# Software Requirements Specification

for the

## Algorithmic Trading System

DEMO-2025-001

Revision: v1.1

Date: 2026-04-07

Author: Sensmetry

## Reference Documents

- MiFID-II - Markets in Financial Instruments Directive II
- SEC-Rule-15c3-5 - SEC Market Access Rule
- FINRA-Rules - FINRA Algorithmic Trading Rules
- Regulation-NMS - Regulation National Market System

## Revision history

Version | Date | Description | Changes
--- | --- | --- | ---
1.1 | 2026-01-21 | Non-functional SysML changes. | 1 modified

## Changes since last version

## Table of Contents

## Introduction

### Purpose

This document serves as the Software Requirements Specification (SRS) for the Algorithmic Trading System. It outlines the comprehensive set of requirements that must be met by the system to ensure successful development, deployment, and operation in live trading environments.

This SRS contains requirements concerning the system's functionalities, performance, interfaces, and quality attributes from the stakeholder, trader, risk manager, compliance officer, and the development team's perspectives.

### Scope

The requirements included in this document drive the development of the Algorithmic Trading System and ensure that the final deliverable aligns with regulatory compliance, risk management needs, and trading performance objectives. This document serves as a foundation for system design, development, testing, and validation.

### Requirement Types

The following requirement type prefixes are used throughout this specification:

Prefix | Name | Description
--- | --- | ---
STKR-EXEC | Trading Firm Requirement | Base requirement definition for stakeholder-level requirements.
STKR-USER | Trading Team Requirement | Requirement definition for quantitative trading team needs.
STKR-RISK | Risk Management Requirement | Requirement definition for risk management needs.
STKR-COMP | Compliance Requirement | Requirement definition for compliance officer needs.
SYS-PERF | Performance Requirement | Requirement definition for performance system requirements.
SYS-FUNC | Functional Requirement | Requirement definition for functional system requirements.
SYS-RISK | Risk Control Requirement | Requirement definition for risk control system requirements.
SYS-COMP | System Compliance Requirement | Requirement definition for compliance system requirements.

### Summary

Category | Count
--- | ---
Executive Stakeholder Requirements | 3
User Stakeholder Requirements | 13
System Requirements | 17
Total | 33

The following diagrams provide a visual overview of the requirement structure defined in the SysML v2 model.

#### Executive Requirements

#### User Requirements

#### System Requirements

## Requirements

### Executive Stakeholder Requirements

#### STKR-EXEC-001

##### Requirement details

Status | Approved
--- | ---
Identifier | STKR-EXEC-001
Description | System shall generate consistent risk-adjusted returns while maintaining regulatory compliance.
Success criteria | Achieve minimum Sharpe ratio of 2.0 over rolling 12-month periods with zero regulatory violations.
Justification | Primary business objective to deliver value to investors while managing operational and regulatory risk.
Parent requirements |
Derived requirements |
Dependency graph |

##### Verification details

Implemented by | - Algorithmic Trading Platform
--- | ---
Validated by | - TEST-DEF-STKR-EXEC-001

#### STKR-EXEC-002

##### Requirement details

Status | Approved
--- | ---
Identifier | STKR-EXEC-002
Description | System shall comply with all applicable financial regulations including MiFID II and SEC requirements.
Success criteria | Pass all regulatory audits with no major findings and maintain trading authorization across all target markets.
Justification | Legal obligation to operate in regulated markets and avoid fines, sanctions, or license revocation.
Parent requirements |
Derived requirements | STKR-COMP-001 STKR-COMP-002
Dependency graph |

##### Verification details

Implemented by | - Algorithmic Trading Platform - Compliance Module - Market Data Handler
--- | ---
Validated by | - TEST-DEF-STKR-EXEC-002

#### STKR-EXEC-003

##### Requirement details

Status | Approved
--- | ---
Identifier | STKR-EXEC-003
Description | System shall prevent catastrophic losses through automated risk controls, position monitors, and circuit breakers.
Success criteria | Less than 0.1% trading incidents resulting in losses exceeding daily loss limits or requiring manual intervention.
Justification | Protect firm capital and prevent business-ending losses as seen in historical algorithmic trading failures.
Parent requirements |
Derived requirements | STKR-RISK-001 STKR-RISK-002 STKR-RISK-005
Dependency graph |

