The Fight Against Spoofing Demands a Cultural Shift, Not Just Surveillance
Spoofing has long been a blemish on the capital markets sector’s reputation, but 2015 was the year it became one of regulators’ top public enemies.
In November, New York Attorney General Eric Schneiderman launched an investigation into four large brokers, focusing on their alleged use of the manipulative trading tactic. That same month, a Chicago jury found a local trader guilty of 12 counts of spoofing and fraud in the first criminal case involving the practice. Given these high profiles incidents, it’s no surprise that FINRA is developing a program aimed at helping firms better identify and report spoofing among their client activity.
Awareness, however, is only one step in the battle against rogue traders and market manipulators. Beyond implementing stronger monitoring and surveillance resources, broker dealer leaders must establish an internal culture that discourages bad actors altogether.
Setting a top-down tone for compliance
Many firms today unintentionally perpetuate a culture that turns a blind eye to shadowy activity. Investing in technology solutions that constantly scan for potential red flags is one way to instill the importance of compliance across your organization, but human intervention is just as essential.
No matter the size of the firm, all broker dealers must emphasize employee awareness and education when it comes to regulatory standards and manipulative trading behavior. The more firm leaders communicate the importance of compliance (as well as the consequences of failing to adhere to the rules), the better informed your staff will be. In some businesses, incentive programs can be effective ways to reinforce these values and promote “good citizen” surveillance.
At the same time, firms must be proactive about screening out risky candidates during the hiring process. Whether your firm has a formal HR department or one VP who occasionally moonlights as a hiring manager, there needs to be ample due diligence when evaluating new talent. Background reviews, reference checks and inquiries into a prospect’s trading history should each be built into your organization’s recruitment protocol.
We live in a time when everyone is tethered to smartphones, social media and a 24-hour news cycle – damaging headlines travel quickly. Capital markets firms can’t afford to have their reputation tarnished due to one rogue staffer or potentially criminal incident. By confronting spoofing from a cultural perspective, rather than just a tactical one, you stand a better chance of keeping your organization out of the media (and regulators’) watchful eyes.