Pilot planning and portfolio limits

Agree the test

Define the strategy, initial amount, broker or venue, responsibilities, review dates and required legal structure. Compare outcomes with the paper process and the execution study; record discrepancies as well as returns.

Limits to agree

• Allocation and reserve: agree a sleeve limit and cash needed for margin, borrowing and settlement.
• Loss and exposure review: define peak-to-trough measurement, concentration limits and who can hold, reduce or stop.
• Execution: agree acceptable costs, fill quality, rejects and unresolved orders.
• Operating incidents: specify data interruptions, broker problems, reconciliation and escalation.
• Any increase: require a fresh decision based on reconciled evidence, rather than an automatic return threshold.

Limits should be justified by the actual mandate, liquidity and operating evidence.

Review and decide

The review can increase, hold, reduce or stop the pilot. Good returns do not resolve poor fills, borrowing or reconciliation problems.