##### Verification details

Implemented by | - Algorithmic Trading Platform
--- | ---
Validated by | - TEST-DEF-STKR-EXEC-003

### Trading Team Requirements

#### STKR-USER-001

##### Requirement details

Status | Draft
--- | ---
Identifier | STKR-USER-001
Description | Trading team shall be able to backtest strategies on historical market data with realistic execution simulation.
Success criteria | Backtesting environment produces results within 5% of actual live trading performance over 3-month validation.
Justification | Validate strategy profitability and risk characteristics before deployment to avoid losses from untested algorithms.
Parent requirements |
Derived requirements |
Dependency graph |

##### Verification details

Implemented by | - Backtesting Engine - Strategy Engine
--- | ---
Validated by | - TEST-DEF-STKR-USER-001

#### STKR-USER-002

##### Requirement details

Status | Draft
--- | ---
Identifier | STKR-USER-002
Description | Trading team shall be able to deploy strategies to production with configurable risk parameters.
Success criteria | Strategies deploy to production within 10 minutes with all risk parameters correctly applied and verified.
Justification | Enable rapid strategy iteration and deployment while maintaining risk oversight and control.
Parent requirements |
Derived requirements |
Dependency graph |

##### Verification details

Implemented by | - Strategy Engine
--- | ---
Validated by | - TEST-DEF-STKR-USER-002

#### STKR-USER-003

##### Requirement details

Status | Draft
--- | ---
Identifier | STKR-USER-003
Description | Trading team shall be able to monitor strategy performance in real-time with P&L tracking.
Success criteria | P&L updates display with < 1 second latency and dashboards remain accessible during all market conditions.
Justification | Enables prompt response to performance degradation or changing market conditions to protect capital.
Parent requirements |
Derived requirements |
Dependency graph |

##### Verification details

Implemented by | - Monitoring & Alerting - Strategy Engine
--- | ---
Validated by | - TEST-DEF-STKR-USER-003

#### STKR-USER-004

##### Requirement details

Status | Draft
--- | ---
Identifier | STKR-USER-004
Description | Trading team shall be able to halt or modify strategies based on changing market conditions.
Success criteria | Strategy halt commands execute within 500 milliseconds with confirmation displayed to operator.
Justification | Market conditions change rapidly; manual override capability is essential for risk management.
Parent requirements |
Derived requirements |
Dependency graph |

##### Verification details

Implemented by | - Monitoring & Alerting
--- | ---
Validated by | - TEST-DEF-STKR-USER-004

### Risk Management Requirements

#### STKR-RISK-001

##### Requirement details

Status | Draft
--- | ---
Identifier | STKR-RISK-001
Description | System shall enforce position limits per strategy, instrument, and aggregate portfolio.
Success criteria | 100% of orders exceeding position limits are rejected before submission to market.
Justification | Prevent concentration risk and limit exposure to individual instruments or strategies.
Parent requirements | STKR-EXEC-003
Derived requirements | SYS-RISK-001 SYS-RISK-002
Dependency graph |

##### Verification details

Implemented by | - Risk Management System
--- | ---
Validated by | - TEST-DEF-STKR-RISK-001

#### STKR-RISK-002

##### Requirement details

Status | Draft
--- | ---
Identifier | STKR-RISK-002
Description | System shall monitor P&L in real-time and halt trading when daily loss limits are breached.
Success criteria | Loss limit breach detection and trading halt occurs within 100 milliseconds.
Justification | Cap maximum daily losses to prevent drawdowns that exceed risk tolerance or threaten firm viability.
Parent requirements | STKR-EXEC-003
Derived requirements |
Dependency graph |

##### Verification details

Implemented by | - Risk Management System
--- | ---
Validated by | - TEST-DEF-STKR-RISK-002

