REMIT Criminal Investigation

Aviv Handler over at the CTR blog makes a great point.  Don’t be distracted by REMIT reporting when sanctions for insider trading and market manipulation are in force now.

See his article here.REMIT

We’ve been busy implementing K3 Surveillance Monitoring and would be happy to show you how K3 captures suspected wash trades, spoofing, slamming and other trading behavior.  Feel free to reach out for a demo:

Wash Trades | Your Questions Answered

We’ve been getting a TON of questions about our Wash Trade blog post.

Wash Trades Surveillance

Wash Trades FYI

What do you mean when you say my traders are trading as the FCM?
Let’s Say my company is ABC Energy. I have 100 Traders and an FCM called FCMBANK. When my traders execute trades via a trading platform like TT or even the exchange’s own platform there is a strong probability that my traders are executing as the FCM.

What happened was that when FCMBANK originally set us up, we took a shortcut and connected to the exchange using FCMBANK’s credentials rather than getting our own. This means that when one of my traders executes a trade, the exchange sees FCMBANK making the trade not ABC Energy.

From a position perspective its not a big deal because FCMBANK sees that my traders executed some trades in their name. They allocate those trades back to my account later in the day. The problem is that ABC Energy has zero visibility as to what our traders are doing on the market.

This causes problems:

Because my traders are executing as FCMBank, the trades are unlikely to flow directly into my ABC Energy trading system. Its a setup for confusion, because as ABC Energy I can’t see what my traders are doing on the exchange at all. Forget keeping real time track of position limits, wash trades, spoof, slamming etc…
But they are solvable:

We set up limits & surveillance monitoring all the time. The very first thing we do on a project is reset accounts from the FCM to the client to ensure that trades are executed in the name of the firm not the FCM.
Sometimes My Traders Execute Block Trades via Voice Broker, What Then?

There’s a trick to this. When a broker receives a voice order there is an exchange screen they can use to immediately allocate it back to ABC Energy. Here’s the thing: They have to do it right away. The trader has to tell them to either execute it in our name or allocate it immediately. If the broker delays we are just not going to automatically see the trade. We’ve seen an increasing number of clients put brokers into the penalty box for delayed allocation.

Wait, I Can Get a Direct Feed of My Traders Orders?

Yes…mostly. The large exchanges have a number of different means to get order information, varying in complexity. I’d say that we are somewhat still early days in terms of getting traders real time order information. Some exchanges it’s quite simple…others…more challenging.

Are the rules for wash trades the same in the E.U. as they are in the US?

Very Similar,

CFTC,“Entering into, or purporting to enter into, transactions to give the appearance that purchases and sales have been made, without incurring market risk or changing the trader’s market position. “


ESMA, “…entering into arrangements for the sale or purchase of a financial instrument where there is no change in beneficial interests or market risk or where the transfer of beneficial interest or market risk is only between parties who are acting in concert or collusion.”

I’m a broker do I need to check my client’s orders before I execute?

FCMs need to be really cautious that they are not getting caught up in a wash scheme. via the CME:

“The CFTC has held that firms, firm employees and floor brokers may be found to have knowingly engaged in wash trades if they facilitate a wash result without having made sufficient inquiry as to the propriety of such orders prior to their execution. The failure of a firm employee or floor broker to undertake such inquiry may support an inference of knowing participation in wash trades.”

We’ve built surveillance internally, but we’d like to get some external validation about our Limits, Wash, and other results.

Not a problem. We would be happy to run your data through K3. Or, if you prefer you can engage one of our consulting partners that use K3 for that very purpose. Feel free to give Tom Eisner a call and he will set it up.


Let’s Talk Wash Trade Compliance

We’ve had a lot of discussion with customers about how compliance should implement a wash trade compliance.  Let’s start from the top:

Wash Trade Compliance

What is a Wash Trade?

Well, the CFTC defines a wash trade as: Entering into, or purporting to enter into, transactions to give the appearance that purchases and sales have been made, without incurring market risk or changing the trader’s market position. “   See also Aviv Handler Here

Let’s synthesize this into a compliance guiding principle:  Compliance should inquire into behavior that has the “appearance of trading but is not.”   While trading and wash trading look the same there is one key element that concretely distinguishes the two: market risk.  So, lets take a look at some common scenarios.

The BSSP:  BSSP stands for Buy-Sell Same Price. Buying and selling a product at the same price is naturally a  suspect trade. Why? What makes it suspicious is that one  cannot immediately tell whether it was exposed to market risk.  You see, when a trader executes a buy and sell at a different price, there is prime facia evidence that the trade was exposed to market risk: the price is different!  Not so when the trade is at the same price.  Thus, we have to dig deeper to tell if it is a wash.

