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As demand for trade surveillance grows, technology providers are jockeying to be market participants’ provider of choice.
Datos Insights analyzed the competitive dynamic among trade surveillance providers, as well as trends in the space, in its recent report Trade, Communication, Crypto, and Commodities Surveillance Matrix: Catch the Bad Actors.
Leveraging a proprietary vendor assessment framework, Datos Insights evaluated the overall competitive position of 12 trade surveillance providers, focusing on company stability, client strength, product features, and client services. Nasdaq was one of three providers rated best in class for “overall surveillance,” along with NICE Actimize and Bloomberg. “It is tight at the top between trade surveillance vendors,” the report stated.
In a January 24 interview with Traders Magazine, Datos Insights Senior Analyst Vinod Jain, author of the report, highlighted four surveillance trends that are challenging market participants and solutions providers alike.
The first trend is regulators being more active in penalizing trading and investing firms. “Compliance managers can have a comfort level with their systems and processes, but at the end of the day, they’re still thinking ‘am I missing anything?’” Jain said. “That’s the most difficult question. Even with today’s systems around and data, regulators are still able to fine industry members for communication, or crypto, or trading, or other non-compliance. There are systems, but there are gaps in the systems.”
The second trend is the complexity of market participants’ surveillance suites. “Every firm has more than one system to look after,” Jain said. “They won’t use one single solution for everything – they will have different vendor solutions to do surveillance for communications, for crypto, for trading, for commodities. This can go across products and across regions.”
The final two trends highlighted by Jain are the difficulties of surveilling unstructured communications, and the challenge of surveilling emerging digital asset markets. “Crypto is very complex and not everything can be understood” from a surveillance perspective, Jain said. “There is a learning curve.”
Bigger-picture, Jain noted the challenges are driving growth in demand for surveillance products, as market participants recognize they need better systems to satisfy regulators and also to cover their own expanded operations. Spending on surveillance technology has been increasing 11% to 14% per year.
“Previously, surveillance was restricted largely to equity trading and futures trading, but now there are new areas,” Jain said. “Electronic trading has moved into fixed income, so you need surveillance for that, and for the associated FX and derivatives trades. And you need surveillance for crypto.”
“Solution providers observed double-digit growth in revenue from trade, market, and communication surveillance platforms,” the Datos Insights report stated. “An exceedingly high client retention ratio confirms a strong vendor-to-customer relationship in the industry and that which vendors can meet client demands for functionality and service. Going forward, clients will be looking for holistic solutions for better alert monitoring and to consolidate various solutions to reduce surveillance costs.”
In addition to “overall surveillance,” Nasdaq was rated best in class in “overall trade/market surveillance” along with NICE Actimize and Bloomberg; “crypto surveillance” along with NICE Actimize and Chainalysis; and “commodities surveillance” along with NICE Actimize and Bloomberg.
Learn more about the Nasdaq solutions recognized in this report here.
