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Leslie Kramer
Leslie Kramer
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Regenerating Trust With Compliance Technology

Transparency and accountability are on everyone's mind in the financial-services industry as numerous corporate scandals have brought a wave of distrust from investors.

Transparency and accountability are on everyone's mind in the financial-services industry as numerous corporate scandals have brought a wave of distrust from investors. Mantas (booth #4205), a vendor that provides behavior detection products, hopes to help firms repair some of that damage.

Debuting at the SIA conference, is the updated Mantas Trading Compliance Monitor, version 2.0 and its Broker Surveillance Monitor. Both products are part of the Mantas Integrity Suite, a suite of products that aims to provide insight into potential risks for securities firms.

The Mantas Trading Compliance Monitor uses data-mining techniques to monitor trading and market-making activities for potential regulatory compliance issues. It generates alerts in the event of problematic practices related to a firm's interaction with securities markets. The software also allows business users to replay market events, providing business data and historical information that allows for analysis and issue resolution, says the vendor.

Mantas' Trading Compliance Monitor version 1.1 is focused specifically on equity trading. Version 2.0 monitors all types of financial products including equities, foreign exchange, fixed income, government and high-yield bonds, mortgage-backed and asset-backed securities, and options and futures.

The Trading Compliance Monitor looks at activity in the firm's data. "It is more comprehensive than the previous version and its capability covers a full set of compliance issues," says Bill Nosal, product manager at Mantas.

The system notices behaviors of brokers that may pose a compliance issue, including: shortening or extending of settlement times, parking funds, wash trades, and post-trade cancels and corrects. "It looks for sequences of events, such as the front-running of customer orders by a trader," says Nosal. "It can then alert management and compliance personnel of the situation and provides backing detail for the investigation," he notes.

While most firms perform this function manually or use in-house reporting systems, they are not as comprehensive as Mantas' offering, claims Nosal. "Mantas' Trading Compliance product contains the behavior scenarios firms are looking for and are usable as soon as the product is integrated into the trading system-environment," he says. A number of Mantas' clients are currently implementing the new version of the product, says Nosal.

Mantas is also debuting Broker Surveillance Monitor, version 2.0. This product, using data-mining and pattern-detection techniques, monitors for behaviors including customer suitability, broker-selling practices, and employee malfeasance. It generates alerts in the event of potentially problematic practices related to firm interaction with customers and alerts analysts and investigators of these behaviors. "The Broker Surveillance Monitor product looks for many different patterns of behavior of customers, employees, insiders, brokers and investment advisers," says Elizabeth Ortmayer, product manager at Mantas. Version 2.0 of the product adds the ability to detect three issues: breakpoint violations, including the right of accumulation.

In fact, the National Association of Securities Dealers (NASD) and the Securities and Exchange Commission (SEC) recently stated that many investors are not receiving the discounted pricing they deserve. "Customers are not getting the discount owed to them when funds are being purchased; brokers don't always know about the breakpoint discounts or tell customers about them," says Ortmayer. The product sees these patterns and alerts the broker, compliance officer or the supervisor, depending on how the organization has set up the system. "While it may be relatively easy to determine the correct price for a single fund investment made through a single account, it is more difficult to determine whether a combination of investments - from one or more than one account, made over time, and perhaps invested in several funds within a fund family - adds up to a breakpoint," says Ortmayer.

Mantas' Broker Surveillance Monitor can appropriately calculate these fees because it looks at activity over time and across accounts, analyzing transactions not just in isolation but also in the context of other transactions and records, she says.

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