Do It: Electronic Trading & Technology

The Electronic Trading & Technology (ETTC) examines areas where technology impacts wholesale markets, creating opportunities and challenges. Recent key areas of work include issuing a Statement of Good Practice to help firms apply model risk management frameworks in a proportionate manner to models deployed in electronic trading algorithms. Current areas of work include exploring market-facing applications of AI.

“As asset managers, we appreciate FMSB’s efforts to convene a broad spectrum of market participants to promote the highest standards of conduct in wholesale financial markets. In particular, we recognize the value of establishing best market practices in key focus areas, such as the Electronic Trading and Technology Committee’s Statement of Good Practice on model risk management and the ongoing work reviewing market-facing applications of AI.”

Hubert de Jesus, Managing Director Global Head of Electronic Trading and Market Structure, BlackRock

Work in Progress

Market-facing applications of AI

As highlighted in the Future of financial markets report, AI is increasingly being adopted in trading and execution activities. As market participants explore such market-facing applications, the risks associated with such use cases will differ from internal applications. Furthermore, broad definitions of AI potentially capture both traditional machine learning techniques used in e-trading, as well as novel generative AI and natural language processing applications.
The focus of the Working Group is on market-facing AI applications in wholesale markets, distinguishing between more traditional and novel use cases, the potential risks these pose to firms, clients and markets as well as how firms may think about mitigating such risks.

Topics under consideration

Application of model risk management frameworks to electronic trading algorithms

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