All derivatives market participants understand the need to cut out fraud and disruptive trading behaviors. Aside from the risk of steep fines to individual firms, such as the record $920 million spoofing fine levied by the US Commodity Futures Trading Commission last September, there's also the industry-wide concern that manipulative activity has the potential to undermine the integrity and resilience of our markets.
"There are a lot of folks who just say, 'Hey, if I can except this trade out then why not just build a rule to ignore every trade like this? Why not just worry about finding the needle in the haystack?' Well, the answer is because if you leave all these things out of your sample, you'll never be able to identify trends or anomalies."
- Joseph Schifano, global head of regulatory affairs at Eventus
But sometimes firms simply don't know what they don't know and struggle to identify anomalies. Or conversely, firms sometimes see so many "false positives" from their surveillance tools that the operational burdens obscure legitimate alerts.
Eventus Systems aims to be part of the solution to modern surveillance challenges like these, including more clearly defined compliance areas like spoofing and wash trades as well as identifying anomalies that could indicate fraud or manipulation.
"We offer a holistic view of your trading data with new technology by casting a wide net, and then we use automation prompts to escalate the most actionable alerts or identify problem areas," said Joseph Schifano, global head of regulatory affairs at Eventus. "It's a different way of looking at things. There are a lot of folks who just say, 'Hey, if I can except this trade out then why not just build a rule to ignore every trade like this? Why not just worry about finding the needle in the haystack?' Well, the answer is because if you leave all these things out of your sample, you'll never be able to identify trends or anomalies."
As an attorney with more than 20 years of experience in market surveillance matters, most recently as global chief compliance officer for Tower Research Capital in New York before joining Eventus last year, Schifano knows firsthand the challenges that come with surveillance burdens in fast-paced derivatives markets.
"One of the things I worried about when I was a CCO was a regulator coming in and showing me an alert about an issue they were worried about, and it's not even in my surveillance system because I didn't catch it," he said.
Through Eventus' flagship Validus platform, the firm provides multi-asset class trade surveillance, market risk and transaction monitoring solutions that serves broker-dealers, commodity trading firms, FCMs, Tier 1 banks and even market regulators themselves.
Schifano is just one of many financial services veterans that Eventus has added in the last year or so as it has aggressively expanded staff and grown into new markets after a Series A funding round led by Jump Capital and LiveOak Venture Partners that raised $10.5 million. The firm has nearly quadrupled its staff to almost 50 professionals around the globe, including establishing an on-the-ground presence in London to serve Europe, the Middle East and Africa.
The list of Eventus clients has been growing fast lately, too, including deals with R.J. O'Brien, the oldest and largest independent futures brokerage and clearing firm in the U.S.; and London-based derivatives clearing firm G.H. Financials. The firm has also grown rapidly into the evolving digital assets marketplace, including relationships with major digital asset exchanges Gemini, BitMEX and OSL, Asia’s first SFC-licensed digital asset platform.
It's the opportunity in digital assets that has Eventus particularly optimistic about the future, too. As institutions have increasingly entered this market over the past year or so, digital asset exchanges are getting serious about surveillance and compliance requirements to ensure they are operating under the same standards these participants expect from other parts of the derivatives market.
In a very tangible example of the importance of understanding the regulatory obligations associated with digital assets, cryptocurrency intelligence firm CipherTrace offered its Cryptocurrency Crime and Anti-Money Laundering Report for 2020 just a few months ago that noted several instances of exchange executives facing legal consequences for their firms’ noncompliance, with charges including the sale of unregistered securities and serving investors in sanctioned jurisdictions.
"In a maturing marketplace, it's common to see well-intentioned people inadvertently finding themselves on the wrong side of the regulatory fence," said Eventus' Joseph Schifano. "Anything less than a full understanding of the unique market dynamics and quirks that define this space is a liability."
That makes the value proposition of Eventus and its Validus system particularly attractive to those who want to stay on the right side of rapidly evolving cryptocurrency and digital asset regulation worldwide, he said.
More broadly, however, Schifano notes that compliance challenges in the digital assets arena aren't all that different than in other corners of derivatives markets even if there happens to be a lot of nascent firms trying to make their way in an admittedly new marketplace.
"Fundamentally, market participants are concerned about the same thing: keeping on the right side of surveillance and enforcement trends in the most efficient way possible," Schifano said. "Whether you're a prop trading firm monitoring your algos or a broker-dealer concerned with AML and transaction monitoring, the bottom line is to ensure your firm successfully navigates a complex global regulatory environment without unnecessary cost and complexity. That's what we try to do, regardless of the market or the client."
