In an interview by the Dutch financial newspaper “Het Financieele Dagblad” on February the 11th, the Dutch financial regulator AFM urges banks to take a more pro-active approach on implementing benchmark fixing controls to re-establish trust in benchmarks. The AFM has published a full report about the involvement of Dutch financials in relation to benchmarks. Benchmarks are used as a price reference for various financial contracts such as interest, currency and commodity contracts by e.g. asset managers, insurance companies and pension funds. Some examples of these benchmarks are: Interest (Libor, Euribor, EONIA), Currency (WM/Reuters 4 p.m. Londen fix, ECB-fix) and Commodities (OIL-BRENT-ICE, NYMEX, S&P GSCI).
The article mentions the complicating factor of traders and in particular banks getting a grip on local offices, the usage of social media and the manipulations like ‘building the fix’, ‘marking the fix’, ‘painting the tape’ and ‘banging the fix’. On the question if all this getting in control is not very costly matter the AFM answers that this should not be exaggerated.
So how can a market surveillance tool actually help you with getting in control?
A modern tool doesn’t need a local client installation but is developed for web usage and can be used independent on location. This will give your organisation the possibility to run it in all your offices around the world, independent of their size.
Smart technologies can be used to detect rumours and news on social media or other news sources. By linking this information to events it can be used to analyse what actually happened.
Traders execute a larger than normal number of trades, or enter a larger than normal number of orders, on events like ‘Building or marking the fix’ and ‘banging the fix’. ‘Painting the tape’ is a traders attempt to influence the price of a trade by trading among themselves. This creates the appearance of substantial trading activity intended to manipulate the benchmark to a certain direction. The above described events that can be detected by the standard available indicators in TradeWatcher. Functionalities like heat mapping can further be used to tell the tale what actually happened.
Comparing the costs of developing your own compliance tools or implementing one of the legacy market surveillance systems with a modern tool such as TradeWatcher will turn the balance in favour of the latter. Please contact us for a customized quote or more information!
TradeWatcher© is a user-friendly market surveillance platform to monitor financial markets to detect and report market abuse and manipulation. Use the TradeWatcher© platform to efficiently comply with the ESMA Guidelines and national and international legislation. By using the many different Watchers we offer, you can identify malicious trading patterns, potential market manipulation or insider trading. As an independent organisation with a strong track record in the financial world, we know how to deliver you a flexible, efficient and secure web based monitoring tool.