24 June 2020 – The FICC Markets Standards Board (FMSB) published a new Statement of Good Practice on Algorithmic Trading in FICC Markets as a transparency draft for market consultation.
As the use of computer algorithms in FICC markets continues to increase, the potential for such trading activities to adversely impact market or firm stability, or result in harm to clients, also rises. Accordingly, algorithmic trading has increasingly been the subject of regulatory scrutiny and intervention.
This Statement of Good Practice draws on the extensive work conducted by regulators to date and seeks to further enhance the integrity and effective functioning of FICC markets by promoting good conduct and governance practices for participants engaged in algorithmic trading across all FICC asset classes and markets, in particular those subject to less stringent regulatory requirements.
It sets out 10 Good Practice Statements which cover the governance of, and management of conduct risks associated with, the use of algorithmic trading.
Ciara Quinlan, Global Head of Principal Electronic Trading, FX, Rates and Credit at UBS, said: “The use of algorithmic trading systems across FICC markets has increased significantly in recent years and having robust governance structures in place to help manage the risks associated with this rise in algorithmic trading is critical. This Statement of Good Practice builds on the substantial work conducted by regulators in this space and should help further drive good governance practices particularly in less regulated asset classes and markets”.
Chris Dickens, Chief Operating Officer EMEA, Global Markets at HSBC said: “This Statement of Good Practice seeks to promote good conduct and governance practices applicable to algorithmic trading activities and demonstrates the shared commitment of market participants to enhancing the integrity and functioning of FICC markets.”
Ciara and Chris are co-chairs of the FMSB Working Group that collectively produced this Statement of Good Practice.
FMSB members and other interested parties are invited to comment on the proposed Statement of Good Practice. This consultation will run until Friday 21 August 2020 with the final document expected to be published shortly thereafter.
Algorithmic trading in FICC markets: Statement of Good Practice for FICC market participants Transparency Draft
This Statement of Good Practice draws on the extensive work conducted by regulators to date and seeks to further enhance the integrity and effective functioning of FICC markets by promoting good conduct and governance practices for participants engaged in algorithmic trading across all FICC asset classes and markets, in particular those subject to less stringent regulatory requirements. It sets out 10 Good Practice Statements which cover the governance of, and management of conduct risks associated with, the use of algorithmic trading. FMSB members and other interested parties are invited to comment on the proposed Statement of Good Practice. This consultation will run until Friday 21 August 2020 with the final document expected to be published shortly thereafter. FMSB also issued a press release.
Notes to Editors
1) The Fixed Income, Currencies and Commodities Markets Standards Board (FMSB) is practitioner led, funded by members and operated by the major participants in wholesale markets to improve standards of conduct in wholesale fixed income, currencies and commodities (FICC) markets. It aims to bring transparency to grey areas in the wholesale FICC markets by identifying emerging vulnerabilities, clarifying and documenting practice and agreeing standards to improve conduct and market behaviour. Ensuring that wholesale FICC markets are transparent, fair and effective for all participants is at the heart of FMSB’s mission.
FMSB Standards set out Core Principles and accompanying guidance on the most important aspects of practice where ambiguity risks undermining the transparency, fairness and effectiveness of markets.
FMSB Statements of Good Practice set out clear expectations and guidance on good practice in relation to broader areas of uncertainty in wholesale FICC markets.
FMSB Spotlight Reviews encompass a broad range of publications used by FMSB to illuminate important emerging issues in FICC markets. Drawing on the insight of members and industry experts, they provide a way for FMSB to surface nascent challenges market participants face and may inform topics for future work. Spotlight Reviews will often include references to existing law, regulation and business practices. However, they do not set or define any new precedents or standards of business practice applicable to market participants.
All FMSB publications are available on the FMSB website at fmsb.com/our-publications/.
2) Setting up the FMSB was one of the main recommendations from the Fair and Effective Markets Review (FEMR), which was conducted by HM Treasury, the Bank of England, and the Financial Conduct Authority.
FEMR set FMSB four strategic goals:
- Identifying global market vulnerabilities through scanning the horizon for emerging business practice risks.
- Developing best market practice through the production of standards and other materials that create a common understanding.
- Driving global adherence through ensuring standards are comprehensible and practical.
- Developing consistent approaches to market practices through identifying gaps and inconsistencies in existing regulatory standards and working with other standards setting bodies.
3) FMSB has a Standards Board drawn from senior executives from across wholesale markets, from corporate clients, asset managers, sell-side participants and intermediaries and infrastructure providers such as exchanges and custodians. In specialist, focused committees, sub-committees and working groups, industry experts debate issues and develop FMSB Standards and Statements of Good Practice, and undertake Spotlight Reviews that are made available to the global community of FICC market participants and regulatory authorities.
4) FMSB members bring together sell-side investment banks, buy-side asset managers, market infrastructure providers and exchanges, custodians and users of the market such as corporates. This constitution is unique.
The member firms are listed on the FMSB website at fmsb.com/who-we-are/.