Global body pushes tough new rules for electronic trade

13 Aug 2010

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The International Organisation of Securities Commissions (IOSCO), an international association of state regulators, has suggested tighter rules for direct electronic access to markets. 

Hedge funds, proprietary firms and others that have "direct electronic access" to securities markets should be monitored for risky practices both before and after their trades, the IOSCO said in a report.

In its final report, `Principles for Direct Electronic Access to Markets', the technical committee of the IOSCO has prescribed guidelines for intermediaries, markets and regulators in relation to the areas of pre-conditions for direct electronic access (DEA), information flow and adequate systems and controls.

The report is based on analyses of market and regulatory developments and of the responses received to a consultation paper - Policies on Direct Electronic Access -, which identified and discussed the benefits, potential risks and concerns associated with DEA.

The DEA principles set out in the report are based on the recognition that markets, intermediaries and regulators must each play a role in addressing the potential risks posed by DEA. In addition, regulators should retain the power to allow or prohibit any form of DEA as well as to establish requirements in the DEA area, including pre-trade controls and risk limits and should also exercise regulatory oversight over the decisions made by clients, intermediaries and exchanges, it said.

Intermediaries should require DEA customers to meet minimum standards, including appropriate financial resources, appropriate procedures in place to assure that all relevant persons are both familiar, and comply with the rules of the market; and have knowledge of and proficiency in the use of the order entry system used by the DEA customer.

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