FIX Protocol Ltd. Expands Risk Control Guidelines for Trade Messaging

The industry group adds recommendations for futures and options derivatives and directions on effective control for paused orders, among other guidelines.

Industry standards organization FIX Protocol Ltd. (FPL) has published newly adopted changes to its recommended pre-trade and intra-day risk control guidelines.

The guidelines, which are designed to increase market stability and guide brokers' electronic trading platform operations, are aimed at effective risk management and prevention of special situations where parties to a trade, or the wider market, are adversely impacted by flawed electronic orders.

Originally produced in spring of 2011 by FPL's Americas risk management working group, the initial guidelines were directed at institutional market participants electronically trading an equity through an algorithmic trading product or direct market access (DMA) destination.

The updated procedures will now include recommended risk controls for futures and options and the corresponding brokers for those products, futures commission merchants (FCMs). They will also advise with further information about effective risk management for algorithmic and DMA orders, provide direction on how paused orders can be more effectively controlled, and add new details on the risk checks mandated by the exchanges and other trading venues.

"As electronic trading products continue to evolve, the use of effective pre-trade risk controls has become an increasingly essential element of the strategy used by sell-side broker-dealers to protect the interests of their clients and help to maintain the integrity of the markets. These guidelines provide electronic market participants with a set of suggested risk controls that will help reduce the chance of inadvertent errors and unintended impact on the market," says Timothy Furey, a managing director at Goldman Sachs and co-chair of FPL's Americas risk management working group.