High Frequency Trading Review


    This paper provides guidance on risk management best practices in electronic trading for institutional market participants. The objective is to provide information around risk management and encourage firms to incorporate best practices in support of their electronic trading platforms. The automation of complex electronic trading strategies in a volatile marketplace increasingly demands a rationale set of pre-trade and intra-day risk controls to protect the interests of the buy side client, the sell side broker and the integrity of the market.

    The risk controls recommended in this paper provide the financial services community with a set of guidelines to systemically minimize the inherent risk of executing electronic algorithmic and DMA orders. Using the conventions within the existing framework of the FIX Protocol, firms should be able to implement the guidelines detailed in this document with minimal effort.

    This document was developed by the Risk Management Committee of FIX Protocol Ltd. (FPL) (http://www.fixprotocol.org/working_groups/riskwg/members) which is an industry association that owns the intellectual property rights of the Financial Information eXchange Protocol (FIX). FIX is a globally-recognized messaging standard enabling the electronic communication of pre-trade, trade and post-trade messages between financial institutions, primarily investment managers, broker-dealers, exchanges and ECNs/MTFs.

    The main purpose of the FPL Risk Management Committee is to raise awareness regarding the implications of electronic trading on risk management and to develop standardized best practices such as this document for industry consideration.

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