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Cutting Through Complexity: Sophisticated Technology and AI are Carving the Next Frontier of Nasdaq Surveillance Solutions

In 2023, Nasdaq took home two awards at the Regulation Asia Awards for Excellence, winning for Best Market Surveillance Solution and Best Trade Surveillance Solution.

In the wake of those honors, Nasdaq Newsroom sat down with Ian Hawkins, Head of Nasdaq Trade Surveillance Product Management, and Tony Sio, Nasdaq’s Head of Regulatory Strategy and Innovation, to discuss what’s behind the success of the trade surveillance and market surveillance products.

Both Nasdaq solutions have roots in Asia and significant and growing footprints in the region, Sio and Hawkins explained, so the recognition as the top technologies in their respective categories is an important honor that validates the hard work of the teams recognized globally.

Here’s how both surveillance offerings are maintaining their market-leading position:

Trade Surveillance is Helping Market Participants Navigate Increasing Complexity

Nasdaq Trade Surveillance is used by more than 170 banks and brokers to monitor trading activity by their own executives and staff. This state-of-the-art software helps firms manage their reputational risk, maintain regulatory standards, and reduce their operational complexity by providing a one-stop solution for tracking activity and quickly discovering abuse or manipulation.

With visibility into 120+ equities markets, 50+ futures and options markets, 40 energy and commodities markets, crypto, foreign exchange, and more, Nasdaq Trade Surveillance is a market leader in terms of size of customer base and breadth of coverage. But there’s still room for growth on both accounts, and Nasdaq is driving forward to expand its leadership position, particularly through AI and sophisticated surveillance, Hawkins explained.

“We’re actively transforming the way we’re doing surveillance, including introducing AI into our technology in order to help our customers get even better use out of our service,” he said. “And we’re also building increasingly sophisticated surveillance around related instruments.”

That latter initiative – what Hawkins called “the next frontier of surveillance” – is the concept that bad actors can seek to manipulate the price of one asset while reaping the reward through some other related tradable instrument. For example, if someone were to impact the price of one oil contract and then profitably trade in another (correlated) oil contract, then they would clearly be engaged in market manipulation, but traditional surveillance technologies would have difficulty catching that malfeasance.

Tracking not just single-instrument abuse but the entire universe of (positively or negatively) correlated instruments is a highly complex undertaking.

“It is a very, very complicated area: The number of relationships is much worse than a spider’s web – it just goes in every direction,” Hawkins explained. “But there are ways of narrowing down what you’re looking at, and we’re focused on cutting through that complexity for our customers.”

The need for this level of surveillance is already pressing. As Hawkins explained, regulators expect market participants to catch related-instrument manipulation, and they’re fining those who miss abuse happening under their nose.

And as markets grow increasingly complex and regulators have higher and higher standards for market participants, the need for an external surveillance solution is growing more pressing for medium- and large-sized firms.

Market Surveillance Gives Marketplaces and Regulators the Leg Up to Catch Bad Actors

Like its trade surveillance technology, Nasdaq Market Surveillance is a market leader that enables monitoring and investigation tools to assist in uncovering manipulation or abuse. Built on over 30 years of expertise, Nasdaq Market Surveillance is a widely used tech by regulators and exchanges around the world who are looking to drive trust and help ensure fair, transparent, and safe markets.

More than 45 marketplaces and over 12 regulators use this platform to help ensure the integrity of the markets they oversee.

Sio pointed to four differentiators driving those relationships: Nasdaq’s long-standing domain expertise on surveillance enables the team to quickly develop solutions to new products and technologies, Nasdaq’s capacity to build specialized fit-for-purpose tools that match the unique needs of different exchanges or regulators, Nasdaq’s emphasis on collaborating across geographies and with multiple parties in order to strengthen market integrity, and Nasdaq’s market-leading technology and ability to constantly innovate for customers’ needs.

And while Nasdaq Trade Surveillance is often in the position of helping customers keep up with developments in markets and regulation, Nasdaq Market Surveillance is often in the position of defining the cutting edge alongside regulators and exchanges, Sio explained.

“Our clients are constantly pushing the envelope in the products they want to oversee, the tech they need to do it, and the capacity at which they need to perform,” he said. “Those needs are driving the near-term evolution of our solution, and our customers trust our technology to match their vision of the future.”

Looking to the medium- and longer-term, Sio highlighted the Market Surveillance Team’s interest in eventually integrating artificial intelligence into its tracking and detection technology. Still, he noted that the transparency requirements of exchanges and regulators mean there is a need for specialized tools that generate highly explainable results. You can’t just do AI black box; you need to take the extra effort, time, and skill to ensure that the outcomes can be explained and are appropriate for the complex problems we solve, Sio explained. 

In addition to the wins for Nasdaq’s surveillance solutions, the Regulation Asia Awards also saw Adenza take home the honor for Best Regulatory Change Management Initiative. Read more about that win here.

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