FMSB issues good practice guide amid surge in FICC algo trading

As algorithmic trading in the FICC markets increases, the FMSB has released a statement of good practice as a transparency draft for market consultation.

The FICC Market Standards Board (FMSB) has published a new set of guidelines in a bid to reduce risk to markets and firm stability amid a surge in algorithmic trading.

The statement of good practice for algo trading in the FICC markets from the FMSB outlined good conduct and governance for participants engaged in algorithmic trading across all FICC asset classes and markets, in particular, those who are not regulated as stringently.

“The use of algorithmic trading systems across FICC markets has increased significantly in recent years and having robust governance structures in place to help manage the risks associated with this rise in algorithmic trading is critical,” said global head of principal electronic trading, FX, rates, and credit at UBS, Ciara Quinlan.

The statement summarised 10 points that all market participants and venue operators should adhere to when interacting with algorithmic trading or algorithmic trading systems. The points include areas such as ensuring there is an appropriate governance framework and pre and post-trade controls to limit risk, record keeping, and ensuring all staff have sufficient training, among others.

“This statement of good practice seeks to promote good conduct and governance practices applicable to algorithmic trading activities and demonstrates the shared commitment of market participants to enhancing the integrity and functioning of FICC markets,” said Chris Dickens, chief operating officer EMEA for global markets at HSBC.

The statement of good practice follows a recent report from FMSB, which emphasised the current limitations and challenges in adopting algo trading in less liquid markets. It found adoption of execution algorithms offered by banks or dealers to clients on an agency basis for order execution remains lower in FICC, with fundamental issues around data and governance persisting.

FMSB concluded that a consultation will take place on 21 August to comment on the proposed new statement for algo trading in FICC markets, with the aim of it being formally published after scrutiny.