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IMPROVING ACCURACY AND DETECTION RATES IN TRADE SURVEILLANCE

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John Dalton, SVP, Global Head of Financial Services Product & Solutions and Paul Gibson, Business Development Director, KX

 

When it comes to identifying potential trade market abuse, surveillance departments are under pressure from regulators like never before. With increasing complexity in trading, they’re having to adopt more expansive approaches to identifying potential market abuse. But at the same time, their analysts are increasingly weighed down under swathes of alerts and investigations, many of which prove to be unnecessary when other factors are taken into account. It’s a double whammy; they need to do more, and they need to do less.

But getting surveillance right is difficult. Organisations often have different surveillance solutions across different business units, and the ongoing COVID-19 pandemic has only added further complexity. This lack of cohesion across different remote working locations means there’s also additional operational overhead and latencies associated with investigating potential breaches of compliance or malpractice. And despite these severe challenges, the regulators are not letting up on their expectations of compliance

And this lack of cohesion can be costly. Figures reveal that in 2019 criminals successfully stole over £1.2 billion through fraud and scams. The totality of loss across 2020 into 2021 due to the global pandemic, are not yet known and understood.

What’s needed is a consolidated enterprise approach to an organisation’s surveillance strategy, powered by real-time streaming analytics, that’s effective across all lines of business for detection of emergent systemic and often unknown risk. This is key in order to proactively reduce risk and operational costs, and also capture and make sense of all of the interactions, dependencies, changes, patterns and behaviours across the entire trade lifecycle.

Firms must adopt platforms that process the vast amount of data streams in real-time, allowing users to make decisions on alerted behaviours much more effectively with significantly greater efficiency. This means using cross-product analysis to identify errors, automated techniques to reduce false positives and machine learning to extract insights from both historical and real-time data.

 

Cross-Product Analysis

Traditional instrument-by-instrument surveillance techniques do not typically extend their analysis to related products. As a result, in areas like credit and rates, the links between products and their underlying processes are often ignored. This is opposite to risk management techniques across the same technologies where trade dependencies are closely monitored.

As such, it is important to incorporate risk management elements, like benchmark and sensitivity measures to help identify errors over a range of instruments. This enables products to be broken into their risk fundamentals and effectively “look through” to the underlying securities in an analysis. In looking for evidence of manipulation of a Financial Risk Advisor (FRA), for example, the analysis may extend to monitor both futures and interest rate swaps too.

 

Reducing False Positives

As with cross-product analysis, having more information can lead to more insightful judgments. In the case of false positives, the presence of surrounding data can help contextualise results by automatically classifying high volumes of alerts. This helps to determine which are material and which are not. False positives reduction techniques fall into three areas:

  • Data Filters – Filtering out specific data or activity that may not be applicable. For example, excluding immediate-or-cancel (IOC) orders from Spoofing profiles
  • Use of Dynamic Thresholds /Benchmarks – Replacing static thresholds with automatically adjusting parameters that reflect evolving market conditions and changing behaviours, not only of individual traders but across the market
  • Alert Feature overlays – Including surrounding factors for context in assessing alert severity. For example, factoring in a significant market movement in a stock when assessing an Extreme Trade Range alert.

These factors, used together, help avoid unnecessary and time-wasting alerts that distract analysts from more significant investigations. Thereby, optimising both operational efficiencies and effectiveness for mitigation of true risks.

 

Machine Learning

Through machine learning, even the best calibration and error reduction techniques can be improved. Detection rates can be continuously improved using a combination of supervised learning, unsupervised learning and feature extraction techniques from the historical data store.

Supervised learning uses analyst feedback and assessment of historical results to train models and improve their accuracy. Unsupervised learning uses techniques like One-Class Support Vector Machines (SMVs) to detect anomalies to help classify results based on distributions and similarities. SVMs establish normal behaviour by learning a boundary and then adding a score to the results, based on their distance from that boundary. This adjustment can then help analysts to prioritise investigations. Whilst the benefits of AI and machine learning are well documented, their application for improving detection rates in trade surveillance remains limited.

With regulators still hesitant to allow machines to determine whether an activity is suspicious or not, the majority of what we are seeing is a supervised learning approach. However, as the regulatory landscape continues to evolve and the demand for real-time decision making mounts, organisations will require a shift in mindset and capitalisation of narrow AI with unsupervised machine learning if they are to effectively detect fraud.

It’s apparent that the requirements for trade surveillance are becoming more demanding, to ensure that ever-evolving market abuse tactics are both detected and prevented. For firms, this means adopting a consolidated solution that delivers accurate insights when its most valuable – in real time. By thinking in microseconds, users can analyse data at a breadth and scale that was previously inaccessible to them.

The flexibility of a streaming analytics platform, will be a game changer for comparing real-time alerts with historical data and giving a holistic view of the data across the trade-lifecycle. Through such technology, firms can become proactive in their response to abnormal behaviour in real-time, as opposed to reacting when it is too late.  By doing so, not only can firms work to improve detection rates, but also realise significant savings through fewer false positives and operational efficiency in ensuring risk controls are met.

