A Year for Change: Outlook for Market Surveillance in 2021

Market surveillance teams faced unprecedented challenges this year as the coronavirus pandemic brought about record volumes and volatility while operations shifted to a largely work-from-home environment. As part of Nasdaq’s Singapore FinTech Festival coverage, Tony Sio, head of Marketplace Regulatory Technology at Nasdaq, spoke about how volatility has impacted the market and the outlook for the surveillance industry.

“From a surveillance perspective, one of the biggest impacts so far has been making sure the systems can cope with these huge volumes,” said Sio. “We’ve seen a few people look at new approaches. This year, about three-quarters of our new customers have gone with a cloud solution.”

The uptick in volatility has also brought about much more noise, Sio noted. “With the surveillance systems, we’re looking for a needle in a haystack, and essentially that haystack has become much messier and noisier,” he said.

“It’s always been tough keeping pace with how quickly the markets move, but with this increase in volatility, the challenge is even greater,” Sio continued. Statistical models take time to incorporate new behaviors, and already stressed surveillance teams have needed to spend more effort tuning their algorithms.

Looking ahead to next year, Sio outlined three primary challenges facing the market surveillance industry.

1. Work-from-home 

Amid the coronavirus pandemic, many surveillance teams were forced to operate remotely, which initially presented some challenges as there are specific regulations regarding privacy, security and employee monitoring. Even with the distribution of the coronavirus vaccine underway, finding the right balance between working remotely and returning to the office will be critical.

“There are surveillance teams that have managed to make it work and have been able to work-from-home, and I think the challenge there is bringing the team back [into the office],” Sio said. “There are also teams that will want to continue working-from-home, at least for a few days a week, in the future, and I think the challenge for the department is how to make these temporary measures more permanent.”

2. Increase in retail activity 

After seeing retail activity surge this year, Sio expects it to continue into 2021. He noted that the increase in retail has changed the dynamics of the markets, “the actual behavior of the marketplace is changing and adapting, and the detection algorithms need to be tuned to these types of behaviors.”

“On top of that, as you have more retail activity, it tends to put more pressure on the team – there tend to be more dead-ends, more unusual events – and that put more pressure from a resources perspective.”

3. Regulating new digital assets 

Given Bitcoin’s recent rally and the emergence of new digital assets, Sio believes that regulators will take a more active role, which may present a challenge to some new marketplaces.

“The challenge for these new marketplaces is needing to put in new surveillance departments, new monitoring teams and new integrity processes in place, so they need to step up work with regulators on how to regulate these new assets.”

Other Topics

Markets

Tony Sio

Nasdaq

Tony Sio is the Head of Regulatory Strategy and Innovation at Nasdaq, this includes responsibility for the Nasdaq Market Surveillance solution which is used by over 50 marketplaces and 17 regulators globally.

Read Tony's Bio

MarketInsite

Nasdaq

Nasdaq’s Marketinsite offers actionable insights on a variety of market-moving topics. Learn from our thought leaders who are driving the capital markets of tomorrow.

Read MarketInsite's Bio