Nasdaq’s TradeTalks Global Markets Reporter, Jill Malandrino, spoke with Tony Sio, Head of Marketplace Regulatory Technology at Nasdaq, to discuss surveillance trends for 2022. This year, three major trends in the surveillance industry include:
- The rapid increase in crypto trading
- The rise of the retail investor
- Surveillance in the cloud
Trend #1: The Rapid Increase in Crypto Trading
At the start of 2022, the International Monetary Fund (IMF) reported market capitalization of crypto assets was about $2 trillion compared to 5 years ago when the market capitalization of crypto was $620 billion. This crypto growth has impacted surveillance teams globally, emphasizing the need to incorporate automated surveillance controls into exchange infrastructure.
As crypto trading rises among both institutional and retail participants, regulations continue to evolve. One regulator that has changed its rules is the Financial Conduct Authority (FCA). The FCA has recently encouraged the registration of crypto exchanges and issued warnings to retail traders on the risks of crypto trading when not registered and regulated.
The Monetary Authority of Singapore (MAS), another regulatory body evolving in the space, is currently working on a new payment services bill to provide a clear regulatory framework for crypto exchanges.
Most recently, on March 9, 2022, the White House announced that President Biden will sign an Executive Order on ensuring the responsible development of digital assets. This is the first-ever, whole-of-government approach to addressing digital assets and their underlying technology. With this formal first step, more global governance is sure to follow.
Crypto native firms are starting to understand that as they grow, they need to incorporate robust automated surveillance programs. Success means maintaining a secure and fair ecosystem.
At the same time, we are seeing a growing involvement of traditional players within the crypto space, and they will need to upgrade their systems to be able to handle crypto at their current standards. Firms cannot take the approach of having a lower standard for crypto compared to their existing products.
At Nasdaq, we’ve worked extensively over the past years to enhance our Market and Trade Surveillance offerings to handle crypto products and activity whilst still meeting the exacting requirements that we’ve always had.
Trend #2: The Rise of the Retail Investor
Over the past ten years, retail participation has doubled, and with new technologies, there are no predicted signs of growth slowing down. The financial markets are becoming more accessible to a new generation of enthusiastic retail investors, new technologies are enabling frictionless transactions, and other factors like the Covid-19 pandemic are fueling increased market participation and trading volumes to unparalleled levels.
Moving forward into 2022, firms must prepare and adapt to the retail wave and the digital age. As more retailers are taking part in financial markets, surveillance systems need to keep up with the challenges of social media, such as meme stocks and influencers, and prevent inexperienced investors from being at risk. Nasdaq’s own surveillance team recently incorporated social media data and tools within its surveillance processes, and we’ve also been working on some non-US use cases as well.
Trend #3: Surveillance in the Cloud
Nasdaq recently announced a partnership with Amazon Web Services (AWS) to move markets to the cloud. Nasdaq’s surveillance technology has been hosted in the cloud for many years, and this partnership with AWS solidifies our commitment to cloud technology. Over the past few years, we’ve seen a shift, with most new Nasdaq Market Surveillance customers taking a SaaS-based approach hosted on AWS.
At the same time, we’ve also onboarded several national securities regulators onto our cloud-based platform. Regulators tend to be more conservative, and we spent a large amount of time addressing their security questions; however, this adoption shows a genuine change in how these technologies are perceived.
For sources and more information, please see Nasdaq’s report: ‘Cryptocurrency Regulation Summary: 2022 Edition’