Demand for market surveillance systems is enjoying a strong
growth trajectory, with regulatory pressures over current and expanded asset
classes causing firms to compete to offer ‘package services’ catering to companies’
trading interests as the market evolves toward the requirement for greater oversight
governing market surveillance.
This rise in full scope or ‘package’ offerings makes sense
to Stefan Hendrickx, founder and executive director of surveillance and
analytics firm, Ancoa. “To be effective, firms need to utilise a market
surveillance system that is offered as a single service which firms can use
across their trading systems, asset classes and interests.
“It is not user-friendly in the modern trading landscape to
use multiple services, it just doesn’t work. A consolidated system allows
companies to quickly take a view and act upon it,” he added.
But the growing complexity in the space, while a challenge
for tech firms such as Ancoa, Nasdaq Smarts and Bats Global Markets, also
presents an opportunity for these businesses.
“More flexibility is required in order to deal with the
increasingly complex instruments that are now being traded. This is driving
growth; we are seeing a lot of firms with unstructured data or analytics
backgrounds that are working to revamp their approaches, often because their
historic vendors may not be meeting changing regulatory requirements as quickly
as they’d like, and this is helping to boost competition across the space,”
said Ancoa’s Hendrickx.
Speaking to FOW earlier in August Michael O’Brien, head ofproduct management at Nasdaq’s Smarts Trade Surveillance, told FOW, “Change is
coming; the regulatory expectation is that all firms need to have in place some
form of systematic trade monitoring… delivering a surveillance module that
meets the risk and cost requirements of the smaller firms.”
Surveillance over the modern trading landscape is a key
focus for exchanges, tech firms, brokers and traders, alike.
At the end of July equities exchange group, Bats Global
Markets filed its ‘Client Suspension Rule’ with the US Securities and Exchange
Commission (SEC), which would enable it to take swifter action to prohibit
manipulative behaviour across its exchanges, such as layering and spoofing -
the practice of placing an order with the intent of cancelling it before it can
The terms 'layering’ and 'spoofing’ were brought into the
public domain earlier this year, when British futures trader Navinder Sarao was arrested at the order of US authorities over allegations of market manipulation
linked to the 'Flash Crash’ in May 2010.
"Pending SEC approval, the Bats Client Suspension Rule
would allow Bats to stop ongoing manipulative conduct in a matter of weeks,
instead of the lengthier, longstanding regulatory process that can take several
years to reach a final resolution," said the firm in a statement.
The group said that such behaviour – under the current
disciplinary process - can take an "unacceptable amount of time to
The exchange group’s proposal has sparked debate, (check out
the recent FOW Analysis piece here: http://www.fow.com/3476923/Extra-powers-to-curb-abuse-need-work.html)
with Ancoa’s Hendrickx suggesting that there is now greater market acceptance
that solid surveillance technology is a requirement, rather than a ‘nice to
“This is why a market package – which ties together
contextual surveillance and analytics as well as data – works so well. Normalising
data is a big challenge, with items such as electronic communications becoming
increasingly important and a modern requirement is that surveillance tech can
Ancoa offers market surveillance for derivatives. The firm’s
system includes surveillance across trading data, using a bespoke alert system,
but also non-standardised data such as emails and instant messaging; as seen in
the FX space, coverage of modern communication tools have the potential to
identify and prevent large scale abuse.
The market for trading surveillance technology is certainly
competitive, with new regulatory changes a driver in growing adoption.
There has been an evolution of asset coverage by market
surveillance technology, and growth remains on the horizon, with the
over-the-counter (OTC) space over recent years become integral to Nasdaq’s
Indicative of the changing market requirements, as reported by FOW, Nasdaq’s Smarts has just signed up the latest exchange clients for its
market surveillance technology, set to go live by the end of the year, as
companies continue to ramp up compliance and monitoring functionality ahead of
impending regulatory changes.
Speaking to FOW earlier this month, Nasdaq Smarts’ O’Brien said,
“we have seen the OTC space go from a market segment that was seen as exotic
and outside the realms of systematic monitoring, to a space that is one of our
fastest growing areas with our Fixed Income and FX surveillance modules having
been deployed by a significant number of the large dealers in these markets.
There remains a whole potential space to tap in OTC derivatives.”
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