Self-Monitoring For Brokers Calls for IT Solutions

The regulators of brokerage firms and securities exchanges are getting quite tough on the regulations imposed on the trading firms. They have been increasingly creating rules that are meant to ensure that the trading firm undertakes in-house monitoring to ensure compliance with the law. One of the areas that have seen a transformation to self monitoring has been in trade monitoring. The trading firms are now given shorter times to report any illegal or underhanded activity in the execution or patterns of their trades. Failure to achieve this is going to be met with stiffer penalties including but not limited to suspension of trading licenses, massive fines, and even expulsion from the market. Trading firms need to turn to the IT sector, as they have done in the past, if they are to succeed on this front.

The solution provided by the technology sector is the trade surveillance system. This is a software solution that automatically monitors and records all the trading activity executed by the trading company. The software system is more capable of monitoring trading activity than manual systems for several reasons. First, it has been coded with internal compliance mechanisms. The rules and guidelines that firms are expected to observe when trading has been reduced to software code. Second, the volumes of trade executed by the average firm are far too high to monitor manually. This is as a result of the implementation of electronic trading platforms and trading algorithms by many firms. Third, they are less likely to miss any trends or patterns that may indicate that the activity being performed by the business is underhanded. Lastly, they provide instant notifications of where there seems to have been an issue with compliance. This is necessary because regulatory timelines for self reporting are getting shorter. The regulators are actually working on moving to same day reporting of illegal or non-compliant activity.

Trade monitoring through trade surveillance systems has shown to provide several unique benefits to the companies that use it. First, it significantly decreases the cost of compliance. The trading firms would have to hire an unusually large number of employees if they were to try and monitor trading activity manually. Second, the system also provides insights on how they can structure their trades to meet the compliance rules. This enables them to develop internal mechanisms that focus on prevention rather than correction. IT solutions thus greatly benefit the industry and increase its performance.