Advancements in technology are not enough to improve market surveillance and curtail prohibited trading behaviours, according to the Capital Markets Cooperative Research Centre (CMCRC). With organisations already spoilt for choice when it comes to surveillance technology, the CMCRC argues that the focus needs to be on better data, not technology.

CMCRC CEO Professor Michael Aitken said, “If you can’t identify the person behind an order or a trade, there’s little chance you’ll be successful in identifying insider trading or market manipulation – irrespective of what technology you use. This explains the abundance of false positives identified by surveillance systems today.”

Professor Aitken said the false positives made regulators cautious about asking for client level data, leading to lower conviction rates and a loss of confidence in the system. He said another key issue was not being able to identify whether brokers were trading as principle or agent, making it almost impossible to identify front running.

“The upshot of the lack of data means that the levels of insider trading, market manipulation and broker client conflict cannot be reasonably estimated and no amount of technology can solve this problem,” said Professor Aitken.

“The good news is that things are changing. As an example, from October 2014, the Australian Securities and Investments Commission will require client identifiers on all orders and meaningful information on when brokers are trading as principle or agent. I predict this information will see the number and range of market infractions identified rise precipitously in Australia (importantly not because of new technology) and in the process provide a salutary lesson to other markets on securing appropriate data for the important task of market surveillance.”

Watch Professor Aitken explain this issue in further detail here https://www.youtube.com/watch?v=PSBg2M5wA5A&list=UUnyU9-4WAduJhlYOGTHTf3w&index=2.