Compliance Sign-Off for a New Strategy
Before a new strategy can trade live, compliance checks it against the firm's regulatory obligations and internal policies, not just its expected return.
Prerequisites: Strategy Decommissioning Criteria
A strategy that a research desk considers "done" is not yet allowed to touch a live market. It still has to pass through compliance sign-off — a review that asks a different set of questions than the ones a researcher asks. Does it touch any restricted names or insider lists? Could it be mistaken for spoofing, layering, or another prohibited pattern under market-abuse rules? Does it stay inside position and concentration limits the firm has agreed with regulators or prime brokers? Is there a kill switch, and does someone other than the strategy's author have the authority to pull it?
Compliance sign-off checks whether a strategy is allowed to trade, which is a separate question from whether it should trade — a profitable, well-tested strategy can still be blocked if its order behavior, instrument list, or risk controls don't meet the firm's regulatory obligations.
In practice this means the strategy team supplies documentation before launch: a description of the logic in plain language, the instruments and venues it will use, expected order rates and sizes, and the pre-trade risk checks in place. Compliance reviews this against internal policy and relevant rules — market-abuse regulation, exchange rulebooks, and any firm-specific restricted lists — and can require changes, such as adding a maximum order-to-trade ratio or excluding certain tickers, before granting approval.
This step is usually the last gate before capital is committed, and it is deliberately independent of the team that built the strategy, so that commercial pressure to launch doesn't override a genuine compliance concern.
Further reading
- FINRA, Supervision and Compliance Obligations for Algorithmic Trading