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9th November 2023 | Insights

Adapting to the new era of trade surveillance: Challenges, solutions, and investments

The current challenges faced by trade surveillance teams are likely to increase amid a rise in the volume of the types of alerts that are hard to detect and require the most time to investigate, the recent Trade Surveillance Market Review published by Acuiti and commissioned by Eventus, underscores these critical issues.

The study found that senior trade surveillance executives anticipate a significant rise in the volume of alerts in a range of areas, most notably with order book manipulation, price manipulation and market disruption (e.g., excess messaging) topping the list.

Of these, almost 40% of respondents to the survey said that order book manipulation took the longest time to investigate while around a quarter expressed the same concern about price manipulation.

This is likely to increase the pressure on trade surveillance teams, in particular those firms who still rely predominantly on manual processes and have not invested in software that decreases the number of false positives.

The persistent issue of false positives continues to loom large in the industry. Not only had the time required to evaluate false positives increased since the 2022 report in the face of higher volumes, but a staggering 9 in 10 respondents to the survey said that less than 1% of the alerts they receive warranted any form of intervention or reporting.

Over the past five years, the complexity of trade surveillance has increased significantly, driven by escalating trade volumes, trading venue fragmentation across various asset classes, enhanced regulatory measures, and the looming threat of financial penalties. This has drawn senior management’s focus toward the significance of the surveillance function.

However, many firms are still overly reliant on manual processes, increasing the risk of staff departures and the challenges of finding skilled staff, which has been a growing concern for firms over the past year.

These factors are fueling investment in trade surveillance software. A majority of respondents to the study were either considering or had advanced plans to upgrade their trade surveillance systems over the next 12-18 months.

Firms that were planning to invest were looking to enhance investigative tools such as visualisations, increase the range of procedures available out-of-the-box and improve the flexibility to customise the software.

Ultimately, firms are looking for more from their software to enable them to reduce manual processes and expand the scale and scope of trade surveillance operations.

The investment in robust surveillance solutions is essential if firms are to meet the expected challenges of higher alert volumes in the increasingly complex surveillance landscape.

Adaptation and innovation in trade surveillance are becoming imperative for regulatory compliance and risk management, driving firms to explore the untapped potential of advanced technology solutions.

Download the full report for further insights here.