03.17.2014
By Terry Flanagan

Trader Voices Concern over Reg SCI

The Securities and Exchange Commission’s proposed Regulation SCI ((Systems Compliance and Integrity) is well-intentioned but certain details of the proposal may not be feasible for market operators, according to some observers.

“We’re taking steps to strengthen risk management as an industry,” Group One Trading Chief Executive Ben Londergan said March 13 at the Futures Industry Association conference in Boca Raton, Florida. Regarding Reg SCI, “I don’t think there has been a thorough examination of the cost-benefit analysis,” he said.

Among specific concerns are Reg SCI provisions that would require market operators to stay open at times when they otherwise might close.

Finra has stated that clarity is needed regarding the definition of “regulation” and “surveillance” and the application of the Reg SCI requirements in such systems. If SCI systems are not limited to market systems, then additional guidance will be requires as to the scope of these definitions.

For example, would systems that support member oversight and examinations be the type of regulatory system that the SEC considers in scope? Clear and specific guidance is imperative to enable SCI entities to accurately identify the universe of their systems that are subject to Reg SCI.

Market surveillance has become a hot button issue in light of the potential for manipulation and other forms of abuse.

Software AG has unveiled the latest addition to its Apama market surveillance system with alerts to identify FX (Foreign Exchange) market manipulation and benchmark fixing. Developed in partnership with tier one banks, the new alerts provide compliance and market monitoring personnel with in-depth monitoring of FX trading to identify benchmark fixing, cross liquidity-venue manipulation, and other suspicious behavior.

It enables trading institutions to customize real-time detection scenarios to meet business specific needs and to evolve surveillance in response to the latest regulatory demands.

“Detecting rogue behavior or market manipulation is not a trivial task,” said Dr. John Bates, chief technology officer, Intelligent Business Operations & Big Data at Software AG. “You need a robust surveillance monitoring capability that can be calibrated to the specific trading profile of each bank. FX benchmark alerts are not generic, which means ‘off-the-shelf’ packages are rendered useless before they even begin.”

Software AG’s Apama Market Surveillance and Monitoring solution is in use at tier one banks to monitor FX spot and FX NDF (non-deliverable forward) markets globally.

“It is critical that you have the ability to configure your system for institutional or retail venues, electronic or voice trading, exchange or OTC (over the counter), as well as several other trading considerations,” Bates said. “Equally, percentages and periods of trading execution can vary greatly across asset classes and accepted trading practices within firms up to, and during, the fixing/settlement point.”

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