DCMs A and B both employ an "orders removed upon logout" function in which all orders are removed upon the user's logout or disconnection, and that they maintain error trade policies that incorporate a no cancellation range.
With respect to ATSs, DCMs A and B both employ a certification and testing process for connecting entities. For example, one DCM described this process as testing a firm's messaging ability (i.e., that firm's ability to send and receive data). As part of the testing process, the DCM will transmit market data to the firm and this provides the firm with the opportunity to run its own algorithms and for that firm to determine if its algorithms are functioning as it intended. Firms must pass additional conformance tests when the exchange's own system functionality changes. DCM B indicated that its testing process allows customers to test new products prior to their production launch.
In addition to their internal risk mitigation programs, DCMs also provide risk mitigation tools to intermediaries such as FCMs, allowing the intermediaries to set risk control parameters on controls that reside at the trading platform level. Clearing firms, for example, are able to set risk tolerance levels for their customers based on position size, order activity, executions, among other variables.
2. Existing Trading and Clearing Firm Risk Controls
Risk controls at the level of individual market participant firms, whether trading firms or clearing firms, are necessarily entity specific. Accordingly, industry groups have collaborated to determine best practices for risk controls. As noted previously, other entities, including the TAC, have also developed best practices or recommendations. One goal of this Concept Release is to determine how consistently these, and other, recommendations are today being implemented by market participants. As noted by FIA, "all principal traders have a vested interest in well-functioning markets with effective risk controls, clear error trade policies that focus on trade certainty, and a strong regulatory framework." /65/ Comments to this Concept Release will allow the Commission to best ensure this strong framework. Questions about the general use of automated risk controls at the level of a firm are also informed by two reports prepared by authors affiliated with the Federal Reserve Bank of
FOOTNOTE 65 See FIA Recommendations for Risk Controls, supra note 62, at 2. END FOOTNOTE
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