“These trends are driving firms to invest in automation and to enhance the sophistication of their trade surveillance software.”
The challenges in trade surveillance are escalating due to record volatility, high trading volumes, and fragmented markets, according to a new report by Acuiti, commissioned by Eventus.
The study, titled “Trade Surveillance Market Review: Rising Alerts, Rising Complexity,” reveals that surveillance executives anticipate a growth in the volume and complexity of alerts they will have to manage in the coming years.
About 38% of firms are considering upgrading their trade surveillance systems
The report, based on a survey and interviews with senior executives from 64 firms, finds that a majority expect to see an uptick in alert volumes in areas like order book manipulation, price manipulation, and market disruptions. Worryingly, the hardest-to-detect abuses are among the areas where alert volumes are expected to rise, increasing the pressure on surveillance teams.
While there have been significant investments in automating trade surveillance, the problem of false positives persists. Nearly 90% of respondents indicated that less than one in ten of the alerts they received actually required intervention or reporting, highlighting the need for more sophisticated systems.
About 38% of firms are considering upgrading their trade surveillance systems in the next 12 to 18 months, with 15% definitively planning to do so. Those who have invested in advanced surveillance technology reported benefits such as lower regulatory risk, greater staff satisfaction, and less concern from senior management. The investments have also led to improved features in the surveillance software, including enhanced investigative tools and greater customization options.
One of the growing challenges identified in the report is the difficulty in finding skilled staff to manage the increasing complexity. “These trends are driving firms to invest in automation and to enhance the sophistication of their trade surveillance software,” said Ross Lancaster, head of research at Acuiti.
Eventus CEO Travis Schwab emphasized the need for robust automation to alleviate the pressure on surveillance staff. He also pointed out the importance of equipping professionals with the tools they need to explain their procedures and conclusions fully.
“The report clearly illustrates the tremendous pressures and challenges faced by surveillance staff that are expected to grow. Interviews with executives also reinforced the need not only to take the pressure off of these professionals with robust automation but also ensure they have the ability to fully explain behaviours and the procedures that led them to their conclusions.”
The Acuiti report serves as a wake-up call to the industry about the increasing complexities and challenges in trade surveillance. As market dynamics become more volatile and intricate, firms are compelled to invest in more advanced and automated surveillance systems to manage risks effectively.
