Head of Trading talks to Adedamola Adetola, Commercial Director of Ancoa
HoT: When was Ancoa founded? Would you like to tell our readers about Ancoa?
AA: Ancoa was incorporated in London in 2010 by two co-founders who recognised that there was a huge opportunity in the market surveillance space following the financial crisis which had exposed severe shortcomings in surveillance monitoring and has led to market wide manipulation scandals. What the industry needed to carry out market surveillance, was a multi-application solution that could deal with large, siloed data sets across trading operations but also unstructured data from ecomms channels and chat rooms, which is where the collusion to manipulate LIBOR for instance took place. We started building up the business commercially in 2013 and have since deployed our surveillance capabilities across equities, fixed income, FX, derivatives and the energy sector, for buy-side and sell-side firms but also exchanges, brokerages and market makers.
HoT: What does Ancoa offer?
AA: Robust and resilient surveillance capabilities are integral to running an orderly market place and are a regulatory requirement for financial institutions. Ancoa’s software helps improve market integrity by providing greater visibility over trading behaviour on a single platform.
We take a contextual approach to surveillance and analytics to ensure we build a complete picture of any suspicious trading behaviour. The Ancoa platform overlays traditional (market and order) data and non-traditional information streams (ecomms such as email, instant messaging, social media interactions) and maps these against historical trading data and financial news to establish if any manipulative trading activity has taken place and requires further investigation. Compliance officers then review the generated alerts, investigate further and report potential market abuse to the regulators. This approach enables firms to take full control of their regulatory obligations across markets, functions and asset classes.
HoT: Who are clients of Ancoa?
AA: At launch, we targeted mid-tier broker dealers, trading cash equities and listed products; in 2014/2015 we started building out our multi-asset capabilities, primarily around fixed income and FX, and moved into energy trading surveillance in the Autumn of 2016. Since then, the business has grown significantly, not just in terms of number of clients but the types of clients that we service. Our client base is diverse, including broker dealers, exchanges, asset managers and regulators in addition to fund managers and proprietary trading groups. Via our partnership activities we also have a number of proofs of concepts in Asia so we are a truly global operation and agnostic in terms of the surveillance of instruments traded or the types of market participants we serve.
HoT: Can you explain some of the regulatory drivers affecting the market surveillance landscape?
AA: The introduction of MAR (Market Abuse Regulation) in the summer of 2016, was obviously a big driver for our clients looking to comply quickly and confidently with the regulation. MAR saw the scope of abuse widened to cover all asset classes including derivatives, FICC and energy markets. Surveillance obligations also shifted to include the buy-side for the first time; asset managers, hedge funds and prop trading groups are now being required to take responsibility for trading behaviours and report suspected abuse to regulators.
MAR also introduced new requirements to monitor intended abuse, not just outcome and firms must now monitor suspicious orders in addition to transactions (STORs) to capture both manipulation and intent and report these to the appropriate regulators. There is also now a strong requirement to have adequate automated (rather than manual) systems in place, in line with a firm’s trading activity and risk appetite to detect and deal with market abuse.
Furthermore, a greater number of financial institutions are subject to the implementation of MiFID II, the Regulation for Energy Market Integrity and Transparency (REMIT), and the European Markets Infrastructure Regulation (EMIR) and our focus is to help our clients comply with the regulation affecting our industry, to help preserve market integrity for the benefit of end investors.
HoT: Looking towards Mifid II and particularly trade reporting and data issues around trade reporting. Will your solution change in response to Mifid II requirements?
AA: The structure of the application hasn’t changed but some of the features have been expanded upon to be able to help with some of Mifid II requirements. For example, Ancoa has a reporting function that delivers reports by month or by client type, so it’s an analytical resource that both compliance and surveillance users can use in addition to heads of trading.
We have a database that maintains not just client data but also market data. It’s maintained in an immutable database so records can’t be changed – even if a mistake is made the next comment is simply added on top. This ensures nothing can be edited and provides a full audit trail for reporting any instance of market abuse. Under Mifid II, clients are expected to keep their data for five or seven years, our database can help them fulfil this requirement.
HoT: Do regulators such as the FCA or SEC have a different approach to dealing with market abuse? How does your platform adapt to that?
AA: We make a point of speaking and conferring with the regulators to keep them up to date on what we’re doing, particularly some of the innovative approaches we take to surveillance in an request for trading (RFQ) environment which takes a tailored approach.
Regulatory obligation falls primarily on the firm but cultures do differ. In the US, the approach is arguably more prescriptive whereas in UK specifically, it’s more culture-based. In the UK, MAR was a specific piece of regulation which meant that certain groups of clients knew what type of system they wanted to take on board. What we see in other jurisdictions is that clients look to take a system on board from a best practice point of view and not necessarily driven by regulatory policy.
But overall, the message is the same. Regulators on both sides of the Atlantic are united in their drive for increasing transparency and upholding the integrity of the financial markets.