MillenniumIT Preps Surveillance Algo Library

Following explosion in electronic trading over the past few decades, along with increasingly complex ways in which markets can be manipulated, alerting is an increasingly critical component of competent surveillance platforms, but it's not easy to implement. With the impending roll-out of its Alert Algorithm Library (AAL), MillenniumIT is aiming to increase awareness of manipulative patterns and build an armory of tools that compliance officers can use to proactively detect and mitigate market abuse.

"What happens in most surveillance systems is that they have alerts built to capture aberrant behavior, and if a new behavior is found by market participants, the surveillance and compliance teams play catch up by building a new alert to capture that type of manipulation," says Fuard Ahamed, VP, surveillance systems at MillenniumIT, which is wholly owned by the London Stock Exchange Group. "So by the time that the markets have evolved to detect patterns of illicit behavior, the participants have moved on, and have come up with a new way to crack the market. It's always a catch-up game."

Lateral Views
Indeed, most of the issues stem from a lack of breadth in alerting, whether that's due to the inherently narrow focus imposed by monitoring a single market, or the cost of developing and modifying new alerts. MillenniumIT believes that it has a unique proposition, given its experience with the range of manipulative behaviors it's observed across its client base of exchanges and regulators.

"With AAL, what we plan to offer to our customers is a service where we maintain a library of such alerts, where without the initiative of a specific customer's request, we'll be building this library based on market trends, on our implementations across the world," Ahamed explains. "For example, the London Stock Exchange today has 20 alerts built into its system, but now we have 50 alerts, since we've implemented it there and at 10 other exchanges and regulators. As long as the partner we're working with doesn't have IP on the alert then it's public knowledge, and we're in a position where we can put it into our library. What we then do is configure the alert and host it in this library, which is able to export a specific alert algo through our application and can be kept outside [of a client's systems]."

The service will be offered free-of-charge to existing and new clients of MillenniumIT. Public-facing elements of AAL will include a brief description of each alert, but inside the secure areas of AAL, clients will be able to view detailed documentation on the alert, including any coverage in the press of the behavior it seeks to detect, any regulations it seeks to comply with, and more specific information on how it operates. Users can download the algorithm and then upload it to their own test environments.

So by the time that the markets have evolved to detect patterns of illicit behavior, the participants have moved on, and have come up with a new way to crack the market. It's always a catch-up game. - Fuard Ahamed, MillenniumIT.

In the future, Ahamed says that MillenniumIT also plans to host methodologies for testing, in terms of test cases and scenarios, along with automated scripts.