#### STKR-RISK-003

##### Requirement details

Status | Draft
--- | ---
Identifier | STKR-RISK-003
Description | System shall perform pre-trade risk checks on all orders before submission to exchanges.
Success criteria | Pre-trade checks complete with < 50 microseconds latency and 100% of orders are validated before submission.
Justification | Regulatory requirement and best practice to prevent erroneous orders from reaching market.
Parent requirements |
Derived requirements | SYS-RISK-001 SYS-RISK-002 SYS-RISK-003 SYS-RISK-004
Dependency graph |

##### Verification details

Implemented by | - Risk Management System
--- | ---
Validated by | - TEST-DEF-STKR-RISK-003

#### STKR-RISK-004

##### Requirement details

Status | Draft
--- | ---
Identifier | STKR-RISK-004
Description | System shall detect and prevent erroneous orders such as fat-finger errors and duplicate submissions.
Success criteria | Detect and reject 100% of orders with quantities >3 standard deviations from historical mean for that strategy.
Justification | Prevent costly trading errors that can result in significant losses and market disruption.
Parent requirements |
Derived requirements |
Dependency graph |

##### Verification details

Implemented by | - Risk Management System
--- | ---
Validated by | - TEST-DEF-STKR-RISK-004

#### STKR-RISK-005

##### Requirement details

Status | Draft
--- | ---
Identifier | STKR-RISK-005
Description | Risk managers shall have access to emergency kill switch to immediately halt all automated trading.
Success criteria | Kill switch activates within 100 milliseconds and cancels all pending orders.
Justification | Final safeguard for extreme situations requiring immediate cessation of all trading activity.
Parent requirements | STKR-EXEC-003
Derived requirements |
Dependency graph |

##### Verification details

Implemented by | - Risk Management System
--- | ---
Validated by | - TEST-DEF-STKR-RISK-005

### Compliance Requirements

#### STKR-COMP-001

##### Requirement details

Status | Draft
--- | ---
Identifier | STKR-COMP-001
Description | System shall maintain complete, immutable audit trail of all trading activity with nanosecond timestamps.
Success criteria | Audit trail captures 100% of trading events with timestamp accuracy ±100 nanoseconds and zero data loss.
Justification | Required for regulatory audits and post-trade analysis.
Parent requirements | STKR-EXEC-002
Derived requirements |
Dependency graph |

##### Verification details

Implemented by | - Compliance Module
--- | ---
Validated by | - TEST-DEF-STKR-COMP-001

#### STKR-COMP-002

##### Requirement details

Status | Draft
--- | ---
Identifier | STKR-COMP-002
Description | System shall generate regulatory reports compliant with MiFID II transaction reporting and SEC audit trail requirements.
Success criteria | Reports generated daily by T+1 deadline with 100% accuracy and zero regulatory rejections.
Justification | Legal obligation for market participants to report trading activity to regulators within specified timeframes.
Parent requirements | STKR-EXEC-002
Derived requirements |
Dependency graph |

##### Verification details

Implemented by | - Compliance Module
--- | ---
Validated by | - TEST-DEF-STKR-COMP-002

#### STKR-COMP-003

##### Requirement details

Status | Draft
--- | ---
Identifier | STKR-COMP-003
Description | System shall monitor trading activity for potential market abuse patterns including wash trades and layering.
Success criteria | Surveillance system flags 95% of known market abuse patterns with <1% false positive rate.
Justification | Prevent market manipulation and ensure compliance with market conduct regulations to avoid penalties.
Parent requirements |
Derived requirements |
Dependency graph |

##### Verification details

Implemented by | - Compliance Module
--- | ---
Validated by | - TEST-DEF-STKR-COMP-003

#### STKR-COMP-004

##### Requirement details

Status | Draft
--- | ---
Identifier | STKR-COMP-004
Description | System shall enforce best execution requirements by monitoring execution quality across venues.
Success criteria | Execution quality within top quartile of industry benchmarks with documented venue selection rationale.
Justification | Regulatory obligation to obtain best possible execution for client orders and demonstrate due diligence.
Parent requirements |
Derived requirements |
Dependency graph |

##### Verification details

Implemented by | - Execution Management System
--- | ---
Validated by | - TEST-DEF-STKR-COMP-004

