Nasdaq’s TradeTalks Global Markets Reporter, Jill Malandrino, spoke with Tony Sio, Head of Market Place Regulatory Technology at Nasdaq, to discuss surveillance trends for 2022. This year, three major trends in the surveillance industry include:
1. The rapid increase in crypto trading
2. The rise of the retail investor
3. Surveillance in the cloud
Trend #1: The Rapid Increase in Crypto Trading
Currently, over 6,800 cryptocurrencies are trading around the world – a shockingly high increase from a few years ago. This crypto growth has impacted surveillance teams globally, emphasizing the need to incorporate automated surveillance into infrastructures. As crypto trading rises, 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.
Similarly, the Bermuda Monetary Authority (BMA) aims to have best-in-class digital assets regulation that can serve as a model for other jurisdictions. On June 8, 2021, BMA revised their Digital Asset Business Act guidance.
Crypto and Digital Assets Markets Can Gain Confidence with Surveillance
To stimulate confidence in crypto and digital asset marketplaces, fairness, transparency, and market integrity are necessary. Surveillance is essential in creating this foundation in the global financial system. Transparent markets are trusted markets; they can inspire confidence among retail and institutional investors alike. By incorporating surveillance into exchange infrastructure, participation in crypto markets will increase and follow the path to institutionalization.
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. Retail investors must be aware that they can get caught in the crosshairs of volatile, disorderly conditions and lose money. To maintain fair and orderly markets and to protect retail and institutional investors, market operators around the world need to monitor transactions for nefarious activity and misconduct.
Trend #3: Surveillance in the Cloud
Lastly, through Nasdaq’s partnership with Amazon Web Services (AWS), its surveillance data is moving to the cloud. This partnership is beneficial for firms because it ensures increased security and resiliency, more frequent release cycles, and a lower total cost of ownership. Nasdaq is focused on moving to the cloud so customers can reap the many benefits.
All in all, as crypto trading increases, the need for surveillance becomes more prevalent and regulators will continue to write and enforce new regulatory guidelines. Additionally, we can expect more retail investors to invest in financial markets, encouraging use of surveillance to prevent manipulation. Lastly, as markets move to the cloud, firms will be steps ahead of nefarious activity.
For sources and more information, please see Nasdaq’s report: ‘Cryptocurrency Regulation Summary: 2022 Edition’