2.1
The purpose of requiring Trading Members to ensure that adequate pre-execution risk management control checks are conducted is to prevent overtrading and for credit risk management. As such, the checks must be appropriately set to effectively limit the firm's risk exposure arising from every order (including proprietary orders) to prevent the taking on of excessive risk.
Added on 3 June 20193 June 2019.
2.2
The parameters of such pre-execution checks and filters may include but are not limited to:
Added on 3 June 20193 June 2019.
2.3
By way of illustration, pre-execution risk management control functions may include the following:
Added on 3 June 20193 June 2019.
2.4
Trading Members who authorise Sponsored Access will be able to meet the requirement in Rule 4.10.1(b) by being able to directly set and control pre-determined automated limits in the Sponsored Access customer's system, having automated alerts whenever such limits are altered, and by conducting regular post-execution reviews of trades. Trading Members should assess and continue to ensure that the pre-execution risk management control checks are robust on an ongoing basis.
Added on 3 June 20193 June 2019.
2.5
Where a Trading Member has allowed its Clearing Member to directly set and control pre-determined automated limits in the Trading Member's system, the Trading Member should have the appropriate internal controls to prevent unauthorised modification of the limits set by the Clearing Member.
Added on 3 June 20193 June 2019.