Package systems boost competition

Demand for market surveillance systems is enjoying a stronggrowth trajectory, with regulatory pressures over current and expanded assetclasses causing firms to compete to offer ‘package services’ catering to companies’trading interests as the market evolves toward the requirement for greater oversightgoverning market surveillance.

This rise in full scope or ‘package’ offerings makes senseto Stefan Hendrickx, founder and executive director of surveillance andanalytics firm, Ancoa. “To be effective, firms need to utilise a marketsurveillance system that is offered as a single service which firms can useacross their trading systems, asset classes and interests.

Hendrickx

“It is not user-friendly in the modern trading landscape touse multiple services, it just doesn’t work. A consolidated system allowscompanies to quickly take a view and act upon it,” he added.

But the growing complexity in the space, while a challengefor tech firms such as Ancoa, Nasdaq Smarts and Bats Global Markets, alsopresents an opportunity for these businesses.

“More flexibility is required in order to deal with theincreasingly complex instruments that are now being traded. This is drivinggrowth; we are seeing a lot of firms with unstructured data or analyticsbackgrounds that are working to revamp their approaches, often because theirhistoric vendors may not be meeting changing regulatory requirements as quicklyas they’d like, and this is helping to boost competition across the space,”said Ancoa’s Hendrickx.

Speaking to FOW earlier in August Michael O’Brien, head ofproduct management at Nasdaq’s Smarts Trade Surveillance, told FOW, “Change iscoming; the regulatory expectation is that all firms need to have in place someform of systematic trade monitoring… delivering a surveillance module thatmeets the risk and cost requirements of the smaller firms.”

Surveillance over the modern trading landscape is a keyfocus for exchanges, tech firms, brokers and traders, alike.

At the end of July equities exchange group, Bats GlobalMarkets filed its ‘Client Suspension Rule’ with the US Securities and ExchangeCommission (SEC), which would enable it to take swifter action to prohibitmanipulative behaviour across its exchanges, such as layering and spoofing -the practice of placing an order with the intent of cancelling it before it canbe completed.

The terms 'layering’ and 'spoofing’ were brought into thepublic domain earlier this year, when British futures trader Navinder Sarao was arrested at the order of US authorities over allegations of market manipulationlinked to the 'Flash Crash’ in May 2010.

O'Brien

"Pending SEC approval, the Bats Client Suspension Rulewould allow Bats to stop ongoing manipulative conduct in a matter of weeks,instead of the lengthier, longstanding regulatory process that can take severalyears to reach a final resolution," said the firm in a statement.

The group said that such behaviour – under the currentdisciplinary process - can take an "unacceptable amount of time tostop."

The exchange group’s proposal has sparked debate, (check outthe recent FOW Analysis piece here: http://www.fow.com/3476923/Extra-powers-to-curb-abuse-need-work.html)with Ancoa’s Hendrickx suggesting that there is now greater market acceptancethat solid surveillance technology is a requirement, rather than a ‘nice tohave.’

“This is why a market package – which ties togethercontextual surveillance and analytics as well as data – works so well. Normalisingdata is a big challenge, with items such as electronic communications becomingincreasingly important and a modern requirement is that surveillance tech canreview this.”

Ancoa offers market surveillance for derivatives. The firm’ssystem includes surveillance across trading data, using a bespoke alert system,but also non-standardised data such as emails and instant messaging; as seen inthe FX space, coverage of modern communication tools have the potential toidentify and prevent large scale abuse.

The market for trading surveillance technology is certainlycompetitive, with new regulatory changes a driver in growing adoption.

There has been an evolution of asset coverage by marketsurveillance technology, and growth remains on the horizon, with theover-the-counter (OTC) space over recent years become integral to Nasdaq’sSmarts business.

Indicative of the changing market requirements, as reported by FOW, Nasdaq’s Smarts has just signed up the latest exchange clients for itsmarket surveillance technology, set to go live by the end of the year, ascompanies continue to ramp up compliance and monitoring functionality ahead ofimpending regulatory changes.

Speaking to FOW earlier this month, Nasdaq Smarts’ O’Brien said,“we have seen the OTC space go from a market segment that was seen as exoticand outside the realms of systematic monitoring, to a space that is one of ourfastest growing areas with our Fixed Income and FX surveillance modules havingbeen deployed by a significant number of the large dealers in these markets.There remains a whole potential space to tap in OTC derivatives.”

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