Buyside Increases Trade Surveillance

Shanny Basar

New regulations are driving demand from the buyside for technology for trade surveillance and reconstruction according to Gavin Davis, chief executive at enepath, the voice trading and communications firm.

The European  Union’s Market Abuse Regulation and the Directive on Criminal Sanctions for Market Abuse came into force in July and extended regulations from equities into other asset classes, explicitly banned the manipulation of benchmarks such as Libor for interest rates, and reinforced the investigative and sanctioning powers of regulators. MAR also requires market surveillance, for the first time, to capture market manipulation intent, as the existing obligation to report suspicious transactions has been extended to include suspicious orders. While large sellside firms have traditionally invested in trade surveillance, MAR has widened the requirements to the buyside and smaller firms.

MiFID II, covering financial markets in the EU from 2018, introduces further requirements such as firms being able to gather order information which shows the intention of each trade, rather than just data on trades after they have been executed.

Davis told Markets Media: “MiFID II and MAR are driving conversations and interest is predominantly from the buyside.”

Enepath, which provides trading turret and high-definition integrated voice recording technology, has partnered with Insightful Technology, a provider of data storage, to allow high quality voice capture, real-time analytics, and electronic surveillance.

Davis said voice recording technology has previously been available but required a license, was of low quality, could not separate simultaneous people speaking and could only be monitored by people listening to the recordings and making transcriptions. The new partnership automatically converts voice into text in real-time.

“Firms using the Eclipse turret are able to effectively search through all those conversations and listen in real-time, or consolidate them in a format that can be searched and recalled as and when necessary,” he added.

Steve Garrood, chief commercial officer at Insightful, told Markets Media that the firm already stores multimedia data in a secure cloud for 170 banks, including four of the five largest firms, and has the analytics to allow real-time monitoring of conversations so compliance departments can set up pre-defined alerts and keyword searches.

Garrood said: “With this partnership, we are empowering firms to record, store, reconstruct and analyse all communications in real-time for instant trade reconstruction and e-discovery.”

Firms can also integrate full multimedia content across the trade lifecycle and pull together communications including voice from trading turrets, mobile phones, fixed lines, email, and social media.

In September Ancoa, which provides contextual market surveillance, said its technology has been deployed across MarketAxess Europe’s European fixed income multilateral trading facility

Stefan Hendrickx, founder and executive director at Ancoa, told Markets Media at the time: “Since MAR there has been a change as surveillance has extended to fixed income, currencies and commodities. In addition the buyside has begun to implement surveillance procedures.”

In another sign of the growing interest in surveillance, Behavox, the artificial intelligence monitoring system designed primarily for employee surveillance in the capital markets sector, announced its first institutional round of investment in July. The funding was led jointly by London-based Hoxton Ventures and Chicago-based Promus Ventures.

In October Behavox said in a statement it was bringing forward the opening of its office in New York after winning multiple new investment banking and asset management clients. The statement said: “Plans are already under way for the opening of offices in Asia and continental Europe in order to meet demand in these regions, as well as service existing clients with global operations.”

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