SFC Set to Deploy Data Analytics in Broker Inspections

High volume brokers were asked in 2019 to adopt new data standards to enable more timely data submissions to regulators when requested.

Hong Kong’s SFC (Securities and Futures Commission) has gone live with new data requirements for brokers, and now plans to start deploying data analytics in its inspections.

In July 2019, the SFC unveiled new data standards for brokerage firms to use to enable more timely submissions of data to regulators when requested.

The ‘Data Standards for Order Life Cycles’ (DS-OL) were meant to facilitate the SFC’s use of data analytics tools in its inspections of licenced securities brokers with high levels of trading activity, allowing it to identify systemic trading-related control deficiencies and instances of non-compliance with the Code of Conduct.

Previously, brokers were too slow to provide the requested data to the SFC, as the underlying data was often scattered across multiple order management systems, and each broker adopted different approaches to how events are defined and linked.

As such, the SFC developed data standards that prescribed the minimum content and presentation format of trading-related data to be submitted by licensed firms upon request.

Brokers with trading turnover in SEHK-listed equities which reaches or exceeds 2% of a calendar year’s total market trading volume are considered “In-Scope Brokers”, and were required to implement system changes needed for compliance with the data standards from Friday (30 April 2021).

In recent weeks, many In-Scope Brokers submitted their trading data to the SFC for testing purposes and made enquiries, the regulator said on Wednesday (28 April). “We are very encouraged by the proactive steps taken by In-Scope Brokers to ensure their DS-OL compliance before 30 April 2021,” it said.

Regular data reporting is not required, but the In-Scope Brokers are now readily able to submit trading data requested by the SFC, upon request, in the format specified in the data standards.

“Certain In-Scope Brokers may expect to receive our request soon as we plan to shortly start deploying data analytics during our inspections to identify red flags of potential trading-related misconduct or control deficiencies,” the SFC said.

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