  • BSSP Same Trader:  When the same trader does a BSSP the compliance officer has to establish that there was some form of market exposure.  What happened in between the buy and the sell?  Was the open and close within seconds? Was this a liquid or illiquid product?  Were there others posting bids and offers in the market? What I’m getting at is that if a trader bought in the AM and sold at the same price in the PM but there is no activity in the market …it could be prohibited activity.
  • BSSP Different Trader: This one is a little more difficult because what we are really concerned about here is collusion.  Yes, one of your traders bought in the morning and another sold in the afternoon at the same price.  There is plenty of activity in the market giving the appearance of market risk.  However, if the traders colluded, then there was never any market exposure.  Thus, for different traders some inquiry needs to be made on who the traders were, whether they have been in contact, and whether this has happened before.  For large entities this happens on occasion.  A trader in Houston buys and a trader in London sells at the same price.  They are never in contact and may even be in different groups.  But this fact simply needs to be documented.
  • BSSP FCM Wash Hustle:  An FCM wash hustle is a risky proposition that will almost certainly draw wash scrutiny.   In an FCM wash hustle a trader creates a Paired Order where a buy and sell at the same price are placed through different FCMs.  The difficult thing about FCM Wash Hustles is that they are extremely difficult to catch.  The reason for this is that a lot of traders are able to trade via FCM accounts as opposed to the trading firm’s account.  In other words what the market sees is FCM1 buying  vs FCM2 selling.   But at the end of the day when the trades are allocated back to the trading company we see it was all executed by one trader.   I could go on for days about how traders trading on FCM accounts is creating compliance headaches around the globe.  However from a compliance inquiry any BSSP done with one or more FCMs goes into the “highly suspicious activity.”

What You Can Do

  1. Configure exchange Self Trade Prevention.  Most exchanges have self trade prevention functionality like ICE’s STPF.  This allows you to prevent your firm from trading with itself.  Its worth spending some time on configuration, but goes a long way to preventing a lot of BSSP.
  2. Consider eliminating trading via FCM accounts.  Again, this is a fairly simple configuration issue.  If executing trades using an exchange’s booking platform, then ensure each trader user account is setup with the correct clearing accounts.  When using execution platforms such as TT, you must ensure the FCM has all traders executing deals using your clearing accounts and not the FCMs.
  3. Ensure your FCM clearing accounts are setup correctly.  Each clearing account with the FCM must be setup in the exchange’s systems (e.g. CME uses RAV) such that trades flow automatically via your firm’s FIX connection.
  4. Get an orders feed connection.  The orders feed provides real time insight to trader’s exchange activity. We are an approved vendor for most exchanges orders feed.
  5. Make sure your compliance suite is fit for purpose. Is it reliable? Does it cover all your trades no matter how they are executed?  We’re always happy to show our compliance suite for wash, spoof, limits etc. so please give us a call.
  6. Use a compliance issues tracking system.  Some companies have formal systems others we set up on JIRA.  Its $10 bucks a month per user (no affiliation to us). But it’s a nice system to open up an issue, record what compliance did in its investigation and close it.

90 Days Til REMIT


Another great article [HERE] by Aviv Handler at the energytradingregulation blog…

Some takeaways if you are trading phys gas and power in Europe.

REMIT Trade Reporting Checklist

Tempus Fugit

  • 90 Days to Go!  Don’t forget to check into key personnel time off. Summer and the back half of September are full of holidays!
  • Talk to your OMPs (exchanges & brokers).  Find out how they will be reporting order & trade data.
  • Execute agreements with OMPs for the reporting of data.
  • Select an RRM and execute RRM agreements.
  • Don’t forget to register in your respective jurisdictions!

Trade Reporting Under REMIT

Here’s a quick video explaining how REMIT works and how to generate ACER XML for trade reporting.  If you are having trouble with the video below click this link.


Excellent Commentary by Aviv Handler

New Q&A from ACER.  Commentary by Aviv Handlershutterstock_260340503

REMIT Regulation | Game of Thrones

Alliances and stratagems. Turns out the political twists and turns of the REMIT regulation, the EU gas and power mandate, is like..”Game of Thrones complicated.”  There’s a very full field of new RRMs (HERE). Most are absolutely new to regulatory reporting. But, that’s not what’s

keeping people up at night.

OMP Fragmentation & Uncertainty = Compliance 🙁remit game of thrones


Market Participant’s data is going to be all over the place.  We count 34 physical gas and power exchanges subject to REMIT regulation.  Most have either created their own RRM or paired of with a “preferred RRM” that they will pump data to automatically.  CME will go to their own RRM,  ICE will go to their own RRM, Belpex will go to EEX etc, etc…  It’s all well and good, but if you need to make sure all your orders and trades are being reported correctly it’s a nightmare.


A lot of physical gas and power is brokered.  And it’s the brokers who have to communicate orders and executions.  The big question is, where to?  A lot of the big brokers like ICAP have paired off with a “preferred RRM.”  A second group have fallen back on, “we are going to pump out ACER XML and send it where you want.”  A third group, who shall remain nameless, ask: “What is REMIT?”

But Here’s The Real Uncertainty

Not everyone is on board with communicating all this data via ACER XML.  In particular a lot of exchanges and possibly some brokers are not likely to give that data up as ACER XML in the near term.  They might send you a flat file, but it won’t be ACER XML.

