BCS upgrades pre-trade risk checks to meet new algo trading regs
Russian broker BCS Prime Brokerage plans to implement a new pre-trade risk system called TripleCheck, which it says will help it to meet tough new regulations on algorithmic and proprietary trading.
Built by Succession Systems, the new tools check trading activity to protect against mistakes such as ‘fat finger’ errors, as well as checking more complex tasks such as multi-market portfolio margin limit calculations.
Historically, high-frequency traders and others were allowed to trade directly on the markets via DMA using ‘naked’ access, which meant using the broker’s ID without any pre-trade risk controls. However, following the ‘flash crash’ of May 2010, regulators moved in November the same year to ban ‘naked’ access in the US. Under SEC Rule 15c3-5, pre-trade risk controls are now mandatory for all trades that enter the market. Similar controls exist in Europe, including the UK.
Checking for risks inevitably slows down a firm’s ability to interact with the market. BCS says that the system it is buying from Succession Systems has single digit microsecond latency one way. Exchange connectivity is often measured in milliseconds. A microsecond is one millionth of a second, whereas a millisecond is one thousandth of a second.
“To remain at the forefront of what we do, and to continue to exceed our clients’ expectations, BCS is committed to bringing innovative solutions to the market to capitalise on the growing demand for fast and efficient trade flows with Russia,” said Tim Bevan, head of international prime sales at BCS. “We are currently looking to add markets, specific asset classes, client-oriented functions and liquidity services, and our appointment of Succession Systems will ensure we are able to consistently deliver cost-efficient, fast, flexible and comprehensive solutions.”
BCS claims to be the largest trader of equities and derivatives on the Moscow Exchange by turnover, with a 10-15% market share of equity trading. The firm is a recent arrival in the UK, where it obtained a licence from regulator the FCA earlier this year. It also appointed former Liquidnet Europe chief executive John Barker in an advisory role in January 2013.
In the UK, the company will have to compete with other large Russian brokers, notably Otkritie, which also has a presence in London. The UK capital is a centre of trading in Russian companies, many of which trade on the London Stock Exchange’s International Order Book because of a perceived rule of law and order and access to international investors. Russian energy giant Gazprom is the LSE’s most traded stock.