Surveillance obligations on the buy-side can be confusing, especially with the broad regulatory language and differing firm structures.
This post outlines what buy-side firms need, what’s optional, what it might cost, and how to make practical decisions based on your setup and exposure.
Do I Need Surveillance?
Very likely…Buy Side and Sell Side have different needs due to the regulatory expectations and exposure.
Hedge Funds, Asset Managers and Retail Brokers will have different requirements as compared to direct market facing participants like Wholesale/Investment Banks, Market Makers and Intermediaries.
The products you trade and how you access the market directly has direct impact on the level of risk and surveillance requirements.
What Do I Need?
Reading regulation can scare you into thinking you need cover for all behaviours.
Broadly speaking, you need automated surveillance to monitor for Market Manipulation and Insider Trading.
You need capture and retention of approved Communication channels for Regulated Staff and optionally non-Regulated Staff, with a layer of automated surveillance and/or compensating controls depending on number of staff, languages and geographic spread…they key is “regulated”.
So if I am not a regulated firm, that means I do not need surveillance?…no, even though not under direct regulatory obligations, you likely need it because of the nature of your trading, the impact of your trading and access to the markets..
You likely need surveillance training, either from scratch, upskilling existing knowledge, or a blend of both to meet the different levels of experience within your compliance organisation.
Whether you have dedicated staff, or double/triple-hatting to cover multiple areas, or in the process of building out a team, we can assist you with a highly-effective evaluation and training programme to meet the practical needs of your surveillance obligation.
If not already done so please try our Market Surveillance quiz.
Where Can I Get It, How much Does it Cost?
Assuming you are not planning to build your own, there are many vendors who provide Trade Surveillance and Communication Surveillance solutions.
The trend has moved to SaaS solutions, where the vendor will host and manage the day-to-day running of the platform. This can reduce your IT burden and internal cost, but increases the information security risk and 3rd party reliance.
Cost can run from US$35k per year running up to 7-digit figures.
Whilst we do not offer any specific vendor selection services, we are happy to provide an independent view on your scope and cost considerations, for what is very much a strategic investment. If you are looking for an informal chat, or a more formal discussion, please get in touch.
What Is Holistic Surveillance?
It was a pre-COVID buzz where it was felt you needed to have Trade and Communications intermingled to do proper surveillance. The majority of vendors started tapping each other to integrate, but nobody really succeeded.
The reality of holistic surveillance is that very few conduct risk issues present themselves within the same time window. This means you will not have an “alert” which contains both alerted trading activity and alerted communications.
Having said this, being able to review an employee’s trading and communications activity in a single system is extremely beneficial, in particular in an OTC trading environment. Consider this to be an Integrated Solution, rather than Holistic Surveillance.
Am I Getting the Right Alerts?
This is one of our specialities…
With more than 20 years of dealing with Trade Flow, Market Abuse requirements and Communications Population Management, we can offer you the advisory and training services so that you can “see through the noise” to focus on the areas that really matter.
We hope the above gives a clear sense of the considerations involved in setting up or refining buy-side surveillance. If you’d like to discuss your specific needs, review your current setup, or get practical support, please get in touch.
