Market Surveillance Systems: A Must-Have for Risk Mitigation

by Anshuman Jaswal, PhD, May 6, 2015
Product Trends/ Reviews


Market surveillance technology is becoming a critical element of trading platforms in the capital markets. It allows regulators, exchanges, and sell side and buy side firms to have smooth operations while ensuring any unfair or illegal trading practices are isolated and acted upon.

In the report Market Surveillance Systems: A Must-Have for Risk Mitigation, Celent looks at the recent trends in the market surveillance technology industry. Regulations such as the Dodd-Frank Act, MiFID II, and the Market Abuse Directives have played a part in shaping the growth and development of the market surveillance industry. The recent investigation into the Flash Crash and the arrest of a UK-based independent trader with regard to trading on the CME has put the spotlight on market surveillance requirements for exchanges and regulators, not to mention the trading participants themselves. Hence, the objective of using systems for surveillance is not just to meet any regulatory requirements but also to ensure that there is market abuse prevention.

The LIBOR rigging case is a good example of how the responsibility of internal trading practices is strictly on the C-level executives and internal compliance divisions of firms. These developments show the need for alertness on the part of market participants and illustrate the level of liability that can exist in the case of undesirable trading activity, and possibly when there is a lack of sufficient oversight in the case of larger organizations.

The most sophisticated surveillance systems are utilized by the leading global exchanges and sell side firms. But increasingly other participants such as regulators and buy side firms are making investments in these platforms to ensure necessary oversight.

The leading investment banks, which often play a trend-setting role among the trading participants, have moved to a risk-based approach to market surveillance. In meeting their requirements, the vendors have had to enhance their products significantly. This means that they often anticipate and even move ahead of regulatory developments. Vendors are also working continuously on the development of exhaustive global regulatory rule books allowing for on-demand access to changes in compliance requirements. This provides their clients the framework to handle large volumes of regulation and compliance-related data in the leading jurisdictions globally.

“There has been significant growth in the market surveillance industry in the last few years,” says Dr. Anshuman Jaswal, a senior analyst with Celent’s Securities & Investments practice and author of the report. “Various factors have played a part, such as the impact of the financial crisis and lessons learned from benchmark manipulation, rise in regulation, and rapid advancements in technology that could be harnessed for surveillance.”

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

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Table of Contents

Executive Summary



Key Research Questions





Key Research Questions


Understanding the Growth of Market Surveillance Requirements


Market Trends


Role of Regulation




Leveraging Celent’s Expertise



Support for Financial Institutions



Support for Vendors


Related Celent Research


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