Trade Surveillance Teams Under the Pump as Volumes and Volatility Grow: Report

The complexity of trade surveillance is continuing to grow, as firms struggle with record volatility, high volumes and fragmented markets, the latest Acuiti report Trade Surveillance Market Review: Rising Alerts, Rising Complexity, has found.

The report was commissioned by Eventus and based on a survey and series of interviews with senior executives at 64 firms. It finds that, unsurprisingly, given there are more trades going through, senior trade surveillance executives expect the volume of alerts and complex issues they must address to also continue to grow over the next five years.

A majority of respondents to the survey expected to see higher volumes of alerts in a range of areas, most notably in order book manipulation, price manipulation and market disruptions such as excessive messaging.

Concerningly, Acuiti says the hardest-to-detect abuses were among those areas in which alert volumes were expected to grow, suggesting that pressure on surveillance teams will continue to mount.

The report was based on qualitative and quantitative data followed an inaugural trade surveillance market study conducted in 2022. Over the past year, Acuiti says the challenges of finding skilled staff and the time spent evaluating false positives have increased in severity for the market.

While investments have been made in automation and increasing the sophistication of trade surveillance, respondents to the survey still experienced significant numbers of false positives. Almost 90% of respondents said that less than one in 10 of the alerts they received required some level of intervention or reporting. As a result, investment in trade surveillance software is a key strategy for a majority of firms, with 38% considering upgrading their systems over the next 12-18 months and 15% definitely planning to do so.

Firms that had invested in this type of software reported lower regulatory risk, greater satisfaction among compliance staff and less concern from senior management as key benefits of that investment. They also pointed to numerous feature improvements from investment in surveillance technology, including improved investigative tools, a greater range of procedures available to them and increased flexibility to customise the software.

“The report clearly illustrates the tremendous pressures and challenges faced by surveillance staff that are expected to grow,” observes Eventus CEO Travis Schwab. “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.”