Prudential Regulation Authority Rulebook

5.1

The PRA expects a firm to have the following inventories and documentation:
(a) a single and comprehensive inventory of algorithms;
(b) a single and comprehensive inventory of risk controls;
(c) documents that set out each algorithm’s strategy and risk mitigants;
(d) documents that set out the algorithmic trading system architecture; and
(e) documentation of kill-switch controls procedures.

5.2

The inventories and documentation referred to above in paragraph 5.1 should be:
(a) reviewed by staff independent of the development of the algorithms;
(b) reviewed at least annually and updated if necessary;
(c) accessible by all the firm’s personnel who have responsibility for the oversight of algorithmic trading; and
(d) available to the PRA on request.

5.3

The inventory of algorithms should include, in respect of each algorithm:
(a) provide a brief overview;
(b) detail the status of the algorithm (eg implemented for use, under development, and/or recently retired);
(c) state the date(s) the algorithm was approved and, if appropriate, retired;
(d) detail the scope of approval of the algorithm, in terms of region, asset class, instrument, desk, portfolio;
(e) detail any restrictions placed on the algorithm when approved;
(f) identify the algorithm owner(s);
(g) provide a link to the algorithm’s documentation; and
(h) provide a unique identifier.

5.4

The inventory of risk controls, at a minimum, should in respect of each control:
(a) provide a brief overview, including the risk being mitigated by the control;
(b) indicate whether the control is classed as a limit or trigger;
(c) detail whether the control is for notification/alerting only, or if it results in changing the operation of the relevant algorithmic trading (for example, a control may prevent further orders being entered by a client);
(d) detail if there are any automated alerts associated with the control and who they are sent to and when;
(e) state the date the control was implemented and, if appropriate, retired;
(f) identify its location in the algorithmic trading system architecture;
(g) identify, if relevant, where its operation is dependent on other controls;
(h) detail the current setting of the control and, if appropriate, the different values that the control can be set to without requiring authorisation;
(i) detail who has authority to change the setting of the control;
(j) identify the control owner;
(k) provide a link to the controls documentation; and
(l) provide a unique identifier.

5.5

The PRA expects the inventory to include any risk controls the firm sets externally (for example, risk controls set by the firm at a trading venue).

5.6

The PRA expects a firm to document the strategies associated with each algorithm and the associated risk controls. This documentation should be comprehensible to those who have oversight responsibilities for algorithmic trading.

5.7

The PRA expects a firm to document the algorithmic trading system architecture. This document should clearly identify each system within the architecture and clearly indicate where the algorithmic trading architecture and risk management systems intersect.

5.8

The kill-switch procedure should describe clearly the process of cessation and restarting of algorithmic trading, including clearly identifying those who have authority to re-start algorithmic trading.

5.9

The kill-switch procedure should set out points that have a bearing on the decision to stop and restart trading.

5.10

The kill-switch procedure should include details on the testing procedure to periodically assess that the kill-switch controls operate as intended.