Smarts Group launches cross-market derivatives compliance monitoring tool

Source: Smarts Group

Australian based Smarts Group, the global leader in market surveillance technology, today launched Smarts.broker for Derivatives at the International Derivatives Expo (IDX) conference in London.

Formerly known as Compliance Explorer, the rebranded SMARTS.broker offers a new module specifically designed to tackle the complex task of monitoring global derivatives markets.

The world's first cross-market derivatives compliance product is offered through the core SMARTS.broker service. SMARTS.broker is a highly advanced broker surveillance technology that enables brokers to conduct their own internal compliance and trade monitoring.

At the launch Mr Andreas Ruf, Executive General Manager, SMARTS Broker Compliance, highlighted, "The Global Financial Crisis has emphasised the need for further regulation for derivatives trading. Regulators globally are focusing on tighter controls and regulation for derivatives markets".

The Financial Services Authority (FSA) in the UK has just recently indicated that they will continue to use all their powers to deliver their mandate .They also highlighted a record number of financial penalties in 2008, and early this year imposed their single biggest fine on an individual firm of GBP 4 million[1]".

Mr Ruf continued by saying, "Furthermore, in March of this year the International Organization of Securities Commissions (IOSCO) joint taskforce on Commodity Futures Markets, which was co-chaired by FSA and the US Commodity Futures Trading Commission (CFTC), released a report which called for the expansion of regulators' supervisory and enforcement powers.[2] More recently, the US Treasury is calling for a robust regime of prudential supervision and regulation of the current over-the-counter derivatives[3]".

Mr Michael O'Brien, Director, Client Management, SMARTS Broker Compliance, said, "With the increased focus on derivatives regulation coming from Europe and the US, the need for this product has become increasingly important".

The lack of focus on derivatives regulation has partially been due to a lack in available technology. We are confident that SMARTS.broker for Derivatives empos empowers brokers to be more diligent with their compliance requirements with a credible technology option for their derivatives surveillance", said Mr O'Brien.

In development for over two years SMARTS has produced a robust cross-market derivatives monitoring technology with unique visualisation tools. This new visualisation offers users an enhanced way of consolidating all derivatives attached to an underlying asset into a single view accessed via a user-friendly intuitive interface.

"We have built the new derivatives module on top of our cross-market alert engine foundation technology. The complex compliance framework developed by SMARTS for cross market and derivates monitoring is the first of its kind. Brokers now have the ability to monitor their activity across markets, analysing their derivatives trading in real time against their trading in the underlying equities and vice versa", said Mr Ruf.

The new derivatives module offers a full suite of compliance alerts which, amongst other scenarios, identify:

  • Market manipulation and Insider Trading scenarios between options, futures and equities.
  • Broker/Client conflict between derivatives and their underlying instruments.
  • Prearranged Trading, Wash Trades and Churning activity in derivatives markets.
  • Positions in derivatives that may expose the firm to financial and/or regulatory risk.
  • Breaches of individual market trading/business rules such as Failure to Issue RFQs and incorrect handling of Block and Strategy trades.

SMARTS.broker is currently used by over 100 brokers in 30 markets internationally in Europe, Asia/Pacific, the US and Canada. SMARTS.broker is used by many of the largest stockbroking firms. The addition of the new derivatives module greatly enhances the technology available to brokers in their fight against market abuse. With reputation management being a key driver for broking businesses around the world, SMARTS.broker is assisting Compliance Executives to quickly identify and comprehensively investigate any anomalies in the trading of their firm, thereby protecting the broking house, its reputation and their customers.

Development of this product was funded under the Australian Government's Commercial Ready Program.

[1] Speech, Margaret Cole, Director of Enforcement, FSA, at Annual Financial Crime Conference, 27 April 2009,
[1] IOSCO Taskforce on Commodity and Future Markets,
[1] US Treasury Secretary Tim Geithner, Written Testimony House Financial Services Committee Hearing

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