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Monitoring and surveillance: the route to market transparency

Monitoring and surveillance: the route to market transparency

April 27, 2010 0 Comments

Again this week, capital markets is under the spotlight, with the SEC and Goldman standoff. Just a few weeks ago, the FSA and UK Serious Organised Crime Agency were making multiple arrests for insider trading. Earlier this year Credit Suisse were fined by the New York Stock Exchange for one of their algorithmic trading strategies damaging the market. Still, electronic trading topics such as dark pools, high frequency trading are being widely debated. The whole capital markets industry is under scrutiny like never before.

Technology can't solve all these problems, but one thing it can do is to help give much more market transparency. We're of the view that to restore confidence in capital markets, organisations involved in trading need to have a much more accurate, real-time view on what's going on. In this way, issues can be prevented or at least identified much more quickly.  I talked about this recently to the Financial Times, here

Last week at the Tradetech conference in London, Progress announced its release of a second generation Market Monitoring and Surveillance Solution Accelerator. This is aimed at trading organisations who want to monitor trading behaviour, whether to ensure compliance with risk limits for example, or to spot abusive patterns of trading behaviour. Brokers, exchanges and regulators are particularly relevant, but buy-side organisations can also benefit from it. Previously this solution accelerator just used Apama. Now it's been extended to use our Responsive Business Process (RPM) suite, which includes not only Apama, but Savvion Business Process Management, which extends the accelerator to give it powerful alert and case management capabilities. We know that monitoring and surveillance in capital markets is important now, and believe it will become more so, which is exactly why we've invested in building out product. You can read the take on this from the financial services analyst Adam Honore here and more from Progress about the accelerator and RPM. A video on the surveillance accelerator is here

As all this is so relevant at the moment and Tradetech is the largest trading event of its kind in Europe (although very equity focused), we thought we'd conduct some research with the participants. We got exactly 100 responses on one day (which made calculating the percentages rather a breeze) to a survey which asked about attitudes to European regulation, high frequency and algorithmic trading and dark pools. Some of the responses relating to market monitoring and surveillance are worth stating here. 75% of respondents agreed to the premise that creating more transparency with real-time trading monitoring systems was preferable to the introduction of new rules and regulations. 65% of respondents believe that European regulators should be sharing equity trading information in real-time. And more than half believe that their own organisation would support regulators having open, real-time access to information about the firm's trading activity. To me, that's a pretty strong sign that the industry wants to open up, rather than be subjected to draconian new rules.

There will be substantial changes to the European equity trading landscape in the coming year. There will be post MiFID regulation change by the European Commission acting on recommendations by the Committee of European Securities Regulators who are taking industry evidence at the moment. Their mantra, as chanted last week, is "transparency, transparency, transparency". Let's hope that this transparency argument is expressed in opening up markets to more monitoring rather than taking a, perhaps politically expedient, route of outlawing certain practices and restricting others.

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