Keeping watch on financial market behaviour

Giles Nelson says technology must be deployed against the greed culture

Nelson: The Financial Services Authority is cracking down on insider trading

“Greed, for lack of a better word, is good,” says Gordon Gekko in the 1987 film Wall Street. With insider trading still going on, it appears that many people still think so.

The latest insider-dealing ring saw seven people charged with conspiring in a £2.5m deal to make use of confidential information, so I welcome the Financial Service Authority’s (FSA’s) fresh approach to traders and investors tempted towards fraudulent behaviour.

One problem is that the recent raids are part of an investigation that began in late 2007, and this is just one reported incident.

Furthermore, since 2007 the trust between regulators and the industry has deteriorated, and therefore every effort must be made to restore this.

Traditional forms of detection such as mandatory recording of phone calls, emails and messaging conversations are all well and good but only real-time market surveillance technology will detect patterns that indicate potential market manipulation.

Sure, unusual peaks in trading patterns do not always mean insider trading or market manipulation is happening, but this approach has to be better than the dogmatic approach that was taken previously.

I believe about a third of takeovers may involve some kind of insider trading.

Abusive patterns must be detected before any such behaviour has a chance to affect the market, and the industry as a whole should get involved.

The FSA appears to be serious about cracking down on City crime, especially illicit trading in shares and securities using insider information.

Of course, financial institutions also need to start looking at themselves to improve standards, regardless of the regulatory environment or mere compliance.

But more sophisticated technologies are required.

Giles Nelson is chief technology strategist at Progress Software