Practice Note 2.6.3(c) — Pre-Execution Checks
|Issue Date||Cross Reference||Enquiries|
22 September 2006.
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1.1 This Practice Note explains the circumstances, conditions and operational procedures pursuant to which pre-execution checks are to be imposed as contemplated in Rule 2.6.3(c).
2. Pre-Execution Checks
2.1 Rule 2.6.3(c) requires the OMS to have the ability to set automated credit controls or position limits. The purpose of this is to prevent overtrading. The pre-execution checks and filters may include but are not limited to the following or such other functionalities that are able to prevent overtrading:
(a) total quantity limit (taking into account the total long and short positions, including all resting orders and executed orders);
(b) maximum long per contract (taking into account the total long positions, including resting long orders and net executed orders);
(c) maximum short per contract (taking into account the total short positions, including resting short orders and net executed orders); and
(d) total maintenance margin requirements for the absolute worst positions (i.e. the higher of absolute maximum long and absolute maximum short), computed by using the margin rate prescribed by the Exchange.
2.2 By way of illustration, built-in functions residing in the OMS may include the following:
(a) the ability to adjust credit or quantity limits in real time during a trading session;
(b) the ability to set permission levels (e.g. access to selected products/ instruments) and revoke the access of an Approved Trader or Customer; and
(c) the ability to intercept orders that exceed credit limits and trigger error-prevention alerts.