The Singapore Exchange proposed a host of new rules to reflect the replacement of its current derivatives trading system and SGXClear, its current clearing system, with a new trading and clearing system, SGX Titan. This new system is expected to be implemented by the end of 2016. Among the many proposed rule changes are rule amendments addressing pre-execution checks, error-prevention alerts and fictitious transactions, aimed to accomplish many of the same objectives of the Commodity Futures Trading Commission’s recently proposed rules known as Regulation AT. (Click here for background on Regulation AT in the article, “CFTC’s Proposed New Algorithmic Trading Rules Augur Potential Increased Obligations and Costs, and a New Registration Requirement” in the November 29, 2015 edition of Between Bridges.) Among other things, SGX’s amended provisions transform formerly detailed prescriptive requirements into broad principles-based obligations. For example, instead of mandating that a host of specifically enumerated pre-execution checks be conducted on all orders, SGX’s new proposed rules broadly require that “Members … ensure that automated pre-execution risk management controls checks are conducted on all orders. … [T]he checks must be appropriately set to effectively limit the firm’s risk exposure arising from all orders to prevent the taking on of excessive risk.” Comments on the new rules will be accepted through March 10, 2016.
My View: SGX is commended for proposing to amend its current rules to transform somewhat prescriptive requirements to principles-based requirements. This reflects that obligations around automated trading should not be one-size-fits-all, but must be tailored to meet firms’ and clients’ specific businesses and practices as well as potential risk to a marketplace.