We all know that the trading floor has ears. Every e-mail, chat session and phone call is digitally recorded, stored and made available for searches looking for botched trades, breaks in company rules and signs of a trader who has gone rogue. While firms often have these systems in place, one vendor of digital communication compliance solutions says that they are simply not fast enough for todays markets. Traders spoke with Simon Richards, the new head of Fonetics newly opened New York office, on the need of buyside firms to discover bad behavior before its too late.
Traders: Tell me about your voice recognition system and how it works on a trading floor.
Simon Richards: Its primarily a tool for compliance and for legal departments. It does three things for the customer once its deployed. The first is making them compliant with Dodd-Frank Title VII, et cetera. This means having the ability to find all calls, text, chats, and emails relating to swap derivative trade on whether or not they will continue to trade. The second ability is to deliver full trade reconstructions, and not just the trade but all conversations pertaining to that trade. The third part is the proactive ability to deliver anti-risk or anti-fraud solution by proactively enabling them to set up all these alerts for pretty much whatever they want to look for.
Traders: So if my broker buys 10,000 shares of Google when I only wanted 100 shares, we can get down to that conversation and find out who misspoke or who misheard.
Richards: Yes, within seconds.
Traders: In the past, reconstructing that conversation usually took weeks, didnt it?
Richards: Precisely, and it still does for most banks today. One of the major pieces of our solution is we can find the calls where the words havent been mentioned. As you know, what a trader does not do is pick up the phone and say, Hello, Mr. Counterparty X. Do you remember when we were talking about so and so seven-year swap derivative last Thursday at 2:00 at X price? I would now like to buy it. What hes more likely to say is how are you doing, mate, and put the phone down.
And by saying that, hes reconfirming the price of that trade and hes done the deal. Hes actually bought it. So to go and find that call in thousands and thousands of hours of calls is a complete waste of time if youre trying to transcribe for a transcription-based search or through word search the word swap derivative and buy. Swap derivative and buy havent been mentioned in that call. But regulated through Dodd-Frank Title VII, regulators have the ability to go to the bank and say show me all the calls relating to X trade or, even worse than that, show me all the calls relating to a trade that actually wasnt completed because its a swap.
Traders: Traders have their own lingo. How do you drill down and find those specifics?
Richards: Finding text, e-mails, and attachments to e-mails and Bloomberg watchlist is easy. Its all written down. You can just do word search and you can find it. Finding these calls is searching for a needle in the haystack. So by building the topics, categories, and the databases specific to trader language in all the different languages we can deliver this in, thats what enables us to deliver this solution with such high level of accuracy.
Traders: How else can this work in a buyside firm?
Richards: They can proactively monitor single traders. Are you being compliant with MiFID II expressions and the use of terminology and setting out the conditions you need to set out? Why have you been talking about Microsoft stock all day in your last hundred calls when you dont deal with Microsoft stock?
We can add in the voice biometrics layer where we be put in the counterparty. We identify the traders voice.If they’re capturing their e-mails, chat, and fixed wire and if they’re capturing their cellular calls, as long as they’re capturing it, we can connect to all of those sources and give them a fully integrated solution right away across front office or back office.
Traders: Are clients asking for a real-time warning system in case a dodgy or suspicious-looking trade is about to go down or is this basically after the fact?
Richards: We can get into it near real-time as possible. Our customers currently get us to process overnight. Were doing it once a day, so we can get it to near real-time as possible.
Traders: Here in the US the investment banks are flush with cash. They seem to be very cautious.
Richards: My answer to them is JPMC was fined $13 billion last year in one fine. If they had had our system in place, its 99.9 percent certain we would have got to that problem before it became an issue. Its as simple as that. So when people ask me how much does this cost, I say, Well, its an awful lot less than the $775 million Bank of America is just being fined, and its even less than $13 billion.
