Did You Fail to Supervise?

December 2, 2015
by VXfintech

Category: Market Activity

Over the past few years, citations from the Commodities and Future Trading Commission (CFTC) have gone up substantially. Smaller, less prevalent fines have yielded to larger, often puzzling fines requiring hours of time to decipher. This situation is compounded by the petabytes of data and various data sources analysts must now sift through to reach a conclusion – often times to no avail. No one wants the label “Failure to Supervise.” But the significant time and resource strain can cause some firms to concede and pay for fines regardless of guilt.

However, admitting guilt for an alleged trading infraction can cause reputation and monetary damage, and potentially sideline traders from participating in the markets for a period of time. In today’s sometimes confusing regulatory environment, what steps should your firm take when you receive a citation asking for your logs?

Don’t panic. “Send us your logs” or accusations of “failure to supervise” often instills fear but not necessarily because the firm is guilty. It can take multiple resources and weeks to dissect what occurred, and firms know the resources they have on hand may be insufficient to handle research into various charges.

To start, determine what data sources are available to you. To build a defensible context for your case, you need historical data and trends. Most firms today download logs into simple models as well as cross-reference data with line charts, ladders, and their own internal risk systems.

Next, connect your data sources into actionable data. This is often where managing the workload of your citation breaks down, especially with regard to the tools normally employed.

• Logs show the messages and trades for products traded on only one platform or exchange, however they neglect what behavior triggered the orders.

• Line charts show the price of trades from one product on one exchange only, but there is no correlation between trades or across products.

• Ladders give you a snapshot in time on an aggregate level, but do not provide context related to rate of change, discrete messages or cross-product behaviors.

After spending hours pulling data from various sources that do not correlate, many firms are unfortunately, still left without clear conclusions. In the midst of an uncertain regulatory environment and with difficulty pulling accurate data, are you left paying fines because of time and cost restraints? Next time, contact Vertex to shortcut the time it takes to thoroughly gather the market information you need and quickly establish your defensible context.