Smart compliance


David Vincent, CEO, smartTrade Technologies, explains how trading firms can leverage technology not just to achieve regulatory compliance but also to improve their performance.
How well are trading firms prepared for the additional reporting requirements demanded under MiFID II across asset classes?
It’s hard to have a global view of the market but from our client base’s perspective most of them are ready or are fine-tuning their reporting to be compliant for the January 3rd deadline. Our client profiles are very diverse as we cater for banks, brokers, hedge funds, corporate institutions and the way MiFID II impacts them varies and so does their reporting needs. For this reason, with our team of experts, we developed a consultative approach to analyse what their needs were and what they already had in place to clearly identify where we were able to support them. Our MiFID II reporting offering, smartAnalytics, covers best execution and transparency needs across all their asset classes. This solution provides our clients with a set of reports, including one around best execution, which is accessible in real time. It also enables them to issue analysis and reporting on their pre-trade, execution, and post-trade to meet their transparency requirements.

What systems do trading firms need to have in place in order to meet those requirements?
First, and it’s the foundation, investment firms need to have full end-to-end electronification to get rid of manual processes in all asset classes, and they have to record their trading data. Even though in equities the trading processes are completely electronified, improvements are still needed in FX and big efforts are required in Fixed Income. Electronification will evidently help to comply with MiFID II’s stability, transparency and investor protection requirements.

This trading workflow automatisation process then allows investment firms to set up some protection mechanisms for better systems monitoring and risk management in real time. With LiquidityFX, for example, our trading platform, our clients can automatically set up warnings, halt-trading or close-out their positions depending on the level of the exposure. Additionally using LiquidityFX enables an accurate time stamping throughout all the trading stages. It then allows our clients to conduct accurate benchmarks and helps them with their TCA.

Finally, to comply with best execution, firms need to implement a trading system capable of efficiently handling multiple execution algos. Then the execution data needs to be captured and effectively stored to enable traders, sales, compliance and risk departments to run reports and analysis on their trading.

What role can big data analytics play in achieving compliance?
Big data analytics can serve multiple purposes as far as compliance is concerned. The obvious one is to store and access trading data to prove best execution. Another big data usage is for market and risk surveillance. Our clients leverage our sophisticated monitoring system to configure and receive alerts when potential market abuse behaviours such as last look, suspicious trading actions, and internal inconsistencies are detected. They also set up warnings when risk tolerances are exceeded by traders or clients. But big data analytics usage goes beyond compliance. Data can be used to inspect your overall system performance or also to achieve greater transparency and ultimately to reduce your trading cost.

How can firms ensure the integrity of their trading data to satisfy regulatory demands?
Data integrity is essential and is one of our clients’ most important criteria when they select us. Financial firms should ensure that their providers have an optimised and secure data transfer process all along the distinct stages of data handling. We made the commitment to regularly undergo an SOC2 audit, which provides evidence of the security, availability, processing integrity, confidentiality and privacy of our systems. We feel that in the increasingly regulated environment in which our clients operate, transparency and trust in their providers is a must-have.

How can modern technology future-proof trading firms against changing regulatory data demands?
The technological requirements in the financial markets are evolving quickly as new regulations are being released and impacting the market’s structure and participants’ organisation. Having a flexible and scalable trading system is key to adapt rapidly and in a cost-effective manner. You want a flexible trading system to be able to easily and quickly connect to new trading venues, to additional liquidity providers or to inject new execution algos and to modify your trading workflow if need be. And if tomorrow you are required to keep more trading records for a longer period, your need powerful data base storage capacity as well as enough flexibility to support queries for new reports. Your trading system must be ready for the next Fintech milestones such as artificial intelligence and machine learning.

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