Given the renewed focus on the benefits and risks of high frequency trading, and with market fears of another flash crash or a cyber-attack constantly looming, brokers and regulators are more concerned than ever about controlling and monitoring the connections between the execution system and the exchange. We spoke with Tony Amicangioli, CEO of Hyannis Port Research and an expert on pre-trade risk management, cyber security and surveillance, to discuss the importance of securing interactions between exchanges and trading firms.
1. Has SEC Market Access Rule 15c3-5 made markets safer?
Market Access Rule 15c3-5 has clearly made the markets safer. One way one can measure this is to consider recent disruptive events and whether the new controls would have prevented such disruptions from happening. In one recent incident, a large market maker firm’s systems went into a disruptive loop causing the firm to lose hundreds of millions of dollars in a very short period of time. In that case, current risk controls, such as the run-away algorithm tests would have prevented such a loss.
Also consider the Flash Crash. It is somewhat difficult to ascertain in this case because there are varying accounts on where the problem initiated. If it was in the equities markets clearly the right controls would have had an impact. On the other hand, other markets are still working toward similar regulations which will prevent issues from cascading across asset classes. However, even if the Flash Crash initiated in, for example, the futures markets, the equities markets would have been less impacted by that disruption.
Rule 15c3-5 would have prevented or greatly reduced the impact of the Flash Crash and has been a very positive and effective improvement to our capital markets structure.
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