Trading limits have come into the focus of senior management teams across the sell-side, according to the Q4 2024 Sell-Side Execution Management Insight report by Acuiti.
A major fine from UK regulators has changed approaches across the sell-side, the report noted.
“This new focus on trading limits has shone a light on issues such as the lack of a central limits system and lack of clarity on how execution limits should be calculated,” the report added.
Banks operate their own models for trading limits and determining them for a client is often a nuanced exercise that involves the desk’s accumulated knowledge about their clients’ needs and strategies, according to the report.
For futures desks, trading limit calibration was identified as a high or urgent priority by 61% of the network.
Network members report that improving pre-trade risk analysis is an important part of these reviews.
Acuiti said that give-up arrangements are also emerging as an item of particular attention within the trading limits discussion.
According to the findings, most of the network reported calculating client futures trading limits on a product-by-product basis.
“This approach requires extensive analysis of each product, considering factors such as the order book for that product, the algos used to trade it its IM and other aspects of market structure,” the report said.
The report stressed that “explaining the nuance and minutiae of trading limit calculations to senior management and regulators can be a time-consuming exercise”.
According to Acuiti, if senior management teams have the technical knowledge or experience of working an execution desk, the process is much easier, however, over a third of the network cited it as a major inconvenience.
The report also covered the rising demand for commodity futures, India’s Gift City, the re-bundling of execution and research and the outlook for the remainder of 2024.
The report is based on a survey of the Acuiti Sell-Side Execution Network, a group of over 300 senior executives at banks and brokers across the global market.
Each quarter members of the network input topics and questions into the survey with the responses aggregated into this report.
