Although many hedge fund managers and other firms using automated trading (AT) strategies have relied on generic policies to comply with applicable regulations, with the advent of initiatives such as the CFTC’s Notice of Proposed Rulemaking on Regulation Automated Trading (Regulation AT) and restrictions on AT strategies imposed by MiFID II, that reliance will no longer be satisfactory. Rather, under Regulation AT and other guidance from self-regulatory and industry organizations, firms that use AT strategies must establish specific policies and controls to mitigate the particular risks associated with those strategies. In this two-part guest series, Douglas A. Rappaport, Patrick M. Mott and Elizabeth C. Rosen of Akin Gump outline five high-level first steps for legal and compliance professionals to jumpstart the process of designing and implementing a control framework tailored to a hedge fund manager’s particular AT program that will stand up to regulatory scrutiny. This second article explores the final three steps, addressing protocols for monitoring and reviewing trading activity, code and disclosures. The first article
covered the first two steps, including conducting a risk assessment of and documenting the AT system. For additional insight from Rappaport, see “Perils Across the Pond: Understanding the Differences Between U.S. and U.K. Insider Trading Regulation
” (Nov. 9, 2012). For insight from other Akin Gump partners, see “Non-U.S. Enforcement, Insider Trading in Futures, Failure to Supervise Charges and Other Evolving Insider Trading Challenges for Hedge Fund Managers
” (Nov. 21, 2013).