Trade surveillance in the securities industry is one of the most challenging aspects of compliance. Trade surveillance, or market surveillance, involves monitoring the activities of the firm and its employees to detect illegal and unethical trading practices including market manipulation, fraud, money laundering, insider trading, speculation, and unsuitable investments.
Trade surveillance starts with end of day rules against executions, allocations, orders, or holdings in exchange traded equity and debt. Complexity deepens depending on the range and breadth of instrument types, types of exchanges and jurisdictions. Effective surveillance allows organizations to take action to identify and prevent misconduct and protect the interests of the firm.
Firms need a trade surveillance software solution that spots flawed or rogue trading, detects trading patterns, and shows that the firm is demonstrating fair and transparent trading practices.
Manage Trade Surveillance with confidence
MyComplianceOffice provides an affordable, automated market surveillance software solution to help firms monitor Anti-Money Laundering (AML) and security trading in accounts, portfolios and funds.
Monitor all of the firms' trades to detect potential market abuse with our interconnected modules with features that include:
- Extensive Rules Engine including a wide variety of rules that are easily configurable for monitoring compliance with policies such as market manipulation, insider trading, suitability, conflicts of interest, fund mandate rules and AML rules.
- Customizable Alerts and Workflows enabling easy monitoring of rule breaks with workflow functionality to easily direct to the appropriate person for resolution.
- Customer Suitability functionality to monitor the appropriateness and suitability of investment products for clients and households.
Develop a Comprehensive Trade Surveillance Framework
Trade Surveillance starts with having the right framework in place. Are there rules and alerts to flag trading issues such as:
- Suitability to ensure that trades include the required personal data and meet the risk tolerance and investments goals of the client.
- Market Abuse to check for rogue practices like spoofing, layering, marking the close and dumping.
- Insider Trading to flag price and volume spikes and frontrunning/tailgating.
- Sales Practices to uncover instances of churning, account anomalies, and unusual trading patterns.
What are the thresholds that trigger alerts? What happens when variances have been reached? Are there Policies and Procedures in place so there is understanding and consistency throughout the organization? All of these elements should be included in the framework. A trade surveillance framework that includes automation also eliminates the need for costly and inefficient manual review.
MCO provides a transactional conflict of interest solution to protect the bottom line, learn more about our Know Your Transactions suite.
Regulatory Priority Across the Globe Read more
Regulators around the globe have made trade and market surveillance a priority. According to the Monetary Authority of Singapore in their Trade Surveillance Practice Guide, “market integrity preserves investor confidence and is crucial for well-functioning capital markets that support trade and economic growth. Unlawful behavior, such as insider trading, false trading and market manipulation, threatens market integrity, distorts market transparency, creates false markets and undermines public confidence in the capital markets. To deter such market misconduct and abuse, a combination of surveillance, supervision and enforcement is necessary. In particular, trade surveillance is vital in the detection of market abuse and manipulative practices.”
In the United States, the Dodd-Frank Wall Street Reform and Consumer Protection Act requires firms to capture, track and store trade data so that suspicious activity can be detected. According to the SEC, “Firms must ensure that they have devoted sufficient attention and resources to trade surveillance and other compliance systems.”
Under Article 16(6) of the EU Markets in Financial Instruments Directive II (MIFID II), “An investment firm shall arrange for records to be kept of all services, activities and transactions undertaken by it which shall be sufficient to enable the competent authority to fulfil its supervisory tasks and to perform the enforcement actions under this Directive, and in particular to ascertain that the investment firm has complied with all obligations including those with respect to clients or potential clients and to the integrity of the market.” These records must be readily available to regulators. The EU Market Abuse Regulation (MAR) also requires firms to capture, monitor, and store trade transactions, as well as actively analyze the data for potential abuse.
An Integrated Solution for Transaction Surveillance
MyComplianceOffice’s Trade Surveillance software provides an automated solution to monitor investment activities across the organization. It allows a firm to run a wide variety of monitoring rules on trades, positions, account, funds, portfolios, clients, and households across a range of financial products for compliance topics such as market manipulation, insider trading, adherence to fund mandates, holdings disclosures, and product suitability where the data is made available. In addition, the MyComplianceOffice trade surveillance solution provides select market data on most of the exchange traded instruments throughout the world and uses this data to assist our clients with their rules.
MyComplianceOffice’s robust trade surveillance software solution allows firms to:
- Easily monitor trades and verify with external market data
- Track firm and employee trading for insider trading, restricted & watch list breaches and violations of firms' policy-based rules
- Check for violations of the firm’s policy-based rules including checks for trade preclearance, excessive trading, large trades, unusual trading patterns and hold periods
- Ensure suitability and appropriateness of trading activity
- Track and report on trends over time
- Meet regulatory responsibilities and the investment objectives of the portfolio
- Protect the firm from insider trading at a low cost
If you are looking for an economical and automated solution to improve your trade surveillance capabilities contact us for more information.
