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FX: Filtering out the noise in surveillance systems

FX market participants have benefited from guidance on good practices and the availability of sophisticated technological solutions, but implementing a surveillance programme remains a considerable undertaking.


In its October 2017 report The Future of Trader Surveillance, EY notes that the line between good behaviour and abuse can become blurred.

It states that the surveillance process presents several challenges, such as extracting clear signals from the noise of the markets and providing evidence of intent and market abuse without lengthy recourse to diverse sources of information.

One of the key sources of information is communications data, which is traditionally not well-integrated with trade monitoring systems.

The report authors suggest that rather than matching their trader surveillance capabilities to those of the bodies that regulate them – or even their peers – financial institutions are looking to establish their own practices.

Key element

Regardless of the approach taken, a key element of implementing a surveillance system is setting the parameters for alerts. To do so effectively, firms need to understand the various types of manipulative activities that might occur.

Damon Batten, Bovill

“Firms also need to ensure that the thresholds for alerts are not set so narrowly that the system misses potentially suspicious activity or so wide that they produce an unmanageable quantity of false positives, undermining efforts to focus on truly suspicious orders and transactions,” says Damon Batten, managing consultant at financial services regulatory consultancy Bovill.

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