OpRisk Awards 2016
In the wake of the market manipulation scandals of recent years, surveillance has become the latest buzzword on many trading floors. Financial institutions recognise the need to monitor their traders much more closely than in the past, but doing it effectively is not a simple matter.
The challenge is even tougher in foreign exchange and fixed-income markets, where trades are typically conducted bilaterally and there is often a degree of informality inherent in the dealing process. Many surveillance platforms have traditionally focused on cash equity markets, but London-based provider Ancoa has deliberately applied itself to the specificities of fixed-income, currencies and commodities over the past year.
"As much of the trading in [these] markets is conducted over the counter or by request-for-quote, the counterparties often know one other, which opens up a whole new set of possible abuse scenarios. We have worked hard to define those scenarios and incorporate them into our platform," says Stefan Hendrickx, founder and executive director of Ancoa.
Founded in 2010, Ancoa now has around 16 clients, including buy- and sell-side institutions, as well as exchanges and regulators. The firm's headcount has grown from just two at inception to a staff of 25 today, which could rise to as many as 45 by the end of the year. Users praise the smooth implementation, ease of use and functionality of Ancoa's technology.
The ability to normalise data from many different sources, place it on a single timeline and detect patterns is key… we aim to reduce the number of false alerts while also avoiding blind spots
Stefan Hendrickx, Ancoa
"Ancoa's platform is easy to deploy, simple to use, and provides our trading and compliance teams, as well as our hedge fund clients, with improved visibility over trading behaviours and operations," says Jerry Lees, chairman of Linear Investments, a London-based firm providing tailored prime brokerage services to hedge funds.
As with any surveillance platform, the management of large volumes of structured and unstructured data and sophisticated pattern recognition has been central to Ancoa's success. The platform is designed to detect unusual patterns and identify suspicious trades in real time, applying circuit breakers so firms can limit the impact of any possible malpractice.
"The ability to normalise data from many different sources, place it on a single timeline and detect patterns is key. By using our own analytics and time-series database to generate alerts, we aim to reduce the number of false alerts while also avoiding blind spots," Hendrickx explains.
Analysing data as a whole
Eliminating blind spots is a particular priority following the Libor and forex scandals, when red flags regarding possible malpractice were either inconspicuous or ignored. By taking a contextual approach to surveillance, with relevant data being analysed as a whole rather than within siloes, Ancoa believes its software can enable firms to detect relevant issues in advance.
The advent of the European Union Market Abuse Regulation (MAR), due to come into effect in July, is likely to further raise the industry's focus on surveillance, as participants will be required for the first time to identify instances of manipulative intent, as well as actual manipulation.
"Surveillance has historically been a very manual process that analysed trading data, electronic communication and voice communication individually, but regulations such as MAR will mean this analysis has to be done in a much more automated and efficient way," says Hendrickx.