Firms’ communication channels have expanded significantly in recent years, especially with the pandemic highlighting the importance and adaptability of digital communication channels.
In the context of trade surveillance, it’s crucial for firms to recognise this expansion and meticulously evaluate the communications integral to their trade surveillance processes. This ensures they gain precise and actionable insights into potential misconduct, something that is increasingly pertinent to regulators investigating market abuse.
Consequently, many firms are now exploring ways to integrate eComms surveillance into their trade surveillance strategies.
Growing sophistication of market abuse
Firms and regulators continually face the daunting task of substantiating market abuse, requiring extensive investigations and intricate evidence collection. This challenge escalates as bad actors employ increasingly sophisticated strategies across diverse markets and products, while the increase of communication channels heightens the risk of unmonitored blind spots.
These combined factors significantly elevate the risk of non-compliance for firms. Without a comprehensive surveillance approach, piecing together a narrative behind suspicious trades and crucially, establishing liability in a legal context, becomes exceedingly difficult.
Increasing regulatory scrutiny
Integrating trade data and electronic communications surveillance is rapidly becoming an essential regulatory requirement. It is no longer viewed solely as a compliance measure but as a critical enhancement to the depth of data insights and clarity in decision-making available to firms.
With increased scrutiny on the quality of firms’ recordkeeping, the frequency and severity of enforcement actions is likely to expand globally. Regulatory bodies are growing impatient with incomplete data hindering market abuse investigations.
For instance, in the UK, Ofgem imposed a landmark £5.41 million fine on Morgan Stanley & Co in September 2023 for failing to record and retain electronic communications, marking the UK’s inaugural penalty under transparency rules aimed at combating market abuse and insider trading.
Firms must recognise that collecting and storing communication data is just the beginning. The real challenge—and necessity—lies in effectively leveraging this data to detect and comprehend market abuse. Regulators consistently rely on eComms data and expect firms to vigilantly monitor their operations with equal rigour.
Adopting a holistic approach to surveillance is imperative for firms committed to safeguarding market integrity and preserving their reputation, both with regulators and the public.
Cost pressures
Over the past few decades, as firms have adopted increasingly sophisticated surveillance technology, they have encountered operational challenges stemming from high false positive rates generated by isolated lexicon-based or basic sample-based surveillance methods. Integrated systems offer a solution by significantly decreasing the occurrence of false positives, thereby reducing the time compliance teams spend reviewing them.
Moreover, consolidating data analysis into a unified platform allows firms to streamline operations and lower operational costs. Integrated systems eliminate the necessity for multiple surveillance tools and minimise the administrative overhead associated with maintaining separate systems for trade and eComms surveillance.
TZEC: A holistic surveillance tool
TZEC - eflow’s integrated eComms surveillance solution - addresses these challenges by offering a highly configurable, holistic solution that uses eflow’s sentiment analysis tooling to accurately identify suspicious behaviour, link messages to associated trading activity, all while minimising the reporting of ‘false positives’ that can drain compliance resources.
Unlike existing systems that merely provide ‘archive and search’ functionality, TZEC utilises eflow’s Client Lexicon Service to learn firm-specific vocabulary and slang terms that are unique to that organisation. These are then combined with other wider linguistic trends and industry terminology through eflow’s Global Lexicon Service, which enables TZEC to continuously evolve and improve surveillance outcomes based on behavioural-led insights.
Discover how firms are advancing their eComms surveillance, and integrating with trade surveillance in our latest eBook. Download it today to delve deeper into this evolving trend.
