Impact of Global Regulations on Trade Reconstruction. MiFID II. European Directive

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Evelyn Newman
6 years ago
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1 7 December 2017

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Impact of Global Regulations on Trade Reconstruction Code of Conduct Global Guidance for FX Dodd-Frank United States Legislation for Swaps Record Keeping including Voice records 72-hour Trade

3 Impact of Global Regulations on Trade Reconstruction Code of Conduct Global Guidance for FX Dodd-Frank United States Legislation for Swaps Record Keeping including Voice records 72-hour Trade Reconstruction MiFID II European Directive Surveillance in Place to Detect Market Abuse Record Keeping of all related conversations Readily Available Evidence Refers to MAR European Directive Detecting Market Abuse Detect and Prove Intent Even if Unsuccessful 2013 January

4 Started with Dodd-Frank Trade Reconstruction Requirements Shall maintain daily trading records of the swaps of the registered swap dealer and major swap participant and all related records and recorded communications, including electronic mail, instant messages and recordings of telephone calls Dodd-Frank Act Provide a full SWAP timeline of events including all trades and/or communication within 72 hours Dodd- Franck Act, SEA Section 15F(g)(4) PRE-TRADE TRADING TRADE OPERATIONS CLEARING 4

5 Evolved with MiFID II Trade Reconstruction Requirements Records shall include the recording of telephone conversations or electronic communications relating to financial transactions. Shall also include those intended to result in transactions even if those conversations or communications do not result in the conclusion of such transactions or in the provision of client order services. Must provide the evidence of ability to detect behaviors that may be relevant to market abuse in all recordings. This evidence must be readily available for regulatory investigation. - Article 16(7) and Recital 57 of the MIFID II Directive PRE-TRADE TRADING TRADE OPERATIONS CLEARING 5

6 APAC is Now Coming Online Too We ve just declared intentions to outline China s version of MiFID II. - Han Chen, Chief Executive of Ceinex Financial regulations in China will be stricter in the future as regulators seek to control financial risk and maintain stability. - Guo Shuqing, Chairman of the China Banking Regulatory Commission (CRBC) The Hong Kong Monetary Authority expects Authorized Institutions to adopt a holistic and effective framework for fostering a sound culture examples of indicators include risk limit breaches, compliance breaches, transactional communication surveillance - Hong Kong Monetary Authority, 2 March 2017 PRE-TRADE TRADING TRADE OPERATIONS CLEARING 6

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8 Trade Reconstruction Complicated to Navigate Can you recommend.. Can I get a quote for.. Have a large deal coming for... Done deal.. What are you hearing about.. Will make the changes.. Confirmed.. The deal has cleared.. Sales Trader with Client Trading Desk with Sales Trader Trade Support with Sales Trader Trade Support with Back Office PRE-TRADE TRADING TRADE OPERATIONS POST-TRADE Market Views Bid / Ask Quotes Market Sounding News Negotiations Amends Confirmations Cancels Settlements Transfers Reconciliation To reconstruct a trade, you need to identify and present all of the voice and electronic conversations that contributed to the process of the trade execution throughout the organization 8

9 Trade Reconstruction Data is Everywhere Disparate systems of structured & unstructured data complicate the process of trade reconstruction What do you have? Siloed archives of relevant trade data Multiple data types and formats Inconsistent Metadata and Identity Properties Variety of tools to identify and access the data Mobile Phone Orders Trades Executions Where do you start? Desk Phone Instant Messages Chat Rooms How do you identify all the relevant and related data? How do I correlate information across multiple data sources? Corporate s Trading Turret How do I create and share a timeline of events 9

Case Study: Global Bank Trade Reconstruction Challenge Needed to reduce investigation times and improve the process of identifying and reconstructing communications related to trading activity The

10 Case Study: Global Bank Trade Reconstruction Challenge Needed to reduce investigation times and improve the process of identifying and reconstructing communications related to trading activity The existing process was manual, inefficient and error prone which resulted in the inability to satisfy the expectations of the compliance teams and to the regulator The vast amount of communications data and related trade information was stored in silos which made identifying, correlating and packaging the information difficult

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12 The Solution NICE Trade Reconstruction Aggregate This customer consolidated all their trade, order, execution, trading alerts, and chat communications data into a single global Hadoop data lake. They used NICE Communication Surveillance platform to index the Hadoop big data and included the NICE voice integration to make all trade data instantly searchable from a single portal. Analyze The NICE big data analytics solution sorted and organized all the trades and communications data providing a smarter way of searching for required content through better understanding of the data. The NICE correlation search analytics provided a simplified process for finding related information. The customer is able to start with a single trade or communication and systematically find all other trade, order, execution, chat, & voice that could be related in seconds. Act Perform trade reconstructions using all of the trading data and prove all steps of the identification, reconstruction and review process The process improved a time-consuming, error-prone manual process that previously took hours and reduced it down to just minutes resulting in a significant cost savings for the customer 13

13 Use Case Examples Trading Activity Triggers an Alert Need to reconstruct the related trade events around the alert details, voice, and chat communications that provide context Voice Communication Contains Language Suggesting Collusion Perform a trade reconstruction of all other activity for an individual such as trading alerts, and chat exchanges which occurred around the event Trade Review Process Need to perform contextual reviews of trading activity with no alerts by performing a trade reconstruction 14

14 Trade Reconstruction Bringing It All Together Aggregate Central Access to Relevant Trade Data Voice Turrets Mobile Chat News Trades Orders Aggregate the data in a single solution Index, clean and enrich the data All data is fully searchable in an central system Provides Contextual Results Identify potential anomalies Analyze Create full trade event reconstruction with timeline review Speech Analytics Natural Language Text Analytics Behaviours Relevancy Correlation Indexing Policy-Driven Workflows with Automated Actions to collaborate Act Identify With Efficient and Effective Applications Investigate Timeline Reconstruction Document Packaging Convert Voice Conversations to Text Analytics to sort and categorize the data automatically Machine driven correlation to instantly find related conversations and content across 100% of the data within the system Making Trade Reconstruction Efficient 15

15 Current approach Siloed channels of info Ad-hoc Reporting Suspicious Traders Reactive Compliance Regulators Expect Multi-channel Trade Reconstruction Continuous Reporting, Specific Trader Behavior Proactive Surveillance Approach 16

solve the complicated challenges of trade

16 Why NICE? Simplify Allow automation and analytics solve the complicated challenges of trade reconstruction and managing investigations Efficiency Significantly reduce time in searching for data and related communications Assurance Demonstrate proactive compliance through advanced analytics and auditable process The Way Forward in Compliance

17 From Reactive to Proactive Risk Management Automated trade reconstructions allows you to more effectively meet MiFID II and Dodd- Frank Regulations Also will allow you to more efficiently manage risk and better understand the activity that is going on in your firm Helps uncover unknown risk that could impact your firm Disprove potential market abuse Trade Reconstruction can be used as a Proactive and repeatable process and not limited to a triggering event or request

Achieving Recording System Assurance with Automated Recording Checks. 11 January 2018

Achieving Recording System Assurance with Automated Recording Checks 11 January 2018 Welcome - Today s speakers Tom McNeila Product Marketing NICE Financial Markets Compliance Tom.McNeila@nice.com Steve