NEW YORK—Senior financial supervisors from 10 countries—collectively, the Senior Supervisors Group (SSG)—today issued a report that assesses risks associated with algorithmic trading and identifies risk-based control principles and questions for supervisors and supervised firms to consider when assessing the current control environment.
The report—Algorithmic Trading Briefing Note—identifies an important area of interest across SSG supervisory agencies and aims to facilitate thoughtful dialogue and action about improving risk management practices. Given the scale and interconnectivity of risks associated with this type of trading activity, the SSG encourages greater discussion across the industry in the near term.
The report highlights key supervisory concerns including whether risks associated with algorithmic trading activity have outpaced control improvements, and whether standard risk management tools are effective for ongoing monitoring. In addition to assessing the related risks, the report identifies key control principles and suggests questions that supervised firm can use to self-assess and supervisors might consider as they monitor and examine trading activity. The report concludes by stating that supervision needs to remain flexible and adaptable to address the growth and evolution of algorithmic trading.
This report represents a joint effort on the part of supervisory agencies from ten countries and the European Union: the Canadian Office of the Superintendent of Financial Institutions, the European Central Bank Banking Supervision, the French Prudential Control and Resolution Authority, the German Federal Financial Supervisory Authority, the Bank of Italy, the Japanese Financial Services Agency, the Netherlands Bank, the Bank of Spain, the Swiss Financial Market Supervisory Authority, the United Kingdom’s Prudential Regulatory Authority, and, in the United States, the Office of the Comptroller of the Currency, the Securities and Exchange Commission and the Federal Reserve.
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