Regulatory Notice 15-09

Guidance on Effective Supervision and Control Practices for Firms Engaging in Algorithmic Trading Strategies

Executive Summary

As algorithmic trading strategies, including high frequency trading (HFT) strategies (hereinafter referred to collectively as “algorithmic strategies”), have grown to compose a substantial portion of activity on U.S. securities markets, the potential for these strategies to adversely impact market and firm stability has likewise grown. Although a reasonable supervision and control program may not foresee every potential failure or prevent every undesirable consequence, in an effort to reduce the future occurrence of such potential issues, FINRA is providing guidance on effective supervision and control practices for member firms and market participants that use algorithmic strategies. These effective practices are focused on five general areas: General Risk Assessment and Response; Software/Code Development and Implementation; Software Testing and System Validation; Trading Systems; and Compliance.

Questions concerning this Notice should be directed to:

  • Susan Tibbs, Vice President, Quality of Markets, Market Regulation, at (240) 386-5082;
  • Sherilyn Belcher, Director, Market Regulation, at (240) 386-5614; or
  • Brant K. Brown, Associate General Counsel, Office of General Counsel, at (202) 728-6927.