SMP Checks in the Balance

SMP Checks in the Balance

Christian Voigt

Senior Regulatory Adviser at Fidessa

Views 504

SMP Checks in the Balance

29.01.2016 01:00 pm

Self-match prevention (SMP) is offered by many exchanges – CMEICETurquoise and BATS among them – and by the more advanced order management systems. In most cases, employing an SMP check is voluntary for trading firms; that is important because not every prevented self-match is also a prevented (illegal) wash trade. Some regulatory jurisdictions require intent as a defining characteristic of a wash trade, but even the best technology cannot read minds. SMP checks can therefore suffer from Type I errors – statistical speak for the unnecessary rejection of a legitimate order. While more advanced SMP checks aim to reduce the frequency of these errors, there is a limit to how effective they can be before they run the risk of accepting orders that should have been rejected (aka Type II errors).

The CFTC is considering making it mandatory for exchanges to offer SMP functionality and DCMs to apply some form of SMP under RegAT. Most of us would agree that a broad implementation of SMP checks is desirable for the sake of fair and safe markets. But cancelling many legitimate orders will do little to prevent wash trades and could hurt overall market liquidity. A careful balance is needed to avoid falling foul of the regulators whilst conducting legitimate business.

Latest blogs

Stephan Wolf the Global LEI Foundation

Digital ID Management: Why the World Needs the LEI

It is the only open, standardized and regulatory-endorsed system capable of establishing digitized trust between all legal entities, everywhere. There is a fundamental principle which often hinders development in the digital economy: trust. How Read more »

Dmytro Volkov CEX.IO

Security Basics: 5 Signs of Phishing

A recent WatchGuard Technologies survey showed that 86% of UK companies expect an increase in cyberattacks in the next 12 months. One big threat in particular is phishing attacks linked to COVID-19, which have recently been gaining Read more »

Keith McGill Equifax UK

COVID-19 Is Shining Spotlight on Fraud and Identity Threats

The current pandemic has forced rapid and wholesale changes to our lifestyles and opened the digital doorway for opportunistic fraudsters, escalating threat levels to new highs. This in turn has accelerated the pace of digital transformation for Read more »

Ian Johnson Marqeta

Why Fraud Doesn’t Have to Be a Fact of Online Life

We are going through very unusual times, with most of the country having lived under state-imposed lockdown in the last few months. Against this backdrop, fraudsters are unfortunately thriving, and we have seen numerous warnings and scams being Read more »

Mario Mantrisi Kneip

PRIIPS: EU stalemate

Last week, the troika of European Supervisory Authorities sent a letter to the European Commission.  The Packaged retail investment and insurance products (PRIIPS) regulation is a piece of EU legislation with troubled origins. Last Read more »

Free Newsletter Sign-up
+44 (0) 208 819 32 53 +44 (0) 173 261 71 47
Download Our Mobile App
Financial It Youtube channel