Electronic trading agreements

Purpose – This paper aims to analyze various issues a hedge fund manager should consider prior to executing any electronic trading agreement with a prime broker. Design/methodology/approach – The paper discusses how hedge fund managers use electronic trading platforms and prime brokerage services; recommends considerations for hedge fund managers to keep in mind when negotiating electronic trading agreements, including scope of the license grant for the electronic trading platform, warranties, indemnification and limitation of liability, security, confidentiality, maintenance, customization and termination. Findings – Prior to signing any electronic trading agreement, a hedge fund manager should assess a fund's requirements and conduct due diligence to confirm that the applicable prime broker can meet such needs. Since many electronic trading agreements impose various obligations on a hedge fund manager, prevent him/her from conducting business as expected or required and significantly limit the prime broker's liability, counsel should review such contracts prior to execution. Practical implications – Hedge fund managers should analyze whether the applicable electronic trading services can meet their needs and also consult with counsel to understand the full legal implications of the electronic trading documentation. Originality/value – This paper is intended to educate existing as well as new managers of hedge funds about the business and legal implications of electronic trading agreements. The authors are experienced attorneys who routinely negotiate electronic trading agreements with prime brokers.