Where market members give customers direct electronic access, enabling them to enter orders into their trading system for execution using their trading code, firms have specific obligations to mitigate risks to the firm and combat market abuse.
5 tips to prepare for the new rules on Direct Electronic Access:
- Suitability assessments and screening - proper assessments must be conducted before granting access and then annually to review the suitability of Direct Electronic Access for clients. Decide how and when this due diligence check will take place - eg, at onboarding and during the client lifecycle.
- DEA agreements - ascertain whether mandatory written agreements can be incorporated into pre-existing software, what questions you'll need to ask, what evidence you might need, etc.
- Determine what pre-set trading or credit thresholds apply - and be sure to apply appropriate measures and controls so that clients cannot exceed them.
- Monitor trading behaviour of DEA clients - how do you plan to monitor the trading behaviour of DEA clients? Do DEA clients receive unique identification numbers to identify those initiating orders, ensuring clear differentiation from your employees?
- Review systems and controls - what other systems and controls should you implement to prevent trading by DEA clients which may create risks to your firm or may create a disorderly market? Are there adequate systems in place to combat market abuse, spoofing, etc? What more can be done?
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