Market Surveillance


By Alexandru Gomoiu, Regional Director Solution Consulting Treasury Capital, Misys.
The continuous changing regulatory environment, the challenges of dealing with increasing volumes of big data as well as the important role of compliance within financial institutions have had a significant impact on current market surveillance systems as well as the technology requirements behind them.
What do we mean by “real-time”?
There is some debate about the exact definition of the term “real-time” surveillance because of the variation in the accepted or expected latency period between detection, investigation and action. Is real-time when an event happens or should we use the term “pre-trigger”, i.e. before an event actually happens?
This leads us to two main approaches. Firstly, looking at the challenges from a technological perspective, how do we balance coverage capability and the scope of surveillance so we can identify the “triggers” before they actually happen?
Secondly, letting the technology follow front-office behaviours and techniques. The challenge is that front-office behaviours are constantly evolving and you need to have sufficient funds to ensure that the technology is moving in the right direction.
Challenges for market participants
Market participants fall under two categories: Regulators and exchanges which seek to ensure a fair and orderly market for sales and traders, as well as regulatory bodies or acts, including Dodd–Frank Act in the US and MiFID II in Europe. There are also participants who are more focused on issues such as price manipulation and accuracy.
The primary challenge for regulators and banks is to believe that real-time surveillance is possible, and therefore feasible to manage. The other major challenge faced by compliance officers is increasingly high trading volumes and limited time to monitor and manage it.
Using technology to trigger, support and enforce real-time market surveillance
The aim for regulators is to be able to perform market surveillance and monitoring in as close to real-time as possible.
Increasingly, surveillance technology is being rolled out by exchanges to monitor the market, guarantee transparency and fairness in the marketplace, and increase investors’ trust and confidence when trading.
In an ideal world, the technology would be deployed across all trading and electronic systems so that one can analyse and act upon the market in real-time.
Real-time surveillance can be applied in a number of different ways; the most popular is complex event processing (CEP), which involves understanding multiple complex events, achieved by programming the CEP tool to recognise meaningful events which it flags to be acted upon in real-time. This gives you the ability to support multi-threading; use more advanced techniques represented by an efficient combination of CEP tools with in-memory processing analytical capabilities; and handle “big data” and related analysis in a “what if” or real-time mode.
We need to ultimately ask whether this high security and up-to-the-minute analysis is achievable. Should we consider real-time triggers and operations as being a role model for banks to follow?
One would think that predictability and “what if” capabilities are more efficient than real-time “post” operation. The drawback is that predictability would be able to offer only a partial view of what a real-time system provides.
Source: Waters Technology