Refereeing Fifty Matches at Once

Having watched my beloved England being soundly humiliated by Wales over the weekend, losing the Six Nations and the grand slam in the process of being demolished 30-3, the topic of referees is perhaps best avoided in a casual sense. But while attending WBR's Compliance Pro: Capital Markets the other week, several comparisons struck me when the subject of surveillance for high-frequency trading operations came up.

One participant essentially made the point that compliance officers shouldn't be the referees for individual trades, the operational resources required to do so, obviously, being immense. Real-time is the business, not the function. Rather, they said, some processes are best suited to end-of-day practices. For high-frequency operations, the key point is that they don't set out to abuse the market, and that any situations that would require a market abuse investigation are very much outside the norm.

Indeed, as one member of the audience pointed out, how can you possibly watch over 50 matches being played simultaneously? Conversations with the participants on the sidelines of the event led to the sentiment that, if mandated, they could, but it's not necessarily a beneficial area.

For brokers, though, while their algos have built-in risk controls, and clients using their access have to pass through the brokers' own pre-trade requirements, it becomes more difficult when attempting to monitor patterns and identify potentially abusive moves when dealing with more detached client flow. After all, they argue, you can only see a portion of the client's activity─that which is passing through your business. You don't necessarily see what's happening with another broker-dealer, or in other markets, and it makes assessing market abuse an acute challenge.

All agreed on the need for technology to address this, though, and particularly for a firm's internal challenges, new solutions are thinking outside of the box. I wrote about these developments a while back for Waters, but areas such as detailed searches of voice records, pattern-building software, intelligent algorithms to oversee algorithms and other areas are becoming a reality. The deluge of false positives is still an issue, but it's one that technology can help to alleviate.

You don't necessarily see what's happening with another broker-dealer, or in other markets, and it makes assessing market abuse an acute challenge.

I'm particularly interested to hear from any firms developing market surveillance software that can help with high-frequency oversight. Get in touch through the usual methods if you'd like to talk.

As a side note, the nomination period for the Sell-Side Technology Awards has now closed, after the previously announced extensions. We've had a huge response to this, so thank you to everyone who has taken part so far. The judges will be looking over the entries over the next few days.