Supervision 
Surveillance 
Investigation
Trade Surveillance 

Random Sampling & Lexicons are not enough

Recent enforcement actions have demonstrated that the bar has been raised and a new ‘standard’ is emerging.  “Failure to Supervise” rulings against firms operating traditional Lexicon based supervisory systems have demonstrated this. The regulators are talking about a new risk-based ‘best practice’ that few, if any, of the firms have in place.  Expecting firms to have “… better targeted its supervision to the risks faced…” will mean a significant increase in resources or better tools.

Had Jefferies better targeted its supervision to the risks faced by its mortgage-backed securities desk, many of the misstatements made by its employees could have been caught,” said Andrew J. Ceresney, director of the SEC’s Division of Enforcement.  “Other firms trading instruments like mortgage-backed securities should take note of the consequences of failing to do so, and should take this opportunity to tailor their own supervision.” SEC.gov Press Release on Jefferies.

Insider Trading: Galleon, SAC Capital ….

 We have all been spectators to the Galleon and SAC Capital scandals, where multiple firms were involved in the movement of MNPI.  The government has repeatedly discussed that firms must now not only perform surveillance on and track internal relationships, but they are required to understand their employee’s relationships with other firms.

Finally, the SEC released a wealth of guidance concerning MNPI and Information Barriers in their 2012 Whitepaper – http://www.sec.gov/about/offices/ocie/informationbarriers.pdf. 

Bloomberg Chat Rooms – ‘Collusive Practices’

Some dealers have as many as 50 chat rooms crowded onto four monitors arrayed in front of them. Messages from salespeople and clients appear, get pushed up by new ones and vanish from view. We are all familiar with how dealers exchanged information on client orders and agreed how to trade at the fix.  Instant-message groups with names such as “The Cartel,” “The Bandits’ Club,” “One Team, One Dream” and “The Mafia” lay at the center.

Compliance departments are re-tooling

It is clear that the government expects financial services firms to improve and update their Supervision and Surveillance efforts to meet higher standards. Insider trading, pricing fixing and many other types of market manipulation practices are conducted by people with strong relationships.  These people trust each other and collude to share and act on information not privy to others.

Catelas is the only technology on the market today that can accurately measure relationship strength (using patented behavioral algorithms) and identify collaborative groups across email, IM, Bloomberg Chat Rooms and other forms of media.

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