Awards: Kx Systems

Prior to the flurry of scandals in interest rates and foreign exchange markets, trade surveillance was very much a compliance function. But as behaviour such as front-running, collusion and benchmark manipulation came to light, swiftly followed by regulatory initiatives such as the second Markets in Financial Instruments Directive and the Market Abuse Regulation, surveillance started to migrate towards the front-office.

“There’s still obviously a huge compliance focus. But one of the things we are seeing now is that there has been more interest coming from the front office as well as compliance,” says Richard Kiel, global head of FX solutions at Kx Systems, the winner of the Best e-Surveillance Provider category at the 2018 FX Week e-FX Awards.

Now, the focus is gradually shifting away from detection after the fact to prevention – a trend accentuated by the FX Global Code of Conduct.

“Chief operating officers, heads of desks and others in the front office are looking at surveillance solutions as well. From both a governance as well as a reputational risk perspective, they prefer not to deal with bad behaviour after the fact – they want to prevent that behaviour before it happens,” Kiel adds.

…one of the things we are seeing now is that there has been more interest coming from the front office as well as compliance

Richard Kiel, Kx Systems

There is also a growing emphasis on cross-asset trading, which, in turn, makes multi-asset surveillance platforms necessary. But, even in FX, factors such as the varying degrees of liquidity in different currency pairs and multiple platforms make surveillance difficult.

“A number of the large organisations we deal with who initially implemented surveillance capabilities for listed markets are now expanding into over-the-counter markets, which introduce their own set of challenges. This is essentially the next frontier in terms of the evolution of systematically monitoring the activity within the organisation,” Kiel says.

Reducing false positives

With surveillance tools becoming increasingly embedded in the front office, reducing the number of false positives is key. Artificial intelligence, machine learning and natural-language processing are all technologies that are emerging in surveillance solutions.

“It’s not difficult to raise an alert that something needs to be looked into, but supervisory resources are very limited across the organisation. Continued advancement in sophisticated data-mining techniques will ensure we are maximising the use of their time,” Kiel says.

As the team works to enhance their solution, he says that for the immediate future, Kx Systems will add products to its offering to make them more readily available to Tier 2 and regional banks.

“If it’s going to work for a Tier 1, it is more than likely going to be sufficient for other players in the market,” he adds.

VIEW THE LIST OF WINNERS