What benefits might these guidelines confer on firms that incorporate them, either in terms of new opportunities or averted risk?
John Goeller: We view these guidelines as benefiting the whole market and all market participants, as it is an element of maintaining an orderly market. Preventing errors is a critical responsibility of all market participants.
Neal Goldstein: The most obvious benefit to sell-side brokers is reducing the potential for incurring financial losses as a result of trading errors or sub-optimal performance due to adverse market impact. The industry, as a whole, will benefit by improving investor confidence and protecting the integrity of our markets. For sell-side brokers, the ability to demonstrate adherence to industry-wide standards for risk management practices will have a positive impact on sales and marketing with clients.
Timothy Furey: Helping to maintain a liquid and orderly market is certainly one of the objectives behind consistent risk controls and one of the goals of the FPL Risk Management Committee.
How will these guidelines evolvein the next months and years, and how is the Risk Management Committee shaping this development? Who else should be involved in the Committee to add to this discussion?
Timothy Furey: The guidelines are very much a work in progress as the FPL committee will continue to experience more industry participant involvement and, most likely, move beyond US equity execution.
John Goeller: The initial scope of these guidelines is focused on US equities, but the concepts should apply on a broader basis to other regions or asset classes. As the document is currently out for comment, we expect additional assistance from the trading community and other committees within FPL to help enrich it for broader use outside of core US equity trading.
Neal Goldstein: The initial paper published by the FPL Risk Management Committee was a first attempt at effectively defining standards for electronic trading risk management. These guidelines will evolve as we continue to refine the model and incorporate feedback from industry participants. These initial guidelines are mostly focused on algorithmic trading of US cash equities. My expectation is that as we define a core framework, these guidelines will be expanded to cover global trading in multiple asset classes. While this paper was written by a sell-side working committee within FPL, the feedback we received from our buy-side counterparts has been invaluable. Going forward, we expect to continue this collaboration. I also hope that at some point, we can engage the 3rd party OMS/EMS providers, who play a critical role in the electronic trading product space.
The risk management guidelines can be accessed via the home page of the FIX Protocol website www.fixprotocol.org.
Keeping Risk at Bay: A Systemic Approach
