7 December 2017

2

Impact of Global Regulations on Trade Reconstruction

Dodd-FrankUnited States Legislation

for Swaps

• Record Keeping

including Voice records

• 72-hour Trade

Reconstruction

MAREuropean Directive

• Detecting Market Abuse

• Detect and Prove Intent

Even if Unsuccessful

Code of ConductGlobal Guidance for FX

MiFID IIEuropean Directive

January 2018

Refers

to

• Surveillance in Place to Detect Market Abuse

• Record Keeping of all related conversations

• Readily Available Evidence

2013 2016

3

Started with Dodd-Frank Trade Reconstruction Requirements

• “Shall maintain daily trading records of the swaps of the registered swap dealer and major swap

participant and all related records and recorded communications, including electronic mail, instant

messages and recordings of telephone calls”. - 731 Dodd-Frank Act

• “Provide a full SWAP timeline of events including all trades and/or communication within 72 hours”

PRE-TRADE TRADINGTRADE

OPERATIONSCLEARING

- 764 Dodd- Franck Act, SEA Section 15F(g)(4)

4

Evolved with MiFID II Trade Reconstruction Requirements

• “Records shall include the recording of telephone conversations or electronic communications relating to

financial transactions.”

• “…Shall also include those intended to result in transactions…even if those conversations or communications

do not result in the conclusion of such transactions or in the provision of client order services.”

• “… Must provide the evidence of ability to detect behaviors that may be relevant to market abuse –

in all recordings. This evidence must be readily available for regulatory investigation.”

- Article 16(7) and Recital 57 of the MIFID II Directive

PRE-TRADE TRADINGTRADE

OPERATIONSCLEARING

5

APAC is Now Coming Online Too

• “We’ve just declared intentions to outline China’s version of MiFID II.” - Han Chen, Chief Executive of Ceinex

• “Financial regulations in China will be stricter in the future as regulators seek to control financial risk and maintain

stability.” - Guo Shuqing, Chairman of the China Banking Regulatory Commission (CRBC)

• “The Hong Kong Monetary Authority expects Authorized Institutions to adopt a holistic and effective framework

for fostering a sound culture…examples of indicators include risk limit breaches, compliance breaches,

transactional communication surveillance…” - Hong Kong Monetary Authority, 2 March 2017

PRE-TRADE TRADINGTRADE

OPERATIONSCLEARING

6

7

Trade Reconstruction – Complicated to Navigate

PRE-TRADE TRADING TRADE OPERATIONS POST-TRADE

“Can I get a

quote for..” “Done deal..”

“Have a large

deal coming

for...”

“Will make the

changes..”

“Confirmed..”

“The deal has

cleared..”

Sales Trader with Client Trade Support with Back OfficeTrade Support with Sales TraderTrading Desk with Sales Trader

“Can you

recommend..”

“What are you

hearing

about..”

Market Views Bid / Ask Market Sounding News Negotiations Confirmations Settlements TransfersQuotes Amends Cancels Reconciliation

To reconstruct a trade, you need to identify and present all of the voice and electronic

conversations that contributed to the process of the trade execution throughout the organization

8

Trade Reconstruction – Data is Everywhere

9

Disparate systems of structured & unstructured data complicate the process of trade reconstruction

Desk Phone

Trading Turret

Mobile Phone

Instant Messages

Corporate Emails

• Siloed archives of relevant trade data

• Multiple data types and formats

• Inconsistent Metadata and Identity Properties

• Variety of tools to identify and access the data

What do you have?

Trades

Where do you start?

• How do you identify all the relevant and related

data?

• How do I correlate information across multiple

data sources?

• How do I create and share a timeline of events

Chat Rooms

Executions

Orders

• Needed to reduce investigation times and improve

the process of identifying and reconstructing

communications related to trading activity

• The existing process was manual, inefficient and

error prone which resulted in the inability to satisfy

the expectations of the compliance teams and to

the regulator

• The vast amount of communications data and

related trade information was stored in silos which

made identifying, correlating and packaging the

information difficult

Case Study: Global Bank

Trade Reconstruction Challenge

12

• This customer consolidated all their trade, order, execution, trading alerts, email and

chat communications data into a single global Hadoop data lake.

• They used NICE Communication Surveillance platform to index the Hadoop big data

and included the NICE voice integration to make all trade data instantly searchable

from a single portal.

• The NICE big data analytics solution sorted and organized all the trades and

communications data providing a smarter way of searching for required content

through better understanding of the data.

• The NICE correlation search analytics provided a simplified process for finding

related information. The customer is able to start with a single trade or

communication and systematically find all other trade, order, execution, chat, email &

voice that could be related in seconds.

• Perform trade reconstructions using all of the trading data and prove all steps of the identification, reconstruction and review process

• The process improved a time-consuming, error-prone manual process that previously took hours and reduced it down to just minutes resulting in a significant cost savings for the customer

13

The Solution – NICE Trade Reconstruction

Aggregate

Analyze

Act

Use Case Examples

14

• Perform a trade

reconstruction of all other

activity for an individual such

as trading alerts, email and

chat exchanges which

occurred around the event

Voice CommunicationContains LanguageSuggesting Collusion

• Need to perform contextual

reviews of trading activity

with no alerts by

performing a trade

reconstruction

Trade Review Process

• Need to reconstruct the

related trade events around

the alert details, voice, email

and chat communications

that provide context

Trading Activity Triggers

an Alert

Trade Reconstruction – Bringing It All Together

Turrets MobileVoice Email NewsChat Trades Orders

Text Analytics RelevancyNatural Language IndexingCorrelationBehaviours

InvestigateTimeline

ReconstructionDocument

• Identify potential anomalies

• Create full trade event reconstruction with

timeline review

• Policy-Driven Workflows with Automated

Actions to collaborate

Packaging

Making Trade Reconstruction Efficient

Speech Analytics

Central Access to Relevant Trade Data

Provides Contextual Results

With Efficient and Effective Applications

• Aggregate the data in a single solution

• Index, clean and enrich the data

• All data is fully searchable in an central

system

• Convert Voice Conversations to Text

• Analytics to sort and categorize the data

automatically

• Machine driven correlation to instantly find

related conversations and content across

100% of the data within the system

Aggregate

Analyze

Act

Identify

15

16

,

Regulators Expect…

Current approach…

Multi-channel Trade

Reconstruction

Siloed channels of info

Specific Trader

Behavior

Suspicious Traders

Continuous

Reporting

Ad-hoc Reporting

Proactive

Surveillance

Approach

Reactive Compliance

The Way Forward

in Compliance

Why NICE?Simplify – Allow automation and

analytics solve the complicated

challenges of trade reconstruction

and managing investigations

Efficiency – Significantly reduce

time in searching for data and related

communications

Assurance – Demonstrate

proactive compliance through

advanced analytics and auditable

process

• Automated trade reconstructions allows you to more effectively meet MiFID II and Dodd-

Frank Regulations

• Also will allow you to more efficiently manage risk and better understand the activity that

is going on in your firm

• Helps uncover unknown risk that could impact your firm

• Disprove potential market abuse

• Trade Reconstruction can be used as a Proactive and repeatable process and not limited

to a triggering event or request

From Reactive to Proactive Risk Management

www.HolisticSurveillance.com