### Performance Requirements

#### SYS-PERF-001

##### Requirement details

Status | Draft
--- | ---
Identifier | SYS-PERF-001
Description | System shall process market data with end-to-end latency less than 1 millisecond from exchange feed to strategy.
Success criteria | 99.9th percentile latency measured at <1ms during normal market conditions.
Justification | Low latency is critical for competitive advantage in high-frequency trading and market-making strategies.
Parent requirements |
Derived requirements |
Dependency graph |

##### Verification details

Implemented by | - Market Data Handler
--- | ---
Validated by | - TEST-DEF-SYS-PERF-001

#### SYS-PERF-002

##### Requirement details

Status | Draft
--- | ---
Identifier | SYS-PERF-002
Description | System shall submit orders with latency less than 1 millisecond from signal generation to exchange.
Success criteria | Mean order submission latency <500 microseconds with 99th percentile <1ms measured via hardware timestamps.
Justification | Minimize slippage and maximize probability of execution at desired prices in fast-moving markets.
Parent requirements |
Derived requirements |
Dependency graph |

##### Verification details

Implemented by | - Execution Management System - Order Management System
--- | ---
Validated by | - TEST-DEF-SYS-PERF-002

#### SYS-PERF-003

##### Requirement details

Status | Draft
--- | ---
Identifier | SYS-PERF-003
Description | System shall handle throughput exceeding 100,000 orders per second.
Success criteria | Sustained throughput of 100,000 orders/second with no message loss and latency degradation <10%.
Justification | Support high-frequency strategies and market-making across multiple instruments simultaneously.
Parent requirements |
Derived requirements |
Dependency graph |

##### Verification details

Implemented by |
--- | ---
Validated by | - TEST-DEF-SYS-PERF-003

#### SYS-PERF-004

##### Requirement details

Status | Draft
--- | ---
Identifier | SYS-PERF-004
Description | System shall maintain 99.99% uptime during market hours.
Success criteria | Maximum unplanned downtime of 5 minutes per month during trading hours.
Justification | Downtime results in missed trading opportunities and potential failure to meet market-making obligations.
Parent requirements |
Derived requirements |
Dependency graph |

##### Verification details

Implemented by | - Monitoring & Alerting
--- | ---
Validated by | - TEST-DEF-SYS-PERF-004

### Functional Requirements

#### SYS-FUNC-001

##### Requirement details

Status | Draft
--- | ---
Identifier | SYS-FUNC-001
Description | System shall ingest real-time market data from multiple exchanges simultaneously.
Success criteria | Simultaneous connection to minimum 5 exchanges with no data gaps >100ms during market hours.
Justification | Access to multiple venues enables arbitrage opportunities and best execution across markets.
Parent requirements |
Derived requirements |
Dependency graph |

##### Verification details

Implemented by | - Market Data Handler
--- | ---
Validated by | - TEST-DEF-SYS-FUNC-001

#### SYS-FUNC-002

##### Requirement details

Status | Draft
--- | ---
Identifier | SYS-FUNC-002
Description | System shall normalize market data across different exchange formats into unified representation.
Success criteria | All supported exchanges mapped to common schema with 100% field accuracy validated against exchange specs.
Justification | Unified data format simplifies strategy development and enables cross-venue analysis and trading.
Parent requirements |
Derived requirements |
Dependency graph |

##### Verification details

Implemented by | - Market Data Handler
--- | ---
Validated by | - TEST-DEF-SYS-FUNC-002

#### SYS-FUNC-003

##### Requirement details

Status | Draft
--- | ---
Identifier | SYS-FUNC-003
Description | System shall track complete order lifecycle including submission, acknowledgment, fills, and cancellations.
Success criteria | Order state transitions tracked with 100% accuracy and reconciliation discrepancies <0.01% of total orders.
Justification | Accurate order state tracking is essential for position management, risk control, and regulatory compliance.
Parent requirements |
Derived requirements |
Dependency graph |

##### Verification details

Implemented by | - Order Management System
--- | ---
Validated by | - TEST-DEF-SYS-FUNC-003

