Event Summary - Exploring The ARt of the Possible - Trade Surveillance for Capital Markets

On January 16, 2020 we held our first sold-out event – Exploring the Art of the Possible – Trade Surveillance for Capital Markets.  Many thanks to Deloitte Canada for graciously hosting and to Quantexa for their sponsorship. With the room filled to capacity, the morning started with a thought-provoking discussion, moderated by Sandra Persaud of Deloitte, among financial industry practitioners:

• Jason Le – AVP Compliance, Head of Global Surveillance – TD Wholesale Banking
• Loren Schwartz – Head of Regulatory Reporting Services – CIBC World Markets
• Alex Taylor – VP Surveillance – IIROC
• Elizabeth Bethoney – Head of Financial Markets, Americas – Quantexa

Loren Schwartz and Jason Le started by describing how their respective organizations are tackling trade surveillance.  Using open-source technology is key to remaining agile.  As Loren said, “the last thing we want to do is build another legacy system”.  Realistically though, budget constraints can limit a firm’s ability to implement best-of-breed systems.
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They also discussed the merits of in-house development: the ability to experiment, flexibility to adjust course as lessons are learned and rules change, and ultimately building “muscle” within the firm.  As with almost every technology project, the challenge – especially for large organizations – is normalizing all the disparate data needed to be effective.  As Jeff Harvie later pointed out, “you can’t do any of the fun stuff until you organize the data.”

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Alex Taylor gave the regulator’s perspective.  IIROC’s once-prescriptive supervision rules have been moved to guidance to give investment dealers the flexibility they need for a more risk-based approach.  And IIROC has its own challenges when it comes to surveillance.  While they’ve now implemented the “latest and greatest” SMARTS system for both equities and debt, reducing false positives is just as much an issue for IIROC as it is for dealers.  The surveillance team works closely with IIROC’s data scientists to improve their effectiveness. 

One of the panelists pointed out that in many cases, dealers have more data as they are combining trade information from different asset classes as well as communication data into their oversight frameworks. But having more data doesn’t necessarily mean it’s easy for dealers – or any FI – to take a holistic approach; it’s an aspirational goal and will always be a work in progress.  Later, responding to a question from the audience, Alex pointed out IIROC’s plans to collect client identifiers with the trade data which will enable better detection and linkages across asset classes.

Another aspirational goal is using the same data for both trade surveillance and business development purposes. There were contrary views; Loren Schwartz felt it’s too early because the data may be too focused and other dimensions are needed, but Jason Le pointed out that TD is already on this path.
Elizabeth Bethoney shared her insights, based on her experience working with clients across the globe.  Rather than aim for the perfect system, she suggested that firms could take a more measured approach by augmenting their existing monitoring systems with value-added analytics.  She also recommended that firms understand the end goal of trade surveillance before developing a framework– for example, is the end goal to monitor compliance or risk? Or both?
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The panel also discussed the relationship between trade surveillance and AML monitoring.  Both dealers shared that they have begun their journey to consolidate these two data sets. (Later in the program, the audience saw how this works in practice when Elizabeth demonstrated the benefit of the ‘network effect’ when these two data sets are combined.)

We then enjoyed 3 use-case presentations:

• Elizabeth Bethony illustrated Quantexa’s surveillance approach using their Dynamic Enterprise Context Framework.
• Rachel Moore and Gopala Bhat demonstrated the Kx multi-factorial analysis approach to consolidated surveillance.
• Finally, Jeff Harvie gave the retail / wealth management perspective, highlighting Four Eyes Financial’s Risk 4 and Risk 7 products and approach to help small- and mid-sized firms manage regulatory compliance and surveillance .

The goal of these presentations is to complement the “theoretical” panel discussion with some “real-life” examples, hopefully giving attendees some food for thought as they return to their desks, along with some concrete ideas to explore.

Author

Written by Wendy Rudd, Member of the Board, CRTA