Firm58 Offers New Market Surveillance Solution for Broker Dealers

Firm58 is launching its new compliance & surveillance solution for broker dealers in response to heightened scrutiny of trading activity and evolving requirements for broker dealer trade supervision. The new solution will assist brokerages with adhering to the regulatory bodies’ broadening definitions of suspicious behavior, by detecting the accountable party and corresponding trades.

Failure to Supervise and Cracking Down on Illicit Activities

Actively pursuing manipulative trading strategies isn’t the only way to get pegged by the SEC or FINRA anymore. By acting as an agency, broker dealers are responsible for clients’ behavior as well as their own. Just last year, Hold Brothers On-Line Investment Services was fined more than $5.9 million for overlooking numerous red flags raised by foreign traders accessing and manipulating the U.S. market, and failing to report these cases to FINRA. Chalk that offense up to “Failure to Supervise,” a regulatory clause that puts the final burden on overseeing client compliance on broker-dealers.

Additionally, manipulative trades are now more subtle and reside in massive amounts of trade data, making them difficult to detect by authorities and broker dealers. For example, the FBI recently reported that fourteen people were arrested for market manipulation schemes that caused over 20,000 investors to lose more than $30 million. But despite the challenge of finding subtle trading schemes, FINRA and the SEC still expect firms to vigilantly watch for and report manipulative trades.

Broker dealers who fail to supervise their trading activities face penalties in the form of audits and fines, levied by both self-regulatory organizations and government agencies. Likewise, failure to spot suspicious trade activity can result in irreversible damage to a firm and its traders’ reputations.

Firm58 has developed a new Software-as-a-Service product to help broker-dealers improve their monitoring capabilities while keeping pace with regulatory requirements from the SEC and FINRA.

Firm58’s Solution

Firm58’s Compliance & Surveillance Solution for Equity & Option Broker Dealers provides companies with top flight trading surveillance and transparency. It creates daily “exception dashboards” that are tailored to the needs of compliance officers and senior management. The new product also actively scans for and compiles suspicious activity or red flags that could be traced back to market manipulation.

The solution is built to detect patterns, and specific issues, such as order spoofing and quote-stuffing. Order spoofing occurs when a trader places a large buy order and then quickly cancels it, making it appear that there is high demand for the stock. Quote-stuffing is a tactic of quickly entering and cancelling large orders to flood the market with quotes that competitors have to process, inhibiting their high frequency trading abilities. Other exceptions that the solution is equipped to detect include Large Orders, Order Exceptions on Close, Odd Lots, Short and Wash Sales and “Marking the Close.”

This new program uses the same foundation of aggregating order and execution data as other successful Firm58 solutions for Billing, Profit Analysis and CSA management. Similar to these other products, this new solution is web-based and can be deployed in a matter of days. Firm58 will offer firms the first 30 days of use free with the purchase of an annual subscription.

With broker dealers performing more executions than ever before, automating compliance functions is now mandatory. If not, you are inadvertently exposing your firm to undo risk resulting in potentially serious consequences. By automating compliance activities, firms can avoid punitive actions resulting from a failure to properly supervise their trading activity.