Comments
7 Pillars of Market Surveillance 2.0
Newest First  |  Oldest First  |  Threaded View
Blog Voyage
100%
0%
Blog Voyage,
User Rank: Apprentice
7/7/2015 | 6:04:28 AM
GREAT
Great article Dr Bates. I'm not very familiar with this domain but your stuff is always helpful.
Greg MacSweeney
100%
0%
Greg MacSweeney,
User Rank: Author
10/30/2014 | 4:08:35 PM
Re: the known unknowns
Ha, how true! Even with all of the electronic records and recording of everything nowadays, people still find ways around the rules. Just think, 20 or 30 years ago, there were no electronic data trails. It was all paper based. It must have been much easier to hide your tracks.
Becca L
100%
0%
Becca L,
User Rank: Author
10/30/2014 | 3:33:28 PM
All in Good Time
Great article, Dr. Bates. I've heard and written a lot about many of these trends. Slow and steady these next-gen techs are becoming commonplace, even necessities. For example, I see that #2, predictive monitoring is particularly picking up for compliance purposes as well as competitive advantage.
DrJohnBates
50%
50%
DrJohnBates,
User Rank: Author
10/30/2014 | 11:16:41 AM
Re: the known unknowns
Greg - Completely agree. But sometime something new emerges. The key with the unknowns is to spot the unusual, see if it's a new threat and then create rules to ensure it doesn't creep through the net again!!

Compliance officers are very excited about the unknown "unusual behavior" monitoring - particularly for the rogue trader tracking. It does make one wonder just how many dodgy things have been going on over the years!

JB
Greg MacSweeney
50%
50%
Greg MacSweeney,
User Rank: Author
10/30/2014 | 11:00:44 AM
Re: the known unknowns
Yes, hindsight is always easy. It's easy for us to sit here and say, "why didn't Knight take steps to protect itself from trading code errors? why wasn't there a kill switch?"

The Flash Crash was a true unknown, but it shouldn't be anymore. There should be safeguards for drunk traders, fat fingers and rogue algos because those are all broad risks that can be watched. And, yes, people will always find ways to cheat the system. You can't dream up of every scenario in advance, but firms can put in broad risk controls that colelctively protect against many risks.
DrJohnBates
50%
50%
DrJohnBates,
User Rank: Author
10/30/2014 | 10:48:36 AM
Re: the known unknowns
Actually there have been a lot of surprises since 2010! The flash crash was the biggest surprise. Who'd have thought such a thing could happen so quickly - and fortunately it reversed quickly. But little things are happening all the time. You're right we might be able to imagine most things but sometimes the "very unlikely" things don't have any safeguards. For example, it is considered to be so unlikely that an asteroid will hit earth that we watch a tiny proportion of the sky and have no safeguards. But wouldn't it be just lovely if some unusual behavior was spotted in the heavens to give us a heads up clue that one might be on the way? That's the same with market surveillance.

The PVM drunken oil trader taking a $520m position on oil futures, the UBS rogue trader having knowledge of front, middle and back office to hide his trail, the Knight Capital Algo going out of control - yes all these things should have had safe guards but didn't. And there might be a million new ways of cheating the system that we haven't considered but when someone tells us we think "oh yes! of course. Why didn't we spot that?".

My point is we can't think of every possible scenario or combination of scenarios. And new permutations evolve all the time. So it would be nice if the system could spot "something unusual" - a deviation from what we've benchmarked as "normal behavior" and flag this up - for a human expert to quickly look into.

Just like new computer viruses evolve - so do new possible dangers in capital markets.
Greg MacSweeney
50%
50%
Greg MacSweeney,
User Rank: Author
10/30/2014 | 10:08:46 AM
the known unknowns
RE: #6. Support for known and unknown threats

It is always interesting to hear people talk about the unknown threats. If a risk manager or compliance officer is really doing their job, there are actually very few unknowns. Cyber attacks are pretty much known (you know they are coming). Fat fingers are known. Rogue algos are known. Weather events are pretty much known (Weather forecasters pretty much called Sandy's impact well before it made landfall...people just chose to ignore it).

So, what is truly unknown?


Register for Wall Street & Technology Newsletters
White Papers
Current Issue
Wall Street & Technology - Elite 8
The in-depth profiles of this year's Elite 8 honorees focus on leadership, talent recruitment, big data, analytics, mobile, and more.
Video
Exclusive: Inside the GETCO Execution Services Trading Floor
Exclusive: Inside the GETCO Execution Services Trading Floor
Advanced Trading takes you on an exclusive tour of the New York trading floor of GETCO Execution Services, the solutions arm of GETCO.