Countdown for Dodd-Frank Starts: A Trading Compliance Perspective

With the ongoing implementation of the Dodd-Frank (DF) regulation and the initial date of compliance creeping ever closer (October 12, 2012), trading firms seem to be looking to their counterparts for the next step.

One area of particular interest is voice recording and trade reconstruction. The immediate feeling of many firms is that there is no real efficient and effective way to go about this. Some go as far as saying that the technology does not exist. While regulators are pushing for proactive policies, some firms are sitting back and waiting to see what the other guys do before making their own decisions. As more and more compliance issues are brought to the public’s attention, I don’t think regulators are going to go easy on trading firms when enforcement time comes around.

For compliance teams that are still spinning in circles over the complexity of the DF regulations, there are solutions that could lend a hand. NICE’s Dodd-Frank compliance solutions craft voice dictionaries, specifically tailored to trading floor jargon, which allow compliance officers to identify at-risk topics by customizing the search parameters. So, they can monitor all trading floor communications from voice to email, chat, and text messages – what might have typically taken compliance officers weeks or months to achieve in terms of digging through records can now be accomplished in minutes.

For example, if someone starts talking about “being creative” or “word of mouth” and “affecting the end-of-day,” this can be picked up automatically. If these phrases repeat themselves frequently, this could be a reason for concern. The system can be constantly running searches for these words or phrases and everything is recorded in real time. Then the recordings are put through an engine, and within 10-15 minutes the engine outputs hits of possible risk. Compliance officers are not necessarily looking at every single hit – it’s the sudden peaks they are interested in.

Trading firms now realize it is no longer enough to simply record, time-stamp, and store trade interactions on a disk somewhere. As for the next step, firms that are implementing proactive compliance solutions will makes other firms aware that similar action needs to be taken.

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