[ S P O N S O R E D
C O N T E N T ]
A sea change in
surveillance
The past decade has seen a significant rise in sophistication and speed across many
aspects of trading, but has also prompted a rising tide compliance regulation.
P
re-MiFID I, the surveillance
of primary-market-only
activity was simpler and
manageable. Real-time monitoring
platforms were necessary only at
exchanges where the intent to ma-
nipulate was visible on single order
books. The calmer waters of lower
electronic trading volumes meant
manual intervention was feasible,
and kill-switches were considered
positively futuristic.
With complexity and speed comes
risk. Navigating the plethora of new
venues that have emerged during
the post-MiFID I era has forced
participants to embrace more
sophisticated access to electronic
markets, with the introduction
of smart routing and algorithmic
execution on dark and lit liquid-
ity. Within compliance, the more
pro-active of market participants
began to react to increasingly
sophisticated strategies and related
abuse by building more capable
controls and detection. Inevitably,
over that 10 years the regula-
tion adapted too. Market Abuse
Regulation (MAR) in 2016 was the
watershed – the response to the
realisation that detection of rogue
trading needed to be as sophisticat-
ed as the trading itself.
26
TheTrade
Autumn 2017
Navigating the Perfect Storm
For many still coping with the
outturn of MAR, the approach of
a deeper, more complex weath-
er-front in the form of MiFID II
could be the ultimate challenge.
It will further test the fitness and
appropriateness of market partici-
pants’ systems and governance for
the voyage ahead.
In particular, the very stringent
requirements of RTS6, applicable
to anyone involved in algorithmic
trading or offering direct electronic
access to markets, takes order and
trade surveillance to new levels.
For First Line of Defence opera-
tions, the visibility of real-time,
cross-venue and multi-asset flows
will require them to have highly
scalable systems able to cope with
significant fluctuations in through-
put. Furthermore, the pace of
market change will also necessitate
the need for platform flexibility,
ensuring the ability for market
participants to optimise their sur-
veillance scenarios on an intraday
basis, in order to avoid drowning in
false-positive indicators.
Many trading firms are starting
to recognise that navigating these
far choppier waters with legacy
technology is no longer appropriate.
To those newly impacted, the sea
change in requirements might seem
overwhelming but in fact the oppor-
tunity for green field implementa-
tion at such a turning point in terms
of available solutions is indeed very
beneficial.
Next generation surveillance
The emergence of powerful
real-time trade analytics platforms,
combined with the use of artificial
intelligence and access to vast his-
toric (in some instances virtualised)
tick and trade data repositories has
underpinned much of this change.
Likewise, next generation surveil-
lance technology has the ability
to reduce risk, improve business
value, and with greater opera-
tional efficiency. All of which has
been achieved against a backdrop
of fast moving and significantly
more onerous requirements. The
result – comprehensive, performant
and intelligent monitoring is now
more easily achievable, from a few
important perspectives: