12. Are message and execution thresholds typically set by contract, or by algorithm? What are the advantages and disadvantages to each method?
13. Who should be charged with setting message rates for products and when they are activated?
14. Would message and execution throttles provide additional protection in mitigating credit risk to DCOs?
2. Volatility Awareness Alerts
Automated volatility awareness alerts implemented by trading firms are another form of risk control contemplated in this Concept Release. Volatility awareness alerts could be triggered when price movements in a given product move beyond a certain threshold within a previously specified time period. Such alerts could assist in identifying market conditions that may exceed an algorithm's parameters, or may highlight unintended effects of an algorithm's orders. Given an alert, human monitors at the trading firm could then intervene either by halting the relevant algorithms under their control, or by conveying the information to other relevant parties. Unlike exchange trading pauses and halts, volatility awareness alerts inform firm personnel as to changes in market conditions that may disrupt the parameters within which their ATSs and algorithms were programmed to operate, rather than immediately triggering a pause in trading.
15. The Commission is aware that alarms can be disruptive or counterproductive if "false alarms" outnumber accurate ones. How can volatility alarms be calibrated in order to minimize the risk that false alarms could interrupt trading or cause human monitors to ignore them over time?
3. Self-Trade Controls
A trade that results from the matching of opposing orders between a firm or a single or commonly owned account, such as a wash trade, does not shift risk between different market participants. In addition, such trades may inaccurately signal the level of liquidity in the market and may result in a non-bona fide price. Risk controls that identify and limit self-trading may result in more accurate indications of the level of market interest on both sides of the market and help ensure arms-length transactions that promote effective price discovery. Some regulated exchanges have tools specifically designed to identify and limit self-trading. The Commission is interested in better understanding those risk controls and how widespread their use may be.
For example, the Commission understands that in
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