On July 11, 2018, the FICC Markets Standards Board launched a consultation on a transparency draft of a Statement of Good Practice on algorithmic trading in the wholesale fixed income, commodity and currency markets. The draft SGP forms part of the FMSB's work to build up a body of Standards and Statements of Good Practice to improve conduct and raise standards in the wholesale FICC markets. The FMSB Standards and SGPs do not impose legal or regulatory obligations on FMSB members, nor do they take the place of regulation. Instead, an SGP is intended to be considered to the extent it is possible to follow it in compliance with applicable laws.

For the purposes of the consultation paper, "algorithmic trading" is defined as trading in instruments where a computer algorithm, with limited or no human intervention, automatically determines individual parameters of orders, such as whether to initiate the order, the timing, price or quantity of the order or how to manage the order after its submission.

In the consultation paper, the FMSB explains how algorithms are used by dealers, brokers, clients and venues in a variety of ways and that new uses are evolving. The FMSB notes that the revised Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation (known as MiFID II) contain certain provisions on algorithmic trading that are similar to those in the draft SGP. The SGP is intended to set out high-level good practice statements for the use of algorithms in all FICC businesses, wherever carried on, including in cases where the activity is not within the scope of MiFID II, such as trading of spot FX or physical commodities outside regulated trading venues. The draft SGP sets out nine good practice statements covering the following aspects: (i) overarching governance structure; (ii) minimum standards relevant to algorithmic trading and algorithmic trading systems; (iii) inventories and definitions; (iv) risk management and controls; (v) policies and procedures; (vi) software development and change process; (vii) ongoing oversight within the governance structure; (viii) record keeping; and (ix) training and education of relevant personnel.

The FMSB invites comments on the transparency draft by September 7, 2018. The FMSB expects to finalize the SGP shortly after the close of the consultation.

The draft statement of good practice is available at: https://fmsb.com/wp-content/uploads/2018/07/Algorithmic-Trading_SGP_TD_v12.pdf and the FMSB press release is available at: https://fmsb.com/ficc-markets-standards-board-fmsb-issues-new-statement-of-good-practice-on-algorithmic-trading/.

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