According to a new report, published by the technical committee of the International Organisation of Securities Commissions (IOSCO), the safety of markets could be threatened by firms which utilise direct electronic access (DEA) as a trading practice.
DEA allows approved brokers to rent their membership to non-approved traders, which could lead to risky trades being placed due to a lack of monitoring systems in place.
In the report, the body said: âThe combination of DEA and algorithmic trading can, on rare occasions, pose threats to orderly trading. Markets should, as appropriate, adopt, and implement on an automated basis, measures to address such threats.
âThe use of electronic controls to limit the level of risk that an intermediary accepts is particularly necessary in the context of high speed algorithmic trading.â
IOSCO outlined eight principles to improve regulation surrounding this form of trading including brokers taking more responsibility for insuring the integrity of trades and ensuring adequate controls and systems are in place.
By Jim Ottewill