The Challenge

Many investment firms are realising that the burdens of “owning” an algorithm have significantly increased now that MiFID II/MiFIR legislation is in place.

MiFID II makes demands on how algos are built and tested before they are put into production and places constraints on how algos are rolled out in a live environment. In particular, regulatory technical standards prescribe the required level of testing: so, not only must firms ensure that algos can connect to trading venues and operate correctly, there are specific requirements to prevent algos from contributing to “disorderly market conditions”.

Furthermore, the regulation introduces a new set of monitoring and alerting requirements which demand that algos must be monitored by an independent compliance/risk function.

All of this work must be done and each step recorded before the algo can be signed off by a representative of the investment firm’s senior management team and go into production. The involvement of so many different stakeholders has the potential to significantly slow down the algo release process.

In addition, changes to algos already in production must still go through an auditable authorisation process. The ability to adjust algos in response to changing market conditions could therefore be significantly constrained if firms don’t put an efficient process in place.

The Solution

Deciding upon the right organisational structure with clearly allocated lines of responsibility will depend upon each firm’s individual organisational design; but, whatever the decision, Appbroker’s Algo Inventory and Release management Service (AIRS) effectively manages and records the activity of different workstreams as algos are designed, developed and put into production.

As well as acting as an official register - a comprehensive list of algos, versions and their status - Appsbroker AIRS is designed to orchestrate the wider organisation’s efforts to comply with the various aspects of managing and auditing an algo across its entire life-cycle, from concept, development, test and into production -  and including any post-production activity such as change control and annual stress tests.

As an “out-of-the-box” solution, firms can deploy Appsbroker AIRS on-demand and rapidly and securely integrate the service into their IT environment.

As well as bringing a fully auditable process to your organisation, with an event driven workflow engine and clear indicators as to status and next steps, Appsbroker AIRS can accelerate the progress of new algo and change requests through the trading and compliance organisational process.

Workflow

Appsbroker AIRS is designed to drive, capture and accelerate the workflow required for:

• New algorithms and major changes to existing algorithms – where there is a substantial change to the algorithmic trading system, trading algorithm or trading strategy;

• Material changes that affect the performance of an algo.  

Depending on their role, users are driven through all activities related to documenting strategies, signing off strategies, building the algo code, testing the algo, applying the right monitoring/alerting, approving that the appropriate testing has taken place or registering with venues and NCAs. Then, only when all the correct steps are taken and information collected, can a representative of the senior management team sign off the algo for production.

As the algo progresses from one group to the next, users are automatically notified that a task awaits their attention. A key feature of Appsbroker AIRS is that it can drive several of these streams at the same time for each algo. Development, testing, compliance, surveillance and senior management reps can work in parallel to ensure faster delivery. All progress is clearly illustrated in each algo record so stakeholders know whom to contact if the process becomes blocked.

Strong controls are in place to ensure progress cannot be made without entering the correct fields and linking to documentation that evidences that the right steps have been taken. For example, testers cannot complete testing without linking to test schedules and results.

Every action, every step of the way is logged and tagged with time/date/user so there is a thorough, auditable record for each algo as it gets taken through the workflows.

Inventory, Versioning and Hierarchy

As well as managing the process of promoting new algos and managing change to existing algos, Appsbroker AIRS can act as the register of algos for a firm. At any time, a user can call up a list of algos based on official “Approved for Production/In Production” status as well as any other ‘pre-production/suspended’ status.

Against each algo, AIRS will keep a record of algo version numbers. Alongside a firm’s own version numbering, AIRS will also allocate a version number which will be automatically incremented each time a change is applied.

In addition, it is also possible to establish a hierarchy of algos, so dependencies between algos can be tracked and, if there is a change in the “parent” algo, this can trigger the testing workflow for “child” algos.

Role Based Access

Access to the system is strictly controlled on a per user basis. Each user is assigned a role within the system which governs the steps they are involved with:

• Trader

• Development

• QA

• Surveillance

• Compliance

• Representative of Senior Management

• Internal Audit

• Risk Management

• Operations

• User Admin

The system maintains segregation of roles so that while the trader/developer roles can be carried out by same person, that person cannot also take on a compliance role.

Reporting

Against each algo record, reports can be generated that provide an audit trail of every step taken against each version of the algo.

At the touch of a button, certificates can be generated that identify that an algo has been appropriately tested and signed off.

Access to the Service

Access to the service is simple: firms are provisioned with access to Appsbroker AIRS which runs within the Google Cloud Platform – this is a zero-install option where all the functionality is available through a secure web interface. Client document links are stored in the system, so sensitive documentation can remain onsite or be stored in the cloud.

Linkage to other development management tools like Jira is possible: we assess specific requirements as part of the site survey as required.