Software AG’s Apama Can Now Detect FX Market Manipulation and Benchmark Fixing Abuses

The international enterprise solutions giant launched a new version of its market surveillance software which aims to be able to

software_ag_logoGermany-based enterprise solutions firm, Software AG has announced today a new addition to its Apama Market Surveillance program that sweeps the market flows for identifying potential manipulation or benchmark fixing of FX rates, cross liquidity venue manipulation, and other suspicious behaviour.

The claim that such types of illicit activities are detectable by a software algorithm is something that remains to be proven. Recent revelations by investigative and regulatory bodies around the world into the alleged manipulation of the FX rates, revealed that institutional traders have been using chat groups to coordinate their actions to the detriment of their clients. Such actions were not limited to a single institution and therefore a compliance officer at one bank would not be able to easily detect any wrongdoing.

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In light of the global FX investigations, there is certainly a need for major banks to crack down on fraudulent behavior by their traders, or the very least a need to appear to be taking steps to prevent further such actions as were discovered. Software AG acquired Apama in June 2013, apparently anticipating the demand for surveillance capabilities that can provide oversight over traders’ actions.

The company has developed the new solution in tandem with top-tier banks with their alert service giving internal comptrollers the ability to closely scrutinize dealer wrongdoings without sacrificing gargantuan amount of time to conduct manual investigations. Leading banks across the industry have all the interest in the world to re-establish their credibility following the release of market manipulation information that surrounds FX fixings.

With the technological challenge being substantial, Software AG’s CTO on Intelligent Business Operations & Big Data, Dr. John Bates, said that “Detecting rogue behavior or market manipulation is not a trivial task. You need a robust surveillance monitoring capability that can be calibrated to the specific trading profile of each bank. FX benchmark alerts are not generic, which means ‘off-the-shelf’ packages are rendered useless before they even begin.”

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Electronic Dealing Rapidly Implemented at Major FX Banks

As the trend towards electronic dealing within major banks has accelerated following the uncovering of the foreign exchange rates manipulation investigation by the FCA back in October, compliance departments at major FX dealing banks could have an easier time as Software AG’s solution is providing them with an expanded set of conduct monitoring techniques.

The company has developed the add-on to their Apama Market Solutions platform in response to raised concerns by internal investigators about the magnitude of dealer wrongdoings that they have uncovered. According to Dr. Bates, “It is critical that you have the ability to configure your system for institutional or retail venues, electronic or voice trading, exchange or OTC (over-the-counter), as well as several other trading considerations. Equally, percentages and periods of trading execution can vary greatly across asset classes and accepted trading practices within firms up to, and during, the fixing/settlement point.”

Misconduct Prevention Dependent on Adequate Monitoring

Alternative internal solutions are being developed by competitors as we speak, since banks are having a hard time to safeguard their reputation as trustworthy dealers. It will be a long time until the FCA gets to the bottom of this, and chances that criminal charges against corporations could be raised remain in play. Some major institutions, such as UBS have come forth to seek lenience from regulators, but that’s unlikely to be enough.

The amount of regulatory and public scrutiny that any major bank could face in case of failing to prevent future misconduct might cost it not only business, but ultimately the whole company. Hence further investments in technological solutions to prevent such disasters are growing fast. First with the accelerated implementation of electronic dealing platforms at virtually all major banks and secondly with the addition of countermeasures to boost compliance departments’ analytical tools.

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