Share these talks and lectures with your colleagues
Invite colleaguesPractice paper
Conduct risks and their mitigation in algorithmic trading firms: A systematic literature review
Journal of Financial Compliance,
4
(1),
34-52
(2020)
Abstract
Trading floors are evolving. While popular culture still reveres antiheroes, such as Nick Leeson, Jordan Belfort and Gordon Gekko, dealing rooms have been gradually falling silent in our Digital Age. Increasingly intelligent algorithms are supplanting human traders and brokers, replacing emotion with the raw power of calculation. What implications does this have for the behaviour of firms active in the financial markets in the 21st century? How should firms and their regulators adapt to mitigate the conduct risks inherent in fully automated and hybrid business models? This systematic literature review adopts an interdisciplinary approach to examine how far research has answered these questions in the context of the British and European fixed income, commodities and currency (FICC) markets. Widely regarded as one of the ‘final frontiers’ for full automation, the FICC markets are currently characterised by a mixture of traditional (eg voice brokerage), ‘hybrid’ (machine–human) and challenger (eg highly automated trading utilising sponsored access) techniques. Accordingly, they represent fertile ground to: (a) gauge the tension that exists between these methods of trading and (b) test potential solutions to mitigate new forms of conduct risk.
Keywords: algorithmic trading; artificial intelligence; conduct risk; highfrequency trading; machine ethics; machine learning
The full article is available to subscribers to the journal.
Author's Biography
Alexander Culley is a Barrister of England and Wales (Call: 2010) and is a Fellow of the Chartered Institute for Securities & Investment. He has circa 14 years’ experience as a compliance professional and is currently the Chief Compliance Officer Europe, Middle East and Africa and Asia for a major investment firm and payment services institution active in the securities, foreign exchange and commodities markets. Prior to his current role, he acted as both Group Compliance Officer and a nonexecutive director at another large brokerage. An expert in practically implementing ‘big ticket’ regulations, he has extensive knowledge of the Markets in Financial Instruments Directive (MIFID II), the European Market Infrastructure Regulation (EMIR), Senior Managers and Certification Regime (SMCR), the Revised Payment Services Directive (PSD II), the Fourth Money Laundering Directive (4MLD) and the Fifth Money Laundering Directive (5MLD). Additionally, he is affiliated with the Southampton Business School, University of Southampton, and is a regular contributor to industry publications and conferences. He holds a master’s degree in law from Trinity College, University of Dublin, and bachelor’s degrees in Modern Languages (French and German) from the Open University and Law with Computing from the University of Plymouth.
