Practice Note 3.4.3A — Processes for Review of Orders and Trades
|Issue Date||Cross Reference||Enquiries|
|Added on 15 March 201315 March 2013.||Rule 3.4.3A||
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1.1 This Practice Note provides guidance on what Members should do as part of their processes for post-execution review of orders and trades.
2. Guidance on processes
2.1 Members should adopt processes to place suspicious orders and trades on exception reports or to trigger automated alerts for review. Exception reports and alerts should be reviewed by an independent party like a compliance officer or other appropriately qualified person on a regular basis to detect orders and trades or patterns of orders and trades which give rise to the possibility of non-compliance with the Rules. The review process may involve further enquiry with Approved Traders, Registered Representatives and/or customers or reviewing other Approved Trader, Registered Representative or customer-related information such as past trading activity.
2.2 Members are expected to follow up on suspicious orders and trades, keep on file the result of their review process and report such activity to the Exchange pursuant to Rule 3.4.4. Additionally, Members are expected to take appropriate action, such as advising the Approved Trader, Registered Representative or customer to refrain from such activity, performing a closer monitoring of the account activity of the Approved Trader, Registered Representative or customer and ultimately to close the account if the suspicious activity persists. Members should note that the mere fact that an order has been placed on an exception report does not absolve them from their underlying compliance responsibilities.
3. Parameters to assist in detecting suspicious trading behaviour
3.1 The effectiveness of processes to identify suspicious trading behaviour depends to a large extent on the types of parameters and thresholds set. It may be necessary for the officer reviewing orders and trades to understand the strategies employed by the Member's Approved Traders, Registered Representatives or customers in order to determine the appropriate parameters and thresholds
3.2 Members should employ processes that facilitate the identification of irregular orders/trades regardless of whether they originate from one Approved Trader, Registered Representative or customer or a group of such individuals acting in concert. In addition, they should also be familiar with trading patterns so as to be able to identify irregular trades.
3.3 In setting parameters, Members should take note of Contracts which are illiquid which make them susceptible to price manipulation.