#### SYS-FUNC-004

##### Requirement details

Status | Draft
--- | ---
Identifier | SYS-FUNC-004
Description | System shall calculate real-time P&L across all positions with mark-to-market pricing.
Success criteria | P&L calculations update within 100ms of price changes with accuracy ±0.1% vs end-of-day reconciliation.
Justification | Real-time P&L enables intraday risk management and supports loss limit monitoring requirements.
Parent requirements |
Derived requirements |
Dependency graph |

##### Verification details

Implemented by | - Monitoring & Alerting
--- | ---
Validated by | - TEST-DEF-SYS-FUNC-004

### Risk Control Requirements

#### SYS-RISK-001

##### Requirement details

Status | Draft
--- | ---
Identifier | SYS-RISK-001
Description | System shall enforce maximum order size limits before order submission.
Success criteria | 100% of orders exceeding configured size limits are rejected with detailed error message.
Justification | Prevent single large orders from causing excessive market impact or unintended exposure.
Parent requirements | STKR-RISK-001 STKR-RISK-003
Derived requirements |
Dependency graph |

##### Verification details

Implemented by | - Risk Management System
--- | ---
Validated by | - TEST-DEF-SYS-RISK-001

#### SYS-RISK-002

##### Requirement details

Status | Draft
--- | ---
Identifier | SYS-RISK-002
Description | System shall enforce maximum position limits per instrument before accepting new orders.
Success criteria | Position limits checked on every order with <10 microseconds latency and zero bypasses.
Justification | Technical implementation of position limit risk controls derived from stakeholder risk requirements.
Parent requirements | STKR-RISK-001 STKR-RISK-003
Derived requirements |
Dependency graph |

##### Verification details

Implemented by | - Risk Management System
--- | ---
Validated by | - TEST-DEF-SYS-RISK-002

#### SYS-RISK-003

##### Requirement details

Status | Draft
--- | ---
Identifier | SYS-RISK-003
Description | System shall reject orders with prices beyond configurable percentage from current market price.
Success criteria |
Justification | Prevents erroneous orders from impacting market.
Parent requirements | STKR-RISK-003
Derived requirements |
Dependency graph |

##### Verification details

Implemented by | - Risk Management System
--- | ---
Validated by | - TEST-DEF-SYS-RISK-003

#### SYS-RISK-004

##### Requirement details

Status | Draft
--- | ---
Identifier | SYS-RISK-004
Description | System shall detect and block duplicate order submissions within configurable time window.
Success criteria | Duplicate detection catches 100% of identical orders within 500ms window with no false positives.
Justification | Prevent accidental double-fills from software errors or network retransmissions that could double intended exposure.
Parent requirements | STKR-RISK-003
Derived requirements |
Dependency graph |

##### Verification details

Implemented by | - Risk Management System
--- | ---
Validated by | - TEST-DEF-SYS-RISK-004

#### SYS-RISK-005

##### Requirement details

Status | Draft
--- | ---
Identifier | SYS-RISK-005
Description | System shall halt all trading and cancel pending orders within 100 milliseconds when kill switch activated.
Success criteria | Complete trading halt within 100ms with confirmation of all order cancellations received from exchanges.
Justification | Technical implementation of emergency kill switch capability required by risk management stakeholders.
Parent requirements |
Derived requirements |
Dependency graph |

##### Verification details

Implemented by | - Risk Management System
--- | ---
Validated by | - TEST-DEF-SYS-RISK-005

#### SYS-RISK-006

##### Requirement details

Status | Draft
--- | ---
Identifier | SYS-RISK-006
Description | System shall alert risk managers when correlation between strategies exceeds configured thresholds.
Success criteria | Correlation alerts triggered within 30 seconds of threshold breach with affected strategy pairs identified.
Justification | Detect hidden concentration risk from strategies that appear independent but move together.
Parent requirements |
Derived requirements |
Dependency graph |

##### Verification details

Implemented by |
--- | ---
Validated by |

### Compliance Requirements

#### SYS-COMP-001

##### Requirement details

Status | Draft
--- | ---
Identifier | SYS-COMP-001
Description | System shall log all order parameters including timestamps, prices, quantities for regulatory reporting.
Success criteria | All mandatory fields per MiFID II/SEC rules logged with zero data loss and tamper-evident storage.
Justification | Technical implementation of audit trail requirements for regulatory compliance and investigation support.
Parent requirements |
Derived requirements |
Dependency graph |

