Circular to licensed corporations
Data Standards for Order Life Cycles

31 Jul 2019



This circular sets out the Data Standards for Order Life Cycles which prescribe the minimum content and presentation format of trading-related data to be submitted by licensed securities brokers to the Securities and Futures Commission (SFC) upon request. The Data Standards are enclosed with this circular as an appendix and a list of frequently-asked questions (FAQs) is available on the SFC website1.

Initially, only equities listed on The Stock Exchange of Hong Kong Limited (SEHK) will be considered “In-Scope Products” for the purpose of complying with the Data Standards. In addition, only brokers whose trading turnover in SEHK-listed equities in a calendar year reaches or exceeds 2% of that year’s total market trading volume will be considered “In-Scope Brokers”.

Implementation timeline

In-Scope brokers will be expected to implement system changes and make other arrangements needed for compliance with the Data Standards within 15 months. Licensed securities brokers with trading turnover which reached or exceeded the 2% mark for the calendar year 2018 (ie, $26,422,762 million2) will be expected to comply with the Data Standards by the end of October 2020.

As soon as the total market trading volume is reported for each subsequent calendar year (ie, 2019 and beyond), licensed brokers which are not already In-Scope Brokers should check if their trading turnover in SEHK-listed equities has reached or exceeded the 2% mark. If so, they will have 15 months to develop and test their systems to prepare for compliance with the Data Standards. Accordingly, the due implementation date for brokers classified for the first time as In-Scope Brokers in view of their 2019 turnover would be in April 2021.

Regular data reporting will not be required at this stage, but In-Scope Brokers should be ready to submit trading data requested by the SFC, whether for supervisory or other purposes, in the format specified in the Data Standards. In-Scope Brokers can continue to store data in their own formats. The Data Standards only define the content and format of the information which In-Scope Brokers should be able to readily present to the SFC upon request.

The Data Standards will not be applied retroactively. In-Scope Brokers will only need to submit data in accordance with the Data Standards with regards to trading activity undertaken after the due implementation date which applies to them.

Securities brokers are also encouraged to take reference to the Data Standards to support their in-house monitoring and surveillance programmes.

Increasing use of data analytics

Receiving data on a timely basis is of paramount importance to the SFC in carrying out its functions and particularly in using data analytics tools or approaches to detect irregular activities, which in our experience are commonly associated with trading misconduct. Since 2015, we have used data analytics when conducting onsite inspections of some licensed securities brokers with high levels of trading activity. This allowed us to identify systemic trading-related control deficiencies and instances of non-compliance with the Code of Conduct3 which would otherwise go undetected. In some cases, this led to investigations and regulatory action.

Brokers often took a long time to provide the data we requested. Moreover, existing systems could not readily reconstruct order life cycles, from the initial receipt of an order instruction to final execution or cancellation. The underlying data was often scattered across multiple order management systems. Brokers had to extract and combine the relevant data, which then had to be scrubbed and validated.

In addition, each broker adopted different approaches to how events were defined and linked. The names used to designate datasets had different meanings across firms, and sometimes even within the same firm. Furthermore, the data we received had to be manually validated, which was very time-consuming.

Formulation of the Data Standards

There is a need to streamline the data validation and submission process. We engaged an external consultant and convened a working group of selected licensed brokers to develop an industry-wide data standard to better align our expectations of how data should be presented in a consistent and meaningful manner. We also consulted nearly all of the In-Scope Brokers4 as well as an industry association, and incorporated their comments as appropriate.

After lengthy deliberation, it was decided that the Data Standards should initially be guided by the following principles:

(a)   The scope should be limited to products which are commonly associated with trading misconduct.

(b)   Only brokers with significant trading volumes in the relevant products should be affected.

(c)    Order life cycles should be effectively linked to corresponding events, such as cancellation, modification, splitting into child orders and routing to an execution venue.

(d)    The Data Standards should be designed to provide maximum flexibility and minimal disruption.

(e)    They should be technically feasible.

(f)     They should be scalable and capable of covering other products and trading activities, and future phases should enable tests to identify other irregularities.

The Data Standards specify the material terms of an order that must be recorded. These include order price, quantity, side, type, capacity, client identification, algorithmic order instructions and aggregation information. The list can be extended and the terms can be modified to facilitate future expansion as needed.

A unique logical order identifier is assigned to each top-level parent order. This identifier is immutable and is recorded alongside all subsequent events to allow transparent linkage and full traceability.

The Data Standards are technical in nature and brokers’ data structures and systems can be very different. To leverage on some commonly-used definitions, we referred to the Financial Information Exchange Protocol (FIX), which is a well-recognised, global standard for electronic trading.

The SFC will continue to streamline the data validation and submission process and develop more automated scripts to execute compliance tests. Separately, we will keep in view the need and feasibility to expand the current data standard including to cover more product types, transaction types and regulated activities.

Further guidance

The FAQs provide further guidance as well as illustrative examples covering less common scenarios.

The SFC has set up a working group, including representatives from selected In-Scope Brokers and the industry association, to collectively address questions and feedback from the industry.

Should an In-Scope Broker foresee any difficulty in implementing the Data Standards by the due implementation date, it should inform the SFC as soon as practicable by writing to sfcdatastandards_isd@sfc.hk with an explanation and projected implementation timeframe.

Questions regarding the implementation of the Data Standards or the FAQs should be sent to sfcdatastandards_isd@sfc.hk. Suggestions and feedback may also be addressed to the working group at sfcdatastandards_wg@sfc.hk.

Intermediaries Supervision Department
Intermediaries Division
Securities and Futures Commission

Enclosure

End

SFO/IS/040/2019


1   https://www.sfc.hk/web/EN/faqs/intermediaries/supervision/data-standards-for-order-life-cycles/data-standards-for-order-life-cycles.html
2   See HKEX Market Statistics 2018.
3   The Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (Code of Conduct)
4   16 licensed securities brokers had turnover which reached or exceeded the 2% threshold in 2018, 13 were consulted individually when the remaining three were members of the industry association which we consulted.  


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Supplementary document:
Appendix


Page last updated : 1 Aug 2019