Market Surveillance Gets More Sophisticated

Terry Flanagan

The traditional view of market surveillance as a single system for detecting market manipulation and abuse is being expanded to integrate previously siloed systems, such as market surveillance, operational risk, market risk and trader profiling, into a single monitoring system to enable a more correlated view of potential threats.

“It’s about elevating market surveillance to a platform that spans many silos, so that you can survey and monitor across the organization, and not in nice, neat, contained chunks, so you can get a holistic view,” said Theo Hildyard, director of solutions marketing at Software AG. “You can only do that with a platform; you can’t do that with an application, because the applications are so specialized.”

The new definition of market surveillance includes the concept of localized surveillance, for example surveillance by business line, by department, by geography and even down to the individual trader or client, which has been incorporated into Software AG’s new Apama Market Surveillance system.

“Our customers have made it very clear to us that when they’re a global organization, a one size fits all for market surveillance is not working for them,” said Hildyard. “Even for a relatively well-understood behavior like insider trading, there are still a lot of local variations.”

Local variations might exist between geographies, as when there’s more market data available in one geography versus another, or between customers, as when a definition of insider trading for institutional customers might be completely different from retail or HFT customers that are out there trading, for example.

“What they needed was to have a very fluid mechanism for localizing the surveillance, on a department basis, on an asset class basis, on a geography basis, or indeed on all of the above,” Hildyard said. “So we built frameworks into our solution that enable that localization.”

Surveillance could be localized even down to the individual level.

“If we understand exactly how you, as a customer of JP Morgan or whoever it might be, transact on a normal basis, we can create customized scenarios to monitor your behavior specifically,” said Hildyard. “That is the ultimate goal of localization. It’s about creating something that’s tailored to you as a customer, or you as a trader.”

Another advancement is the ability to perform continuous analytics using real-time information and historical data to help predict that something might be about to happen, and prevent it.

“Most people are using historical and real time to work out what is happening now, that’s all well and good,” Hildyard said. “But with certain types of predictive analytics, you can attempt to prevent things that are going to happen by basically spotting them ahead of time, spotting the symptoms of what might be about to happen and doing something before it actually becomes a reality.”

Featured image via Dollar Photo Club

Related articles

  1. Deutsche Borse-LSE Merger in Focus

    Instinet Fox River Quant Solution will initially be rolled out in the Americas.

  2. Algos, Post-Trade Top FCM Concerns

    Instinet's Anushree Laturkar says investing in research and analysis is key to improving client outcomes.

  3. The new platform launched via a partnership with BestEx Research.

  4. It is the first liquidity-seeking algorithm on Atlas, the equities trading platform introduced in 2019.

  5. Algorithms in Focus

    Strategy Studio allows brokers to create their own execution platforms.