Market & Trade Surveillance: Technology Trends

On June 13, RIMES invited industry experts, regulators and financial sector firms to New York to discuss the latest trends in compliance and RegTech solutions. One of the key topics of debate was around market & trade surveillance technology; and we were joined by analyst house Aite Group to help shed light on some of the key industry trends.

Aite Group’s research[1] points to an industry that is getting to grips with the compliance challenges it faces. While understanding regulations and their implications remained the primary concern for most organizations in 2017 (48%), this was down on the 2016 results (55%). Conversely, more firms were concerned with finding technical solutions to regulatory obligations in 2017 than 2016 (29% vs. 11%). This points to a shift of focus from ‘RegEd’ – where firms were primarily educating themselves about potential solutions to their regulatory obligations – and towards real world RegTech deployments.

Looking at the RegTech market, Aite Group’s research shows that trade surveillance is, as predicted, gaining in importance; with 80% of businesses in 2017 using specialized technology for this function; an increase of 5% on the previous year. Perhaps unsurprisingly, the sell-side comes out as most mature in realizing the potential of trade surveillance technology, as these firms have been required to carry out such tasks for longer. However, no doubt in part under the pressure of the Market Abuse Regulation (MAR), the buy-side is catching up.

When looking at the challenges around surveillance monitoring for firms, reducing false positives came out top, with 73% of firms finding this either ‘extremely’ or ‘very’ challenging. Data integration was also center stage, with 63% finding that marrying trading data with e-comms data and other data sources is ‘extremely’ or ‘very’ challenging. What is clear, is that the right investment decisions will be critical to a successful surveillance strategy. The advice given was that firms should focus on high-quality next-generation solutions and were reminded that there is no such thing as ‘penny-wise’ when it comes to surveillance compliance.

Another focus was on the role of e-comms monitoring, a key component of any surveillance ecosystem. While there has been a dramatic improvement in e-comms monitoring in the buy-side, there is still little integration of e-comms monitoring with other surveillance systems. This was flagged as a major concern for buy-side firms as e-comms is integral to insider trading detection, a key obligation for firms under MAR.

This is a challenge that firms are aware of. Thirty-three percent of respondents to the Aite Group survey said if they could change one aspect of their trade surveillance system it would be to better integrate all information sources. Firm-wide data coverage is, indeed, critical to compliance success and would provide firms with a holistic view of their risk.

As firms get to grips with these challenges, they should review the RegTech market for solutions that can help ensure complete surveillance and help them comply with relevant regulations.

To receive more information about RegFocus® Market Surveillance, a single solution to the regulatory challenges brought about by current market manipulation and insider trading legislation and designed for both the sell and buy-side, please contact us.

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