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Trade Monitoring and Surveillance in FX Markets

Representatives from the industry regulator and vendors working with trading organizations came together in an event sponsored by Digital Reasoning, Nasdaq and TradAir to discuss changing compliance challenges and how to meet them.

Trade monitoring and surveillance in spot FX has come under intense regulatory scrutiny in the wake of recent collusion and benchmark manipulation scandals. There is an increasing need for trading firms, especially sell side dealers, to demonstrate an auditable and near real-time record of all trading activities, including communications between traders.

Against this background, FX Week brought together a group of experts to explore the view of the regulator and how tech vendors are supporting trading firms to respond. Moderated by Victor Anderson, Editor-In-Chief of WatersTechnology, the panel comprised:

  • Eric Juzenas, Principal Adviser to Commissioner Sharon Bowen of the Commodity and Futures Trading Commission (CFTC)
  • Rob Metcalf, President at Digital Reasoning
  • Paul Cottee, Product Manager at Nasdaq;
  • Aharon Haber, VP Strategy at TradAir

Key insights from the discussion

The following insights are paraphrased from the webinar discussion:

  • Events have shown that unregulated markets, or those which lack effective surveillance and good governance, are susceptible to problems. Unless trading surveillance is mandated the incentive to do it is not always there and responses are driven by scandal. – Eric Juzenas
  • 25 years ago there was no sense that market manipulation could affect ordinary people, but when regulators saw the potential and levied substantial fines the market learned. Banks are are being much more proactive. – Paul Cottee
  • My view is that the major players in FX market have been very responsive, due to reputation as much as regulation. We see significant interest and adoption with interest in tools that give significant levels of coverage. – Rob Metcalf
  • The banks are concerned and they need a good answer to the regulation, auditing challenge. Trading logs were all that were looked at before, but the combined insight gained from monitoring several info channels has offered a new, better approach. – Aharon Haber
  • There are big challenges facing sell side firms when deploying platforms. There is the cost of the technology of course, but also the integration into the into the workflow of the business. As the regulator we like to see an audit trail that is easily searchable. The concerns are the cost of that and making sure people use it properly to meet compliance standards. – Eric Juzenas
  • Our customers seek earlier insight, the means to gain ample monitoring coverage, and the advantage of seeing problems before they become serious. That impacts their organization in terms of what skills are needed. It’s not just about a new tool to use; we help customers adapt operationally to the technology. – Rob Metcalf
  • There is a lack of data standardization, with many formats in play. What should the software be looking at? – Paul Cottee
  • We think there are five key factors for a good solution: full coverage of communications, the ability to understand human language, the ability to learn from past examples and behaviors to reduce false positives and find genuine problems, the ability to look across data sources, and the adaptability to use the insight just for risk and compliance but also to identify market opportunities. – Rob Metcalf

Trading firms know they are missing things and they have to waste time on lots of false positives. They want a solution that takes them quickly from the alert into detail of the trader, their history, trading data, and connections.

Visit the Video section of our Resource Library to hear the full webinar.