Thread regarding Deutsche Bank layoffs

sell side algo trading desk

Not my post, sharing the link

Regulators need to put more control and governance in sell side algo trading desk, in particular centralized risk desk. “Central risk desk” are often being used by sell side circumventing from Volcker’s restriction on prop trading. Many sell side central risk desks are their former prop trading desk. For example, BAML’s central risk book was its prop trading desk QSA. Many people in this desk were prop trading professionals.These are people who know all about regulation and its circumvention.

There shouldn’t exist shady principal alpha trading strategies creating from client data. Central risk book desk need to explain why they are holding overnight position.

Central risk book trading models need to be robust and throughly validated. Traders shall not be allowed tweak parameters. If necessary, trader or other human being shall only have minimal intervention in algo.

Central risk book desk need to document detailed steps and assumption of their models to make sure it doesn’t use client data for principal alpha trading.

Inappropriate use of client data can cause criminal prosecutions. Many actions of central risk book is in grey area now. The so called “facilitation” and “hedge” in central risk book are very similar to prop trading. Regulators need to restrict such actions. “Trading” of central risk book often associate with illicit market activity and abuse of non public client flow information. Central risk book shall only focus risk internalization rather than becoming a platform for alpha principal trading using sensitive and confidential client information. It is not a place for prop trading. Many principal trading in sell side central risk book are causing hidden underestimate risk of market stability. In summary, regulators need to carefully inspect new desks of systematic important banks. In particular, regulators shall make sure central risk book is not used for irresponsible risk taking.

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