What is the AT firm’s organizational responsibility?

The SEC and the CFTC have recently lowered the bar for proving market manipulation from intent to recklessness, implying (in the case of AT, necessarily organizational) imprudence or irresponsibility.  So, in the case of failure of an AT system, how can the organization prove it was responsible, that it was prudent in its AT research and development (R&D) and operation and control (O&C)?  The answer is they were responsible because they followed a recognizably prudent process, one that proved and documented that the firm was justified in believing the future performance (i.e. stability) of its AT system.

AT systems make decisions based on proven research.  As such these systems can only modify the outcomes of these decisions using the structures embedded in the software (i.e. real-time risk control).

How do you know your trading system will work?  What passes as proven research?  The obligation of the AT firm is to prove and document that an AT system’s trading strategy and technology will operate in line with expectations and to specification.  Prudence demands that the firm prove that its systems will run in control.  This obligation can be satisfied by following a prudent process that justifies expectations in the performance of the AT system.

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