Hong Kong Watchdog To Enhance Regulations For Internet Trading

Tara Loader Wilkinson

26 July 2012

Hong Kong's Securities and Futures Commission has begun today a two-month public consultation on proposals to enhance the regulatory framework for electronic trading, including internet trading, direct market access and algorithmic trading.

In view of the increased use of electronic trading by intermediaries, the SFC proposes to build on the existing regulatory requirements by providing a more coherent and comprehensive regulatory framework for electronic trading.

“The proposed framework aims to strike a balance between facilitating market developments and maintaining market integrity,” said the SFC’s chief executive officer Ashley Alder. “To manage risks arising from the use of sophisticated trading technology and practices, the industry must have appropriate controls in place when conducting electronic trading business.”

In particular the SFC is looking at risk management controls of intermediaries, in particular, requiring that an intermediary put in place effective supervisory controls to monitor orders, including automated pre-trade controls and regular post-trade monitoring; and specific requirements on algorithmic trading related to testing of the algorithmic trading system and trading algorithms, user qualification and risk management controls.

The public is invited to submit their comments to the SFC by 24 September 2012.