Second, there are so many RRMs, it’s a setup for significant instability.  We have already heard rumors of serious price dropping to gain customers.  This is great for Market Participants, right up to the point that their RRM decides to call it a day.  Truth be told, running a repository is a very expensive proposition.  Demands for high security, painfully long legal approval and hurdles, not to mention the technology… makes for a very thin margins.

So It Comes to This

Every Market Participant, Every Exchange, Every Broker has got to develop a core competency around ACER XML.  That is taking flat data and turning it into ACER XML and vice versa.  The overall REMIT Regulation is complicated enough.  But this is one thing regulators may have gotten right:  a single standard to communicate trades.

Here’s Where We Can Help

K3 is up to the challenge.  We’ve set up a drop service for REMIT: Drop your CSV into a folder and it automatically converts it into ACER XML… instantly.  More?  We’re an integration company!  So we’ve integrated to Dropbox to make it even easier. Drop a file from anywhere and *Poof* Acer XML wherever you want it.

We’ve sliced and diced the ACER XML. There’s a handful of curveballs in there.

  • We will be having an webinar and try to kick off a discussion group on ACER XML
  • We’ve setup a Linkedin Group to share info.
  • Drop a note to Tom Eisner to get an invite to the webinar, Linkedin Group or to get a view of the REMIT drop service ( or

Looking for Artists of Code…

We are growing strong at BroadPeak and looking to hire some more key team members.  Do you have experience integrating systems?  Are you a code jedi?  Do you love clojure or other functional languages?

Besides the obvious analytical skills that a good developer must have, we particularly look for folks who like having impact on big business, solving tough problems, and thinking artistically.

Yeah, I said it.  Gone are the days of the “code monkey”.  If you get heart warming feelings when you see an “elegant” technical solution, you’re an artist…and we want you.

Not all RRMs are created equally

It’s just a matter of time…
With all this global trade reporting going on and all sorts of new players entering the market, it’s just a matter of time before someone’s data gets hacked.  Being able to predict trading patterns and how counterparties affect the market is an advantage akin to knowing the other players’ cards at a poker table.  Thus a massive database of all trades is a treasure chest for the unscrupulous.
With Dodd-Frank and EMIR this really wasn’t much of a concern.  But for REMIT, there are a growing number of new entrants applying to be RRMs making the decision tough for participants.  Here’s the real question when deciding…
Does your TR/RRM have a NOC to prevent malicious attacks from hackers?
Players like ICE and CME among others, have spent tons of money protecting their systems so you can rest assured when sending data to them.  Not all RRMs are created equally…

Docker | A $416 Million Loss Too Late?

Seriously, one has to wonder whether Docker could have saved Knight Capital from bankruptcy and a $416 Million one day loss.

The cause of the Knight bankruptcy is pretty straightforward.  Knight was one of the biggest market makers in equities.  They were the guys always providing liquidity on exchanges like NYSE.  A developer moved an upgrade of their market making software from UAT

Large Enterprise Swallows Docker

Large Enterprise Swallows Docker

into production.  But he/she forgot to install one little thing.  That one little thing caused market orders to be duplicated again and again.  Before they could trace the problem Knight was out $416 Million and finished.

Moving environments from a development environment to a production environment has always been a tedious headache.  When I move an application from one server to the next, I have to make sure that all the underlying and supporting libraries, settings, configurations are all the same.  It’s kind of your run of the mill pain in the neck work, but one that demands some attention to detail. Why?  Because if that one little thing is not the way it should be the new instance will misfire.

The beauty of Docker…and the reason enterprise software guys like me are bla-bla-bla-ing about Docker is because it really eliminates a ton of pain in the neck work as well as streamline the application migration.  You simply deploy an application inside a Docker Container and you can move it from one server or VM to the next.  All the settings, libraries, etc…go right along with it. The application and its dependencies are all bundled nicely into a tidy container.  One server to the next, it all goes along swimmingly.


1.       We are in a new golden age of technology. Amazing enterprise technology is rolling out ALL THE TIME.  At a minimum it really pays to try a little skunkworks mindset to give these new things a go and see how they can make an impact on your business.  We are recommending that all our clients at least try out Docker.  We are already using it internally.

2.       When new technology rolls out it is often not “enterprise ready.”  What this means is that the bulk of the product is there but it’s not prime time yet for security, features, usability that fit into an enterprise operating model.  For example, Docker is only supported in Linux.  If your company is running Linux servers you are good to go.  Microsoft servers?  Not ready yet.  But disruptive technology like this is entirely worth staying current.  It won’t take Docker any time to close the gap.

3.       Skunkworking new technology, knowledge distribution is king.  We like to use the surgeon model: See One, Do One, Teach One.  The last thing you want is one person being the only one who knows how to use new technology.

4. The hallmark attribute of this new technological age is absolute “torpedo-ability.” Modern architecture is thoroughly Darwinian, and assumes that any part that becomes less than ideal can be replaced (see my previous blog post on this here.)  Second, when new cool stuff is rolling out all the time we actually have smart evolution at our disposal. This is just one of the reasons your old legacy systems don’t have much of a future…they cant evolve. (see blog post here).


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