Rogue traders exploited communications systems within global banks to their own ends, using chatrooms to coordinate actions that enabled them to “fix” FX markets and gain illegal profits. In an ironic twist, it was the same chatrooms that provide regulators and prosecutors with the evidence of market manipulation.
Since the FX scandal, tougher regulations have focused on communications systems, demanding that banks do more to capture and monitor employee communications. The latest rules require monitoring of intent as well as employee behavior.
Digital Reasoning joined a webcast that brought together a panel of experts for a live Q&A about trade monitoring and surveillance. Download the recording to their views about the challenges, industry solutions, and advances in surveillance technology.
The panel comprises:
Victor Anderson, Editor-in-Chief, Waters Magazine, sister publication of FX Week Magazine
Eric Juzenas, a Pricipal Adviser at the Commodity Futures Trading Commission
Paul Cottee, Product Manager for SMARTS Surveillance at Nasdaq
Rob Metcalf, former president and COO of Digital Reasoning
Aharon Haber, VP of Strategy of TradAir
The following insights are paraphrased from the 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.