Market surveillance and market abuse continue to be pushed higher up the regulatory agenda. Given the avalanche of news about large regulatory fines, this comes as no surprise. ‘Protect and enhance the integrity of the UK financial system’ is, after all,
one of the Financial Conduct Authority’s overriding objectives and market surveillance plays a vital role in this. It is also fair to say that the end-investor is becoming more vocal on this topic both from a market transparency point of view as well as in
terms of execution and reporting quality.
In a multi-asset, multi-jurisdictional world of trading, regulatory and risk environments have become increasingly complex. Financial firms continue to be exposed to a wide range of potential risk, from systemic and operational risk to straightforward human
error; from market abuse to making an unprofitable trade; from missing intelligence within the streams of structured (transactions) and unstructured data (news, social media, electronic communication) to making the wrong high-level investment decision.
The responsibility lies with Heads of Trading, Compliance and Operations to ensure their firms have the right tools in place to carry out market surveillance and gain analytical insights, not only to reduce multiple forms of abuse and risk, but also to provide
business intelligence that helps firms identify and act on suspected blind spots within their organisation. In the words of the Financial Conduct Authority (FCA), capital markets must ensure three lines of defence are in place to manage regulatory, reputational
and operational risks across business operations, compliance and risk. The three lines of defence philosophy is applicable across the globe, but amongst national regulators, the FCA is seen to be taking the lead in enforcing this approach.
Processing highly complex data sets for trade reporting and analytics processing will also continue to be driven further up the regulatory agenda. Transaction reporting is set to become more onerous with organisations having to adhere to mandatory reporting
requirements. The ability to assess, understand and interrogate the data in ever-changing market conditions is paramount, not only to heads of desks or business, but for the end-investor (and indeed the regulator) - the ability to turn these insights into
meaningful reports is just as much of a pressing requirement.
The symphonies of trading
One of the biggest yet unrealised benefits of market surveillance and analytics is the capability to bridge the front, middle and back office functions of capital markets firms and help companies turn intelligence gained, into a competitive advantage. Trading
desks can glean insights to improve execution strategies for the benefit of end-clients; operations desks can identify cost reduction and profitability opportunities, whilst Heads of Risk and Compliance can use surveillance and analytics to identify irregularities
and address any potential impact on the integrity of a trade. In concert, the harmonies should come together to improve market and operational insight by enabling greater visibility of trading behaviour.
Abundant complexities notwithstanding, what may be considered transparent for the regulators may not be transparent for the end-investor. It is at this exact point that market surveillance becomes critical to growing market share. Dark pools, for instance,
are opaque to market participants but less so to their operators and regulators because of the cross market audit trail that surveillance can provide. Access to a comprehensive audit trail, can help illustrate
overall market transparency. Wherever you sit, this intelligence– can now be firmly within reach.
Spoilt for choice
Solutions that promise to analyse large volumes of data, structured and unstructured, across asset classes and jurisdictions are plentiful. But what is done with newly gained data and insights is what actually counts. The real benefit lies in how the information
is presented in a contextual way to be able to timely reap crucial analytical insights. Only by making the information accessible, will reputational and commercial advantages be within reach. Having a single view on a single platform ensures that an enterprise-wide
view is delivered offering a visual snapshot across trading, operations, risk and compliance functions. Without such an analytical all-encompassing view, having access to multiple data streams is essentially worthless.
Fit for purpose
Trading behaviour will only continue to evolve and today’s surveillance capabilities must adapt accordingly. Market participants don’t simply trade one asset class at a time, in one region on any one day. The ability to deploy technology, software and expertise
that delivers cross-market, cross-asset, cross-region, and cross-function analytics, stands firms in excellent stead to meet ever-growing regulatory requirements.
Surveillance tools that deliver a consistent and robust regulatory stream of information not only meet compliance requirements but also ensures that collectively, the orderly market that our industry and our economy so need, is maintained. Advances in technology
mean that deployment is not the challenging beast it used to be. The technology exists, the regulatory drivers exist – the sentiment exists – and the need for us all to benefit from orderly markets exists. Combine your forces; align your stars of trading,
compliance and operations.