Years ago, we vaguely recall the House Financial Services Committee hearing chaired by Rep. Barney Frank and we also recall the CFTC rulemaking meeting a year or so later. Lawmakers and policymakers alike were pressing industry to comply with technologically impossible requirements. Dodd- Frank at the time was still a piping stew of broad concepts and policy vagaries not yet ready for prime time. Trader data and voice surveillance was the focus. We recall lawmakers discussing surveillance and recordkeeping, with little or no concept of what available technology could or couldn’t deliver at the time. We also recall CFTC staff laying out some pie-in-the-sky proposed rules that would have required traders to link voice calls with related IMs, emails, texts and all other modes of communication in one neat, seamless package. At the time, the problem was no such technology application available anywhere to meet these new requirements. We recall thinking at the time, “Don’t you agency guys ever research what’s commercially available (or possible) before you set rules?” We knew the answer, but we had to ask. We recall former commissioner Scott O’Malia getting red-faced at one particular hearing, trying to get staff to admit that the recordkeeping rule language they were cooking up was technologically impossible. O’Malia later managed to get the requirement pulled, or at least softened, about voice records and surveillance and matching of other communication modes. Staff resolved that voice tapes needed to be at least stored together in the same closet, or some such. So for a time, the reporting and recordkeeping heat was slightly turned down. But, as we all know, technology marches on, while policy tends to bog down.
So, anybody ever heard of a firm named Fonetic? They offer a platform called ATR integra. ATR stands for Automatic Trade Reconstruction, and it claims to fuse together data and voice communications seamlessly. Front, middle and back office data and voice records, linked, organized and packaged, to your compliance officer’s satisfaction. Just don’t tell the CFTC, or the SEC.
Last time we checked, matching data and voice communications files in this manner was still considered a recordkeeping Holy Grail of sorts. No mas. Fonetic claims to automate the collection, analysis and matching of huge volumes of trading data with their corresponding voice or otherwise communications for both business and regulatory purposes. So, internal and external investigations will no longer slow operations down to a halt, even when regulators come calling? Hmm.
The firm itself is rather interesting. The principals made a name for themselves in the development of voice recognition algorithms for call center operations. They later backed into the trade data side of things. It makes good sense because the voice piece was always viewed as the tough nut by compliance professionals. Many surveillance firms we’ve spoken to in the past typically lead with the data side of things, and later struggle with the voice piece, which typically involves a lot of manual work matching calls and trade data. Fonetic says it can link all this stuff together in a matter of months, whether you have one or multiple desks and books, international operations or otherwise. All the same to them.
We had a long talk with Madridbased Fonetic CEO Juan Manuel Soto about the technology and his plans to offer this new technology to big players in the US energy and financial sectors. He noted that the firm launched its first product for the EU financial sector in 2007 as a result of the release of MiFID 1. Companies were required to record all calls and to retain the records for five years. At the time the firm focused mainly on voice surveillance solutions, but also recognized that in order to properly reconstruct trades to satisfy regulatory investigations, “we needed all of it, not just the voice but the data communications as well,” Soto says. The firm next began pulling Bloomberg IMs, email and the rest of it from multiple sources and automated the matching and searching surveillance and retention process. Pretty slick.
So, is this flying off the shelves? Not quite yet, Soto says. “This is an emerging market for this sort of technology, and, as you know, MiFID 2 implementation has recently been delayed to 2018.”
So basically, the heat is off a bit to meet this level of compliance for European regulators. American regulators may have other ideas, however. Soto also noted that just about every big bank in every market has developed some sort of in-house solution to try to perform a similar level of compliance functionality, though much of these internal operations still involve a lot of manual work. Read, slow and wildly expensive. Fonetic customers at this stage, he says, are only the biggest players and the ATR integra platform is typically deployed as an in-house solution, though a cloud version is available. He says that as the surveillance system is being deployed, there is zero down time for anybody involved. “As we begin to link the data feeds and analyze the various operations, we can provide a number of applications for different people in the front, middle and back offices. In the front office we are able to detect mismatches, for example. We provide surveillance alerts for detecting something wrong across voice or electronic communications. It’s all linked automatically. If a compliance officer wants to see everything related to a trade or series of trades, it’s all right there, in front of him immediately, voice and data. Preset fault lines, pointing to everything from spoofing to wash trades or anything else are a snap, he says. We had to ask the obvious: How accurate is the system and is it ready for the complicated energy market? “It’s very accurate,” Soto says, “and yes, we can handle energy.” Have a look. http://fonetic.com/atr-integra/.
Energy Metro Desk, March 25, 2016