Hong Kong looks to strengthen electronic trading rules
The Securities and Futures Commission (SFC),
Hong Kong’s market regulator, has begun a two-month public consultation in an
effort to bolster its electronic trading rules.
regulation will address three core areas of algorithmic trading, Internet
trading and direct market access, to form a clearer regulatory framework to
meet the rise in electronic trading.
The changes will
bring the Hong Kong regulations in closer step with international rules
outlined by the regulatory trade body the International Organisation of
Securities Commissions and are a sign Asian regulators are starting to tighten
rules on automated trading, mirroring similar moves in the US and Europe.
The SFC paper
includes guidance for testing algorithmic trading systems and strategies and the
implementation of risk management controls. Other areas addressed include
general requirements on all forms of electronic trading such as responsibility
for orders, management and supervision and record keeping.
In particular, Internet
trading and DMA services will require intermediaries to have risk management
and supervisory controls in place with automated pre-trade controls and
“We propose that
an intermediary should put in place control measures to enable it to prevent
the system from generating and sending orders to the market that may be
erroneous,” stated the consultation paper.
Ashley Alder, SFC
chief executive, said: “The proposed framework aims to strike a balance between
facilitating market developments and maintaining market integrity.
“To manage risks
arising from the use of sophisticated trading technology and practices, the
industry must have appropriate controls in place when conducting electronic
The paper is open
for comment until 24 September.
Reporting by Richard Henderson