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Turquoise Chooses Apama-Powered Trade-Monitoring Solution
Turquoise, the U.K. multilateral trading facility (MTF) established by nine global banks and anticipated to launch in August, has tapped Progress Software Corp.’s Apama division and Detica to provide a real-time market surveillance system.
Turquoise is the second publicly announced customer--the U.K. regulator was the first--of the market surveillance solution, a partnership between Bedford, Mass.-based event processing pioneer Apama and technology consultancy Detica, which designs systems to analyze vast quantities and varieties of data. The Apama platform will digest and analyze Turquoise’s incoming trade-related data for potentially problematic trading patterns that have been identified by Guildford, U.K.-based Detica.
“Market surveillance is a vital requirement for any stock exchange,” Eli Lederman, CEO of Turquoise, which is backed by BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, Merrill Lynch & Co., Morgan Stanley, Société Générale and UBS, said in a statement. “By choosing the Apama platform and deploying Detica’s expertise, we also gain a very flexible system.”
Turquoise’s announcement comes shortly after news about the fraudulent activities of a trader at Société Générale, resulting in billions of euros in losses at the Paris-based bank. John Bates, founder and general manager of the Apama division, said that, given the limited public information available about how the fraud was perpetrated, it is unclear whether the Apama-Detica solution would have enabled the bank to detect the trader’s actions earlier. However, he said, detecting problematic trading has become a high priority for a variety of market participants in Europe and the U.S.
“We have a big pipeline of regulators, liquidity pools and brokers that need market surveillance solutions,” Bates said.
The Financial Services Authority (FSA), which will regulate Turquoise when it becomes active, announced in June that it was implementing the solution over two phases. The first phase went live Nov. 1, when the European Union’s Markets in Financial Instruments Directive (MiFID) became effective; it focuses on enabling the U.K. regulator to receive and process MiFID reporting. The second phase, said Bates, will begin later this year and allow the FSA to conduct real-time surveillance.
MiFID increased the number of instruments for which the FSA is responsible, while reducing barriers to trading securities across multiple exchanges and MTFs. Those changes prompted the FSA to bolster its surveillance capabilities and have resulted in the emergence of venues such as Turquoise, Instinet’s Chi-X, and Nyfix’s soon-to-launch Euro Millennium.
The Apama-Detica solution will enable Turquoise to detect trading practices such as front-running, when brokers trade ahead of a client order, and painting the tape, where traders buy and sell a specific security among themselves, giving the impression of high volumes to lure other participants to buy or sell the security to the colluding brokers’ advantage.
Turquoise’s staff will be able to monitor activity from an Apama-provided dashboard and act when suspect patterns occur. Heat-map functionality, Bates said, will allow them to watch across the entire market and detect repeated activities. “Then they can drill down to examine individual transactions--conduct a root-cause analysis--to determine whether it’s market abuse or not,” Bates said.
The software will also allow Turquoise to “add value to the market data we collect and offer further client services such as detailed analysis of transactions and a better understanding of price improvement and performance,” said Lederman, a former co-head of electronic training at Morgan Stanley who joined the MTF in October.
Apama’s event processing platform enables customers to build their own algorithms, which Turquoise may eventually leverage. Regulation National Market Structure in the U.S. has essentially mandated that exchanges and alternative trading systems search other markets to ensure they are providing customers with the best price. The technology will also permit Turquoise to track how it is performing against other market centers, Bates said.
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