What your algorithms did not do
When I got into work this morning, I decided not to return a
missed call, not to review a document, not to read a report, not to ask some
colleagues for advice, not to fill in my timesheet for last month, not to think
about further job training and, most importantly, not to join an internal
weekly meeting which was covering a topic not relevant to me. Instead I decided
to write this blog first.
If you thought that my introduction was rather long winded,
you will not be pleased to hear that your algo audit trails could look exactly
like that too, if Esma’s current proposal for record-keeping makes it into the
final Level 2 text of Mifid II.
Esma suggests that audit trails should include all market
data messages relevant when “algorithms make a decision to submit or not submit
an order”.
This unfortunate wording suggests that firms not only have
to store market data when the algo decides to act (add, amend, cancel order),
but also when the algo makes the decision not to do anything.
How this could be relevant is beyond me, as I don’t see why
doing nothing could harm the market. But I certainly do know that algos can
decide to do nothing many times a second, thus easily increasing the size of
your audit trail by a huge factor.
We will have to wait to see what ESMA finally decide on that
point. In the meantime, I am not going to get a coffee or a tea, not going to
read my emails and not going to schedule that meeting nor worry about the next
piece of regulation coming. Instead, I think I might just go and buy some shares
in a hard disk producer, just in case!
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