Nasdaq OMX exported its market surveillance system to China, striking a deal with the brokerage firm China Merchants Securities, which will use the system to monitor its equities trading operation.
Nasdaq said the SMARTS Broker platform helps compliance departments at brokerages monitor their traders and clients for illegal acts like market manipulation or insider trading, and for violations of order handling rules. The system will also be able to weed out such behavior in real time at CMS, Nasdaq added.
In order to generate alerts, SMARTS Broker monitors a market feed that a brokerage's trader is executing on, integrates it into the system, and displays it with front-end graphics, according to Paul McKeown, Nasdaq's vice president of market technology.
"Compliance departments are able to detect abusive trading behavior at any point in time across any markets their traders are currently active on," McKeown said.
"You can do it in terms of what market's been traded on, what security's been traded, which traders did it, and at what point they conducted those trades. The information that's provided is massively more advanced than what's currently out there."
The exchange operator said its arrangement with CMS is part of a broader initiative to spread its market surveillance technology across the globe. In addition to helping brokers get a handle on what their traders and clients may be doing, the company also sells compliance and surveillance technology to exchanges and regulators.
SMARTS has already gained a strong foothold in the Asia-Pacific region McKeown adds, noting that regulators, brokers and exchanges in Australia, Singapore, and Hong Kong are now using it, albeit with slight differences. Regulators and exchanges are using the service to detect malfeasance across the markets, whereas brokerages are merely relying on it at the firm-wide level.
McKeown suggests growing demand for market surveillance in Asia underscores how important such technology has become, particularly with the rise of new regulations around the world, and in the aftermath of scandals like the rogue UBS trader who cost the firm $2.3 billion.
"All of a sudden, compliance and surveillance have been thrust into the limelight and have become a major area of importance for broker-dealers, regulators, and of course exchanges," McKeown said.