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US Broker-Dealer Trade Surveillance Assessment

Updated: Jan 3


The Requirement

A global broker-dealer wanted to understand exactly how their trade surveillance controls were being operated across all US business lines and whether they were adequate for the firm to meet its regulatory obligations and protect it from the associated reputational and financial risks. The firm had experienced significant growth and was engaged in trading all prominent asset classes. They needed to identify where the greatest risks lay inclusive of the most recent regulatory developments, to inform their strategic planning and future resource allocation, and realize optimization opportunities.


The Solutions

Scenario Coverage Assessment

RegEdge undertook a detailed risk assessment of the trade surveillance operation by working closely with stakeholders from each business area across the first (1LOD) and second (2LOD) lines of defense. We carried out a scenario coverage assessment using our extensive library of potential risk behaviors that are mapped to current regulatory rules and requirements. By working with key staff, we were able to ascertain the scope and inherent risk level posed by each behavior to specific business areas.

We then assessed the extent and maturity of any controls by reviewing policies and procedures and alert systems in operation, we created heat maps to demonstrate the severity of gaps and comprehensively documented proposed recommendations and improvement opportunities.


Data and Technology Assessment

We performed a review of the trading data flow into surveillance systems for each business unit to validate for completeness and quality e.g., ensure all orders, trades and cancellations are captured. We documented each test case scenario using agile methodology tools, so the firm had an easy reference point to actively track and close out future remediation efforts. We highlighted where alerts may be causing unnecessary noise and false positives due to a lack of calibration.

We carried out a review of the surveillance data architecture and made recommendations of what the future state target operating model should look like, by consolidating to a central data source and control environment, many efficiencies could be realized. We assessed the use of multiple vendors and provided insights on where overlapping capabilities and fragmentation exist, and how to best solve for these challenges in the future state.


Operating Model and Governance Assessment

RegEdge provided an anonymized peer benchmark review of the firm’s operating model implementation and what things should be considered when designing the future state. We gave recommendations on what the key trends in the industry are and what metrics peers are using to allocate roles and responsibilities across the lines of defense.


The Results and Benefits

This work allowed our client to understand the priority trade surveillance issues facing their business and what best practices look like, by enabling them to allocate appropriate budget and resources to remedy the key issues head-on. The results provide a holistic view of where the pain points are and where newer regulatory evolutions have shifted priorities, and where risks can be mitigated, optimizations realized, and overspend reduced by appropriately designing the governance operating model and technology framework.

This kind of In-depth analysis can help firms demonstrate to regulatory agencies that they understand the challenges facing their business in being compliant, and that by being proactive, they are serious about meeting their obligations.

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