Financial Organizations will Crack Down on Fraud and Embrace Internet of Things
The battle-weary industry received more than a few scars in 2014: the foreign exchange benchmark fixing scandal came to light; regulators began naming and prosecuting Libor manipulation culprits; the silver market caught a whiff of fraud; and dark pools were caught lying about letting in predatory high frequency traders (HFT).
Regulators may have been caught on the back foot, but they are rushing to catch up with and crack down on fraudsters. Plus, even as more mini-flash crashes in stocks and bonds (which is more alarming) have appeared, regulators are readying new rules to ensure HFT practices are market-friendly. As a result, Software AG predicts HFT and other players will knuckle under and play by the rules.
“It is time that financial service organizations crack down on human and algorithm-generated problems, as many of the issues that occurred this year were preventable,” said Dr. John Bates, Group Executive Board Member at Software AG. “In 2015, we will see the market sentiment move from shame back to pride, as scaremongering is debunked, and bad old practices are cracked down on. We’ll be back to making money without shame.”
Dr. John Bates’ Top Capital Markets Predictions for 2015:
1 – The Fall and Rise of HFT: A new avalanche of books de-bunking uber-writer Michael Lewis’s Flash Boys: A Wall Street Revolt, which claimed that HFT markets are rigged, will exonerate the practice. A new tranche of players will enter the market, using the Securities and Exchange Commission’s new guidelines as armor.
2 – Boring is the New Black: The Wild West days of banking will be a distant memory as next year’s bankers will continue to avoid risky practices in the face of regulatory scrutiny. They will revert to wearing bowler hats and carrying umbrellas. Real-time cross-border, cross-market surveillance will be a must have, not a nice to have, to keep the CEO out of the headlines.
3 – A Hedge Fund Will Be Saved by a Self-Learning Algorithm: In 2015 algorithms will become smarter. Fast trading will include self-learning risk frameworks that can detect and shutdown any rogue human or algorithm behavior.
4 – The Internet of Tractors Changes Things: The Internet of Things will come to commodities markets and connected machines will begin feeding valuable information to traders. For example, tractors will tell commodities traders how the crops are faring.
5 – The FBI Swallows the CFTC and SEC: Having failed to rein in markets fraud, the U.S. Commodity Futures Trading Commission and U.S. Securities and Exchange Commission will be forced to work for the Federal Bureau of Investigation to help catch the perpetrators.
6 – Internet of Things Invades the Trading Floor: Financial institutions will embrace smart network surveillance devices such as indoor location tracking to determine who is talking to whom, video analytics for monitoring facial expressions and stress levels, and audio analytics to detect keywords in communications.
7 – The Birth of Traders’ Rights: Traders’ rights activists will invade dealing floors to protest the banks’ invasion of traders’ privacy.