Market Surveillance special report

waters-market-surveillance-report-dec2013

December 2013 - sponsored by: Apama, Nasdaq OMX, Nice Actimize

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Watchful Eyes

There's a popular statistic that's usually trotted out in any story about surveillance from the UK media, which claims that British citizens are caught on camera around 300 times per day. It's not hard to believe, given that this small, soggy island has over 4 million CCTV cameras in operation, by conservative estimates, at any one time-roughly one for every 16 people. If the average person feels like they're being watched, then they're not alone: Incoming regulations around market surveillance and communications recording for the financial services industry are definitely designed to make workers at banks know that everything they're doing is being monitored.

In an ideal world, this should make the job of market-surveillance analysts and compliance officers much easier. After all, with modern technology, voice records can be searched and correlated with market data around a particular trade, while complex-event processing (CEP) technology even offers the possibility of commingling unstructured data and spinning it through analytics engines to flag up causes for concern. Entire decision-making and action-reaction sequences can be reconstructed to provide a definitive look at not only how something took place during the course of the trading day, but why. As ITG's Michael Sparkes says in this report's virtual roundtable on page 4, when it comes to taking in vast quantities of data, it can sometimes feel like you can't see the wood for the trees. Knowing how to analyze data, and what you want to learn from it, is just as important as being able to do it in the first place.

This, more than anything else, is perhaps the greatest challenge for the function of market surveillance. Not only is it being forced to still perform its role in the midst of enormous changes in both market structure and practice, with the Balkanization of trading venues and the emergence of high-speed, high-frequency trading, but it also has to adapt and run with new technologies in the process. Maintaining a watchful eye across pre-trade, at-trade and post-trade cycles, in this context, becomes an enormous challenge. It's a necessary one, though, and it demands serious attention from all institutions. After all, the penalties for not monitoring trading activities to the very best of one's ability can be extreme, if the cautionary tales of the past few years are anything to go by.

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