Practice Note 2.6.3(1)(c) — Pre-Execution Checks
|Issue Date||Cross Reference||Enquiries|
22 September 2006 and amended on 15 March 201315 March 2013, 14 November 201614 November 2016 and 29 July 2022.
|Rule 2.6.3(1)(c)||Please contact Member Supervision:
Facsimile No : 6538 8273
E-Mail Address: email@example.com
1.1 This Practice Note provides further details on the pre-execution checks contemplated in Rule 2.6.3(1)(c).
2. Pre-Execution Checks
2.1 Rule 2.6.3(1)(c) requires Members to ensure that automated pre-execution risk management control checks are conducted on all orders, including credit control checks on all orders. The purpose of this is to prevent overtrading and for credit risk management. As such, the checks must be appropriately set to effectively limit the firm's risk exposure arising from all orders (including House orders) to prevent the taking on of excessive risk.
2.3 Members who authorise Sponsored Access, or who permit or authorise their Customers access to the Connect Market, will be able to meet the requirement in Rule 2.6.3(1)(c) by using the appropriate pre-execution checks hosted by the Exchange, or the Connect Broker for the Connect Market, or by directly setting and controlling the appropriate pre-determined automated limits in the customer's system, having automated alerts whenever such limits are altered, and by conducting regular post-execution reviews of trades. Members should assess and continue to ensure that the pre-execution risk management control checks are robust on an ongoing basis.
2.4 Where a Trading Member has allowed its Clearing Member to directly set and control pre-determined automated limits in the Trading Member's system, the Trading Member should have the appropriate internal controls to prevent unauthorised modification of the limits set by the Clearing Member.