Quadrant Knowledge Solutions ‘Market Insights research provides detailed insights to users about the significance of behavioral analytics to prevent market abuse and misconduct in Trade Surveillance.
Organizations continue to be plagued by market abuse perpetrated by individuals that results in regulatory fines. Hence, it is pertinent to monitor individual behavior for any unusual behavior during trading activities to detect market abuse. Understanding the individual’s behavior translates into the capability to precisely identify the connected events and patterns found over time. Vendor technologies are aiding to reduce this, as they contain increasingly evolving and adopting machine learning models that run over anomalous data patterns in combination with the supporting trade and communications data besides more traditional rules-based models. This scanning of unusual data patterns helps organizations detect anomalous behavioral patterns that can be flagged for investigation.
Traditional analytics utilize algorithms that enable organizations to detect known types of market abuse that follow a predictable pattern, such as front running. The threats that follow unpredictable patterns such as abnormal trading or conflicts of interest go undetected by traditional analytics and remain hidden from the organization. Moreover, conduct-related threats often remain hidden due to the unpredictability of human behavior that is difficult to model thus leaving organizations at risk of regulatory violations and financial losses.
Behavioral Analytics utilizes communication and trade data along with other data sources to analyze and detect various behavioral patterns of traders. Technologies such as AI, ML, and NLP extract relevant insights from different forms of communication. Vendors are excelling in effectively capturing various forms of communication in multiple languages by leveraging technologies including AI, ML, and NLP to detect non-compliant behavior.
According to Vishal Jagasia, Senior Analyst at Quadrant Knowledge Solutions, “Holistic behavioral analytics has redefined the behavior approach to detect hidden threat patterns and is building the risk profile of high-risk individuals/entities with a risk score assigned to them. A comprehensive and interactive risk dashboard can provide better visibility and more insights about the behavioral risk of the individual/entity.”
