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Practice Note 2.6.3(1)(c) — Pre-Execution Checks

Past version: Effective from 15 Mar 2013 to 13 Nov 2016

Issue Date Cross Reference Enquiries
Added on
22 September 2006 and amended on 15 March 201315 March 2013
Rule 2.6.3(1)(c) Please contact Member Supervision:

Facsimile No : 6538 8273
E-Mail Address: membersup@sgx.com

1. Introduction

1.1 This Practice Note explains the parameters and functions which pre-execution checks may contain as 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. The parameters of such pre-execution checks and filters may include but are not limited to:
(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);
(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; and
(e) net exposure limit (taking into account net long and short positions).
2.2 By way of illustration, pre-execution risk management control functions 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 on a real-time basis; and
(c) the ability to intercept orders that exceed credit or trading limits on a real-time basis and trigger error-prevention alerts.
2.3 Members who authorise Sponsored Access will be able to meet the requirement in Rule 2.6.3(1)(c) by being able to directly set and control pre-determined automated limits in the Sponsored Access 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.

Amended on 15 March 201315 March 2013.