If they are appropriate, the trader may then execute the trade. If not, the system alerts the trader that the proposed trade violates an account restriction with respect to one or more of the accounts involved. The trader then has alternative options on how to proceed. Automated pre-trade compliance systems provide a number of benefits to the securities industry. By integrating compliance with order management and portfolio management systems, much of the firm's compliance function is moved from a typical 'back-office' function to the front office.
Compliance is now in the hands of the traders and the portfolio managers of the firm.
With the pre-trade compliance systems, traders and portfolio managers are able to know before a trade is executed whether the trade would violate any restrictions for the particular account or accounts. By increasing the traders' awareness of restrictions applicable to different accounts, these systems also tend to promote a stronger culture of compliance within the firm. In addition to uncovering trades that may violate an investment restriction, automated pre-trade compliance systems improve trade allocation and order processing for all trades. This, in turn, reduces costs of processing orders, correcting errors, and reversing trades. Without increased overhead or staffing, these systems bring scalability to the functions of compliance personnel, allowing them to handle increases in trading volume coming from today's economy and market without corresponding increases in costs or staffing.