Sfc Electronic Trading Regulation Test

1. To fulfil the record keeping requirement, provider of electronic trading system is required to maintain:

Design, development, deployment and operation of the electronic trading system

An error log summarizing all incidents in relation to the system

Documents related to the annual review on the system

All of the above.

Error logs and system annual review documents are both required to be properly maintained, along with the records of design, development, deployment and operation of the system and other relevant documents.

Explanation

Error logs and system annual review documents are both required to be properly maintained, along with the records of design, development, deployment and operation of the system and other relevant documents.

2. Under the SFC Code of Conduct, the ultimate responsibility of management and supervision of electronic trading system is most likely to lie with :

At least one of the responsible / executive officers

The IT department head

The Lead Trader who aggregates a firm’s trades

The ultimate responsibility of management and supervision is lies with at least one of the responsible officers / executive officers.

Explanation

The ultimate responsibility of management and supervision is lies with at least one of the responsible officers / executive officers.

3. In terms of the management and supervision of electronic trading systems, which of the following is a recommended practice?

Clearly identify the reporting lines in relation to the supervisory responsibilities

Establish a formalized governance process

All of the above

Clearly identifying the reporting lines in relation to the supervisory responsibilities and establishing a formalized governance process are both requirements in relation to the management and supervision of electronic trading systems as set out in Paragraph 18.4 of the SFC Code of Conduct. System pre- and post-trade controls are requirements for risk management.

Explanation

Clearly identifying the reporting lines in relation to the supervisory responsibilities and establishing a formalized governance process are both requirements in relation to the management and supervision of electronic trading systems as set out in Paragraph 18.4 of the SFC Code of Conduct. System pre- and post-trade controls are requirements for risk management.

4. Which of the following party is most likely to be a provider of electronic trading system?

IT staff of a public fund house

Private fund managers

Brokerage firms

The sell-side, e.g. brokerage firm, are usually the providers of electronic trading systems and should comply with the specific requirements for system providers as set out in the SFC Code of Conduct.

Explanation

The sell-side, e.g. brokerage firm, are usually the providers of electronic trading systems and should comply with the specific requirements for system providers as set out in the SFC Code of Conduct.

5. An adequate electronic trading system should:

Have no pre-trade controls so that traders can capture all opportunities to generate profit

Fix the capacity level with an expectation that 85% of clients would place orders

Include techniques to protect the confidentiality and integrity of stored information

Having no pre- or post-trade system controls undermines the adequacy of an electronic trading system. The system capacity should be well planned and allow buffering in case of increase of clientele. Including techniques to protect the confidentiality and integrity of stored information is one of the desirable features of an adequate electronic trading system.

Explanation

Having no pre- or post-trade system controls undermines the adequacy of an electronic trading system. The system capacity should be well planned and allow buffering in case of increase of clientele. Including techniques to protect the confidentiality and integrity of stored information is one of the desirable features of an adequate electronic trading system.

6. As set out in Paragraph 18.5 in the SFC Code of Conduct, electronic trading system users should have a written contingency plan to cope with emergencies and disruptions, including a BCP. A "BCP" refers to:

Bi-annual Critique Process

Business Continuity Plan

Basic Computer Programming

A BCP refers to a Business Continuity Plan.

Explanation

A BCP refers to a Business Continuity Plan.

7. Which of the following is least likely considered as a suitable back up policy?

Using an off-site server mirroring solution

Setting up daily cloud back-up via a secured connection

Copying company files as a back up to a personal flash drive on a monthly basis

Using an off-site server mirroring solution and setting up daily cloud back-up via a secured connection are both suitable backup solutions. On the other hand, backing up using personal devices on an infrequent basis is not an appropriate back up policy.

Explanation

Using an off-site server mirroring solution and setting up daily cloud back-up via a secured connection are both suitable backup solutions. On the other hand, backing up using personal devices on an infrequent basis is not an appropriate back up policy.

8. Which of the following activity is least likely considered as electronic trading?

Conducting computerized trades based on algorithmic programs

Analysing stock performance on an electronic spreadsheet

Placing an order through the internet trading system provided by a broker

Analysing stock performance on an electronic spreadsheet does not constitute electronic trading activities.

Explanation

Analysing stock performance on an electronic spreadsheet does not constitute electronic trading activities.

9. Direct Market Access (DMA) most likely refers to:

The user using computerized programs and algorithms to place trade orders

DMA provides users with access to a market provided to a client by a licensed or registered person through which the client transmits orders, directly or indirectly, to the market’s trade matching system for execution under the licensed or registered person’s identifier other than those initiated by way of internet trading. DMA does not offer exchange participantship at the SEHK. Using computerized programs and algorithms to place trade orders is considered as algorithmic trading.

Explanation

DMA provides users with access to a market provided to a client by a licensed or registered person through which the client transmits orders, directly or indirectly, to the market’s trade matching system for execution under the licensed or registered person’s identifier other than those initiated by way of internet trading. DMA does not offer exchange participantship at the SEHK. Using computerized programs and algorithms to place trade orders is considered as algorithmic trading.

10. Fund managers, who are users of third party electronic trading system, are least expected to:

Ensure due diligence is performed on such system

Perform annual assessment on the service provider of the trading system

Provide technical courses on quantitative algorithm and programming to their employees

Users of third party electronic trading system are expected to comply with the requirements of ensuring due diligence is performed on such system and performing annual assessment on the service provider of the trading system, amongst other requirements. Providing programming skills and computer education is not one of the requirements for system users.

Explanation

Users of third party electronic trading system are expected to comply with the requirements of ensuring due diligence is performed on such system and performing annual assessment on the service provider of the trading system, amongst other requirements. Providing programming skills and computer education is not one of the requirements for system users.