What are the responsibilities of AT firms?

People involved in AT now have both internal responsibilities to their firm and its profitability and external responsibilities to ensure the safe operation of their systems.  What’s problematic is that there are many different, and often competing, views on what the responsibilities are or should be in AT.

AT is an interdisciplinary endeavor requiring the input of traders, computer engineers, and quants.  Each of these disciplines has its own perspective. Traders, for example, often take seriously their principal function and obligation to maintain orderly markets.  Computer engineers have their own codes which require avoidance of unsafe practices and fail-safe design.  (These concepts are most often embedded within the topic of software quality.)  Responsibilities in quantitative analysis revolve around staying within the strategic bounds defined in exchange rules and government regulation and, furthermore, are largely thought to be superseded by adherence to mathematical truth.

Additional perspectives are added to the AT sphere by people and organizations outside the AT firm as well.  The exchanges have their perspectives, and certainly, as do people in different parts of the world.  The following figure shows the perspectives involved in AT:

These perspectives may sometimes be in conflict with each other.  Thus, different AT firms may recognize different responsibilities based upon the internal political dominance of one profession.  No framework exists in AT that considers cross-disciplinary responsibilities of safety to those who might be harmed—external market participants and society.  The new discussion needs to focus on organizational responsibilities.  Likewise, as the global trading network spans multiple AT firms, exchanges and countries, it is important also to consider the industry-wide obligations to create confidence in financial markets and their sustainability. The profitability of any individual firm cannot be more important than the safety of the global trading mechanism.

What is Automated Trading?

The definition of automated trading (AT) is much discussed.  For the purposes of AT 9000, the defining characteristic of an AT system is neither the duration of its trades nor the volume of its order requests routed to the exchange, but rather the risks a given system poses to the marketplace. Any automated or algorithmic trading system that enters computer-generated order requests into the market gives rise to immediate risks in the event of its strategic or technological failure.  Such systems, broadly defined, may engage in market making, index arbitrage, statistical arbitrage, or any number of other strategies that provide liquidity by way of automated decision-making. This definition also intends to include automated systems that take liquidity as well.