Market Surveillance for the future 

CFTC Technology Advisory Committee 

 

 

 

June 3, 2014 
Agenda

• Surveillance shortcomings

• Institutional resistance

• Tech-centric regulation

• Next generation Surveillance

• Next steps
Surveillance Shortcomings

The way surveillance is done today presents the industry with 

challenges

• Technological shortcomings:

– No timestamp synchronization, low resolution

– Lack of advanced analytics / machine learning

• Conflicts-of-interest inherent across for-profit, publicly-traded SRO 

model leads to poor enforcement across biggest / best customers

• Complete lack of cross-asset class data

• Lack of coordination / cooperation across the industry

– Regulators / SRO’s don’t work with practitioners

– Some practices make it difficult for brokers to properly watch 

their customer
What prevents regulators from moving forward?

• The size of the problem and where to start

• Shortage of the right technology skills and knowledge

• Cultural resistance to tech-centric approach

• Political frictions within / across agencies

• Mindset that focuses on “fiefdoms”

• Conflicts inherent in publicly traded SRO structure

Institutional Resistance
• Technology is a tool but it is more important; an enabler for 

change and innovation

• Technology has become part of the culture across this 

industry

• Technology accelerates existing processes, delivers new and 

smarter ones 

• Staffing at regulators must fundamentally change

• Never has the need for expertise been greater, or the 

resource gap wider.

Why we need a new Market Surveillance program
• Next-generation surveillance platform

– Full cross-asset class coverage

– High-performance, real-time analysis

– Strategy registration and ID system

– Best-of-breed analytics

– Machine learning / parameter optimization

– SRO’s can leverage to reduce / eliminate duplication

– Platform to engage academics and public

– Private firms could have this operational by 2014

Next-Generation Surveillance
Futures

Exchanges

Equities 

Exchanges

Equities 

ATS s

Options

Exchanges

Cloud-Based Computational Resources

Distributed DB

Public Gateway Public Access

Algorithmic 

Analytics

Machine 

Learning and 

Analytics 

Optimization

Alerting, 

Reporting, Data 

Visualization

Market Quality 

Analysis and 

Metrics

SRO Access and 

Surveillance

Market Centers Regulators External / Public

Registration Traders

Next-Generation Surveillance
• Phase 1 – start today

– Adopt technology-centric approcah

– Engage industry in a serious and meaningful way

• Form surveillance/manipulation committee

• Make definitive dataset available

– Examine currently available data

• Phase 2 – over time

– Regulators become primary surveillance group

– Build next-generation surveillance platform

Next steps
• Regulators can catch up with the industry:

– Technology-centric approach means tech is 

integrated in every decision. It is not just an IT 

group in the basement

– Engaging the public, academics, industry experts 

is the only way to maintain pace and 

differentiation

– Regulators must become co-/counter-evolvers, 

need to be involved and flexible

Next steps