HK SFC Releases Consultation Conclusions on Regulation of Electronic Trading
The SFC received 34 written submissions from industry associations, brokerage firms, investment banks and individuals in response to the proposals contained in the consultation paper. Respondents generally supported the proposals. Most of the initiatives have been adopted in the conclusions.
“The initiatives are intended to provide clarity to intermediaries on the standards that they are expected to meet when they conduct electronic trading. They must have appropriate policies, procedures and controls in place to ensure their electronic trading activities will not pose undue risks to the market,” the SFC’s Chief Executive Officer Mr Ashley Alder said.
“These standards, which are in line with regulations in major international markets and the principles published by the International Organization of Securities Commissions, will help maintain integrity as well as confidence in the market,” he added.
Key aspects of the regulatory regime include:
• Management and supervision- The responsibility to ensure compliance rests with the responsible officers or executive officers and the management of the intermediaries.
• Adequacy of system- Intermediaries should ensure their electronic trading systems are subject to testing and meet regulatory standards with respect to reliability, controls, security and capacity and that contingency measures in place.
• Record keeping- Intermediaries should keep, or cause to be kept, proper records on the design, development, deployment and operation of their electronic trading systems.
• Risk management – Intermediaries should put in place risk management and supervisory controls to monitor orders and trades, including automated pre-trade controls and regular post-trade monitoring.
The new regime which includes amendments to the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission and the Fund Manager Code of Conduct will come into effect on 1 January 2014. The Guidance Note on Internet Regulation issued in March 1999 will be repealed on the same date.
1. On 24 July 2012, the SFC issued a consultation paper on the regulation of electronic trading. The consultation period ended on 24 September 2012.