Audit of Market Making activities with a dedicated focus on
automated trading systems
Project overview
The introduction of MIFID 2 in 2018 has reinforced supervisory powers for trading activities with a specific focus on algoritmic trading. In seeking to be aligned with all the requirements of this new regulation it was decided to launch an audit focusing on the automated trading systems.
Risk, Regulatory and Compliance
Investment bank third rank
Capital Market
4 weeks
1 Data Consultant and 1 Strategic Consultant
Stake
Automated trading activity has been launched with a marketing goal to extend their knowledge of the market place. The algorithmic trading does not yielded PNL. If all the regulatory requirements are not respected there is a risk of penalty and a reputational risk arising from negative public opinion regarding this default.
The stakes of the mission are:
- Evaluate the investments needed,
- Help Bred to decide if these investments worst it.
Objectives
- Verify if they comply with the regulatory requirements,
- Avoid all risks of penalty or decrease of the reputation,
- Improve their internal process in order to comply with the regulation.
Main constraints
- Dependencies of the client’s contributors,
- No legitimacy of the sponsor of the mission among the global organisation of client,
- Full owner of the mission, no integration among the teams.
Execution
Benefits
- Comply with regulatory requirements (RTS 6, Mifid 2),
- Secure the internal process to avoid all risks of human error or fraude,
- Improve their process to implement more traceability, more formalism.
Method
Audit methodology (risk weighting matrix, risk analysis, work program, recommendation, regulatory matrix)
Activities
- Study of the reglementation
- Interviews : Front Office, Market Risk Direction, Permanent Control
- Quantitative analysis
- Test
Delivable
- Final report
- PPT presentation
- Testing report
- Regulatory matrix
- Work program
- Interview report
- Interview questionnaire
- Risk weighting sheet