There can be no doubt about the vast, if not monumental, effect that modern technology has brought to the futures broker industry. Processes that were once the purview of man-made machinations, are now fully automated by the gently humming, and beguilingly autonomous computer processors and omnipotent trading platforms. Calculations are being made, trades entered and exited at a speed that would make Doc Brown giddy. Yet for all of this precocious computing power, there are still some elements of our trade that we may, from time to time, ply by hand. Order tickets, and time stamps more specifically, remain one of the areas that may have a more quaint solution. So what is best for your business, and more importantly, what solutions make the best practice from a compliance perspective? The answer, as is often the case, is it depends.
As it relates to order tickets it is important to note that solutions usually tend to fall in two categories, the electronic trade log, or the tried and true written tickets. Most typically, a firm uses an electronic trading platform that create trade logs with all the necessary information to meet your CFTC 1.35(a) requirements as far as time stamping is concerned. But what many brokers fail to do is meet the necessary and most certainly harped on area of recordkeeping. In many recent NFA audits, examiners have been taking a close look at order recreation. A dynamic shift in compliance review has occurred where auditors now expect the broker to be able to pick any order out of the proverbial hat and show the exact moments that all required information to place that order was duly recorded in a timely fashion. From a compliance perspective this can be a headache for some firms as they do not have the procedures in place to automatically archive trade logs, or their platform provider does not maintain these trade logs beyond a certain amount of time. The brokers of today need to ensure that they have implemented policies that require them to capture the trade log information and to be able to, with pinpoint accuracy, identify that they have met the time stamp requirements as laid out by CFTC Regulation 1.35(a). Modern technology does not thusly come without its own complications.
But what about the handy pen to paper method? Time stamping has long been a tradition on trading desks, with pattering of clerk feet taking tickets to the oddly shaped time stamping machine as a rite of passage. This method certainly has the advantage of meeting all of your recordkeeping needs, and it gives a human touch to ensuring all the appropriate information is maintained. But it is not without its drawbacks, not the least of which is the same human touch. From a compliance perspective, maintaining paper order tickets with the manual time stamp fits the precise spirit of what Regulation 1.35(a) was written for. There can be no question as to maintaining the accuracy of the records, provided that the policies are in place and the records are maintained. But humans, being prone to error, forgetfulness, misplacement, and even irrationality, can somewhat bungle the process. Written order tickets also allow for a degree of customization that is not available necessarily through standard platform trade logs. Firms that use written tickets with manual time stamps must have the policies and procedures in place to ensure that tickets are reviewed for accuracy, and that they are stored safely, in a secure location. One more important note to make is that platform providers are not CFTC registrants, nor are they NFA members, they are simply platform providers. They have no obligation to maintain trade logs in the least. Maintaining your own paper tickets ensures that you are meeting your obligations without any fuss of dealing with the platform provider.
So what is the best method? Again, the answer is always it depends. As most firms have adopted a more automated approach to how they do their business, the clear winner is the electronic trade log method. But if you require a degree of specialization, or if you want some independence from the platform provider, then from a compliance perspective it is better to maintain written order tickets with manual time stamps. In the end the answer comes down to what your business needs are and how your policies are implemented. A firm with the right policies and procedures in place can meet any compliance requirement thrown their way. Turnkey Trading Partners has been in the industry of providing completely compliant and bespoke policies and procedures manuals for member firms.
If you’d like to learn more about this contact Turnkey Trading Partners at omar@turnkeytradingpartners.com.
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