February 18, 2004
IDM.net.au - Image and Data Manager online

Researchers at the Australian based Capital Markets Cooperative Research Centre have developed an on-line security system (Compliance Explorer) that can detect rogue traders, and corrupt insider trading instantaneously.

This system was created due to the success of their SMARTS (Securities Markets Automated Research Trading Surveillance) system, which has been running in 10 national stock exchanges around the world, including India, Hong King, Singapore, Denmark and Russia for the last few years.

This software has been invaluable in ensuring integrity. By Using superior data management facilities, SMARTS builds an understanding of the "normal" market behaviour so that alert algorithms can be created to identify "abnormal" behaviour. These help detect market behaviour which may have an adverse effect on market integrity.

CMCRC decided to approach the federal government about expanding their service in other avenues and markets, after experiencing so much success with the SMARTS software. That's when they invented their most recent product - the Compliance Explorer.

This does not need to be installed with any software because it is fully available online instantaneously. It provides real-time market oversight to the Senior Compliance Officer in the stock exchange.

The data about compliance failures is sent to the CMRCR off-site bureau in real-time. Once the data is collected, it is then sent back to the exchange's senior compliance officer, who assesses whether any action needs to be taken.

Professor Michael Aitken, CEO for CMCR, explained the benefits of this system: "We've designed it in anticipation of the fact that, within the next decade, the world's 240 markets will have consolidate into just 5-10 major global markets.

"Participating firms will be in a far better position to protect their own interests by securing themselves from rogue trading and simultaneously they will contribute to improved overall market integrity.

If a fraudster is able to artificially depress the price of a basket of stocks at the end of a trading day, it is possible that superannuants cashing in their investment on that day will be severely financially disadvantaged. Alternatively, by pushing up a basket of stocks on a particular day, super policies could be cashed out at unrealistically inflated values, the cost of which is ultimately met by lower returns to other investors in the fund.

"CMCRC has developed the system to identify this, along with 38 other possible abuses (including suspected insider trading and front-running) and is now implementing these systems in nations around the world to help protect their national wealth."

He believes that Australia's market integrity and the reputation of the brokers will also be made more secure through the use of Compliance Explorer. 80 percent of Australian equity transactions are currently monitored with this system on behalf of brokers. Similar programmes are being used to root out corruption in health insurance; crime detection, internet security; account reports, audit reports and security fraud.