 

Finance

A BRIEF GUIDE TO TRADING IN CRYPTOCURRENCY SECURELY

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Trading in cryptocurrency is becoming increasingly popular in the financial world. Crypto’s huge rises in value over recent months has encouraged many to consider it a valid and important way to invest their money. However, it can be tricky for someone new to the world of crypto to know how to start. The process of setting up can take a few days, but once you’re ready to go, it can be fairly simple to start trading.

 

Find A Crypto Wallet

To store crypto, you will need a cryptocurrency wallet. There are many wallets out there to choose from, in both software and hardware forms. You could choose a free to use software wallet, to begin with, and then invest in a more secure hardware wallet if you plan to hold amounts of crypto for the medium to long term. Hardware wallets typically cost anywhere from £50 to £150, so it is worth doing your homework and finding the right wallet for your needs.

 

Sign Up With A Brokerage

You will need an account with a brokerage service to begin trading. It would be best if you looked for brokerages that offer good security, an easy-to-use interface and plenty of cryptocurrencies to choose from.

You will need to provide some identification to open an account with a reputable brokerage, and it may take a few days to get your account verified. Therefore, it is vital to do your research and ensure that the brokerage you choose is legit before providing any personal information.

 

Get Help From Experts

Once you have your account up and running don’t rush to buy your first Bitcoin. As a beginner to the world of crypto trading, there are plenty of potential pitfalls, and talking to experts can go a long way to reducing the risks.

Check out Traders Of Crypto, a cryptocurrency community that provides expert, collective knowledge to those starting out with crypto trading. There you can find plenty of free guides to help you on your trading journey.

 

Choose Your Crypto

The next step is to decide on the crypto you want to trade in. There are thousands out there to choose from, with the most well-known being Bitcoin. The more popular the crypto, the more likely it is to remain stable, so it may help to start with Bitcoin for your first transactions.

Once you have some experience, you could branch out to smaller altcoins, though it is often wisest to keep most of your trades to the bigger coins.

 

Make Sure You Have The Capital

You will need sufficient capital to buy and trade cryptocurrency. You can add this to your brokerage account, typically by bank transfer or debit card payment. It is crucial to keep in mind that the value of crypto frequently changes, so ensure that you are spending only what you can afford.

 

Start Trading

You can start by either trading cash for crypto or crypto for crypto. However, keep in mind that there may be brokerage costs for each trade, so you should choose your trades wisely.

 

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SKILLING AND METROPOLITAN X PARTNER TO OFFER ADVANCED TRADING EDUCATION PROGRAM

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Skilling, a Scandinavian fintech providing online trading on a wide range of world markets, has announced a strategic partnership with the trading education and empowerment institution, Metropolitan X Group, which is set to establish and propel valuable trading education for its clients.

 

Metropolitan X Group, whose universal mission is to provide financial research and trading education to traders of all levels, has developed a training program that delivers a well-rounded curriculum through innovative theoretical-practical learning webinars. The program offers live trading sessions providing real-time analysis and commentary on market events. Together with live social market updates and insights, the Metropolitan X Group equips its student-traders with the tools and skills they need to analyse, evaluate and trade the markets effectively and with greater success.

 

This is Skilling’s first education-focused partnership and it marks a significant step forward in Skilling’s plan for trader education and its investment in upskilling traders. The education program is expected to open aspiring traders up to new possibilities through personalized learning and create in them a deeper understanding of the markets.

 

“Client education is a priority for Skilling. We want to empower our traders with market knowledge and trading education so that they can navigate any market environment more successfully. We are very excited to be providing top education through Metropolitan X Group’s trading and advanced learning programs and are excited to see traders utilise these newfound skills on their trading platforms,” said Michael Kamerman, CEO of Skilling.

 

By partnering with Metropolitan X, Skilling can deliver top-tier education from experienced trading professionals that will help clients improve their investing knowledge, and develop deeper market insights to be fully apt and equipped to identify better trading opportunities in the markets.

 

“We are excited to partner up with a broker that believes education is the key to success in this demanding market. Together we shall provide traders with the necessary tools and knowledge to tackle the ups and downs of trading. Traders taking advantage of our shared services with Skilling will receive exciting exclusive market insight like no other,” says Sebastián Hernandez, Director of MetropolitanX.

 

The power of this evolving partnership demonstrates Skilling’s firm positioning on trader education leadership and will drive success through strong growth in more educated and skilled new customers taking on the markets.

 

“There are undoubtedly both inherent opportunities and risks in trading and investment. Investor enthusiasm has shown it has the ability to storm the markets through organized online trading communities and unprecedented access to hundreds of instruments. This underpins both the scale and power of today’s individual traders, making it vitally important that individuals have the necessary education and also the right tools at their disposal to make smarter trading decisions,” said Michael Kamerman, CEO of Skilling.

 

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