Surveillance 2020


By FINTECH Books Contributor, Murad Baig

The actors in securities markets know their game. The possibility for market abuse is always right in front of the actors. Further, the risk of detection when abusing markets is low or non-existent.

Trades and orders in related securities at multiple markets happen continuously, the markets compete with latency and automated trading, executions happen within micro-seconds and there are huge volumes. Venues undertake sufficient oversight to retain their license but do not compete on market integrity as the cost of such would affect their EBIT and therefore P/E ratios.

In this context professional investors have automated their abuse, and as a part of this, lowered the risk of detection. Abuse is programmed. Understanding and analysing market data today must accordingly be automated. To achieve this, a precise mirror of the multiple markets within the scope of a Market Analysis Platform, cross product is required, covering all the data available at each market / product, and with the micros-second time stamps being correct.

An order entry for an option at one market that happens after an order-entry in an underlying share at another market, might not be very interesting from a manipulation point of view. However, if the order entry in the option market was first, the manipulation can be obvious.

The difference maybe 2 micro-seconds and as clock synchronisation is a requirement, and assuming all clock synchronisations are monitored then the data contained in the repository about potential abuses is not only detectable but actionable. However, if there is any doubt that a repository contains incorrect information, then the repository is actually useless for the purposes of surveillance. Accordingly, data quality is a pillar of success.