Digital Assets Report


Like this article?

Sign up to our free newsletter

Spending on post-Mifid market surveillance to reach EUR185m in 2012

Related Topics

The implementation of the Markets in Financial Instruments Directive is turning market surveillance, traditionally a cost centre, into a competitive edge, says capital markets research and advisory firm Tabb Group.

According to research published by Tabb, spending by brokers and trading venues in Europe on post- Mifid trading surveillance products will increase by a compound annual growth rate of 13 per cent from 2009 to 2012, rising to EUR185m in 2012. 

As vendor products become more widely available, says Miranda Mizen, principal at Tabb and co-author of the report, the ratio of internal versus external purchases will decline from 70 per cent in 2009 to 53 per cent in 2012. 

“Changes in market surveillance needs more closely resemble a revolution rather than an evolution,” she says, explaining that a single stock that used to trade on three venues may now trade on as many as 15.       

Traditionally, surveillance has been a requirement and a necessary cost of doing business. It belonged under the auspices of regulation and compliance and was a prerequisite to any new feature, product or system. Like quality assurance, it was a time-consuming but integral part of progress that helped protect the organisation from regulatory, commercial and reputational risk. That changed with Mifid’s introduction in 2007. 

“As with trading infrastructures, surveillance systems and programmes need to be broken apart and then rebuilt. To join the dots in this new market place, you need a new pen. Changes in market structure have shifted the onus of surveillance, as individual markets may no longer have all the trading activity, brokers have clients across Europe and regulators have to learn to share,” says Mizen.

Today, individual investors and boards of financial institutions demand proof of the integrity of the environments in which they trade. The buy side wants proof of best execution and comfort about the risk profile of their counterparties. Brokers point to surveillance programmes as essential to sound risk management, integrity of execution and appropriate and legal conduct both towards and by their clients.

This has begun and will continue to drive demand for surveillance products, says Mizen. The rapid rise in trading volumes, products and venues requires innovative functions that allow visibility so that compliance departments are not overwhelmed by alerts. The unevenness of expansion and uncertainty of success have accelerated demand for affordable flexibility, cost efficiency, immediacy and extensibility. 

In addition, these products are equally providing opportunities as they spill over from surveillance to analytics, making it easier to provide snapshots of best execution on demand, distribute dashboards to clients hungry for better visibility and use market replay tools to understand, educate and improve execution strategies. 

“This will move surveillance from a badge of compliance to a competitive edge,” adds Mizen.

Like this article? Sign up to our free newsletter

Most Popular

Further Reading