At-scale trade surveillance across all lines of defense

The Securities and Exchange Commission (SEC), FINRA, CFTC, NFA, and national exchanges have rules about the prohibition of fraud and manipulation, order and trade handling, market access controls, broker-dealer licensing requirements, supervisory control systems, Manning, and limit order display. 

For any of these areas, inadequate or poorly calibrated trade surveillance systems can lead to regulatory inquiries and fines. Regulators also will issue enforcement actions for insufficient review of surveillance output, poor training, and a lack of documentation.

Trade surveillance also helps broker-dealers detect and deter market abuse that could lead to expensive civil and criminal liability. The SEC alone is issuing record fines and using a whistleblower program. Under U.S. law, some manipulative trading, like spoofing, can be a criminal offense with prison time.

Validus Trade Surveillance has a full suite of alerts and procedures for broker-dealers. This includes financial and controls for orders and quoting, regulatory controls for intermarket sweep orders (ISOs), market manipulation, Regulation SHO order marking and shortability, and supervisory reports. 

Please contact us to learn more.

Here are a few of the market manipulation types that have a Validus alert:

Spoofing is a form of market manipulation in which a trader submits a bid or offer in a security or commodity on an exchange or other trading platform with the intent to cancel the bid or offer before it can be executed.

Layering is like spoofing but with multiple submitted bids or offers at different levels of the order book on an exchange or other trading platform with the intent to cancel the bids or offers before they can be executed.
Both spoofing and layering give a misleading view of supply or demand to artificially move the price to benefit the opposite side execution.

Flashing is the practice of submitting and quickly canceling an order, typically of large size, intended to send a misleading signal to the market.

Front running is when proprietary trading accounts or employee accounts send orders in the moments before customer orders in the same instruments.

Insider trading is when a person trades based on material non-public information to reap a profit or avoid a loss.

Momentum ignition is a series of orders that contributed to a spike in the short-term price of security. Ultimately, the trader seeks profits from this artificial increase in price and will exit out of the larger position at a better price.

Wash trading is when a firm, account, or client appears to be on the same side of a trade with no change of beneficial ownership. Similarly, a wash cross trade is when two or more accounts appear to be on either side of multiple trades resulting in no change of beneficial ownership.

Eventus conducts ongoing research about global financial regulations and engages directly with regulators and market participants. We then feed that research into Validus and work directly with our clients to ensure our software is tailored to their changing needs.

In the U.S., some specific regulatory requirements include:

• Section 10(b) of the Securities Exchange Act of 1934 and associated Rule 10b-5 that cover the prohibition of fraud and manipulation.
• Regulation NMS governs order and trade handling requirements for fair and orderly markets and with “best execution” rules. Rule 611 offers an exemption for inter-market sweep orders (ISOs) under certain circumstances.
• Regulation SHO/order marking and locates are rules governing short sales.
• Rule 15c3-5 covers market access controls.
• Reg ATS are the rules for alternative trading systems.
• FINRA Rule 3110 are the general supervision rules.
• FINRA Rule 3120 covers supervisory control systems and annual testing