Compliance professionals face a huge challenge in selecting a suitable system for market abuse surveillance. Regulators are policing their markets with an unprecedented zeal and issuing the severest of sanctions to any firms that engage in market abuse.
Added to this is the fact that underlying markets continue to evolve in a way that creates new ways for market abuses to be perpetrated and detected and forces regulators to bring in new rules. For example, high frequency trading is likely to be subjected to constraints and controls, while the greater use of central counterparties is designed to lessen the potential for abuse in over-the-counter markets.
Manual surveillance systems are no longer adequate. Consequently firms must look to install a more sophisticated surveillance system. The first step in the selection process involves undergoing a surveillance scope – this will cover the firm’s market activity (what instruments it trades; where it trades them and the nature of its role within each market).
This scope enables firms to compile a list of likely abuse scenarios and establish relevant rules regarding detection logic, analysis frequency, reporting requirements, case management strategy and calibration parameters. While these rules should reflect a firm’s specific business needs, they also need to be flexible enough to reflect any changes in regulation or market conditions.
There are also technology specific factors to consider. The optimal surveillance solution will take advantage of two seemingly opposed architectural approaches by offering the practicality and ease of implementation that comes with a turnkey solution and the flexibility and ability to customize that is associated with an in-house platform. By combining these two approaches, firms will be best positioned to respond to a regulatory climate that exudes urgency and uncertainty in equal measure.
What challenges are you facing to effectively manage market abuse risks?
Click here to read SunGard’s comprehensive White Paper on Market Abuse Surveillance.