##### Verification details

Implemented by | - Compliance Module
--- | ---
Validated by | - TEST-DEF-SYS-COMP-001

#### SYS-COMP-002

##### Requirement details

Status | Draft
--- | ---
Identifier | SYS-COMP-002
Description | System shall implement best execution monitoring by comparing execution prices against market benchmarks.
Success criteria | Execution quality metrics calculated for 100% of trades with benchmarks (VWAP, arrival price) within 1 minute.
Justification | Demonstrate compliance with best execution obligations through objective measurement and documentation.
Parent requirements |
Derived requirements |
Dependency graph |

##### Verification details

Implemented by | - Execution Management System
--- | ---
Validated by | - TEST-DEF-SYS-COMP-002

#### SYS-COMP-003

##### Requirement details

Status | Draft
--- | ---
Identifier | SYS-COMP-003
Description | System shall prevent trading in securities on restricted lists maintained by compliance.
Success criteria | 100% of orders in restricted securities blocked before submission with alerts to compliance team.
Justification | Enforce trading restrictions to prevent conflicts of interest, insider trading, and regulatory violations.
Parent requirements |
Derived requirements |
Dependency graph |

##### Verification details

Implemented by | - Compliance Module
--- | ---
Validated by | - TEST-DEF-SYS-COMP-003

## Traceability Matrix

The traceability matrix below shows which requirements are implemented by which system modules.

| marketDataHandler | strategyEngine | orderManagement | riskManagement | executionManagement | compliance | backtesting | monitoring | Algorithmic Trading Platform
--- | --- | --- | --- | --- | --- | --- | --- | --- | ---
STKR-EXEC-001 |  |  |  |  |  |  |  |  | X
STKR-EXEC-002 | X |  |  |  |  | X |  |  | X
STKR-EXEC-003 |  |  |  |  |  |  |  |  | X
STKR-USER-001 |  | X |  |  |  |  | X |  | X
STKR-USER-002 |  | X |  |  |  |  |  |  | X
STKR-USER-003 |  | X |  |  |  |  |  | X | X
STKR-USER-004 |  |  |  |  |  |  |  | X | X
STKR-RISK-001 |  |  |  | X |  |  |  |  | X
STKR-RISK-002 |  |  |  | X |  |  |  |  | X
STKR-RISK-003 |  |  |  | X |  |  |  |  | X
STKR-RISK-004 |  |  |  | X |  |  |  |  | X
STKR-RISK-005 |  |  |  | X |  |  |  |  | X
STKR-COMP-001 |  |  |  |  |  | X |  |  | X
STKR-COMP-002 |  |  |  |  |  | X |  |  | X
STKR-COMP-003 |  |  |  |  |  | X |  |  | X
STKR-COMP-004 |  |  |  |  | X |  |  |  | X
SYS-PERF-001 | X |  |  |  |  |  |  |  | X
SYS-PERF-002 |  |  | X |  | X |  |  |  | X
SYS-PERF-003 |  |  |  |  |  |  |  |  |
SYS-PERF-004 |  |  |  |  |  |  |  | X | X
SYS-FUNC-001 | X |  |  |  |  |  |  |  | X
SYS-FUNC-002 | X |  |  |  |  |  |  |  | X
SYS-FUNC-003 |  |  | X |  |  |  |  |  | X
SYS-FUNC-004 |  |  |  |  |  |  |  | X | X
SYS-RISK-001 |  |  |  | X |  |  |  |  | X
SYS-RISK-002 |  |  |  | X |  |  |  |  | X
SYS-RISK-003 |  |  |  | X |  |  |  |  | X
SYS-RISK-004 |  |  |  | X |  |  |  |  | X
SYS-RISK-005 |  |  |  | X |  |  |  |  | X
SYS-RISK-006 |  |  |  |  |  |  |  |  |
SYS-COMP-001 |  |  |  |  |  | X |  |  | X
SYS-COMP-002 |  |  |  |  | X |  |  |  | X
SYS-COMP-003 |  |  |  |  |  | X |  |  | X