Nasdaq is acquiring Sybenetix, which uses behavioral analytics and cognitive computing for market surveillance, after entering into a strategic alliance last year with Digital Reasoning.
UK-based Sybenetix said in a statement that its behavioral science technology is designed to help asset managers with surveillance.
Taras Chaban, chief executive and Wendy Jephson, chief behavioral scientist, the founders of Sybenetix, said: “Being part of Nasdaq will provide enormous growth opportunities for Sybenetix’s surveillance technologies and will also accelerate new product development for the buyside industry.”
Sybenetix said on its website that the firm can grow faster by leveraging Nasdaq’s resources in a way that it would be unable to do on its own or with any other partner and customers will benefit from the global scale and operational experience of the exchange operator.
“The mastermind behind the original idea and co-founder Peter Harnett tragically died just over a year after launching the original company,” added Sybenetix. “Very simply without his genius none of this would have been possible. A great friend, colleague and brother we all raise our glass and salute you.”
Nasdaq is buying Sybenetix for an undisclosed amount and intends to fund the purchase price with cash on hand.
Adena Friedman, president and chief executive of Nasdaq, said in a statement: “We believe behavioral science, cognitive computing and machine intelligence are essential to a successful, holistic surveillance offering and critical to efficient and effective organizational compliance with an increasingly intricate global regulatory environment.”
Last year Nasdaq formed a strategic alliance with Digital Reasoning and took part in the technology company’s Series D investment round. Digital Reasoning uses natural language processing and machine intelligence-based technology to analyze the context, content and relationships within human communications and allow surveillance analysts to automatically prioritize areas for evaluation and possible investigation.
Kirsty Everett, global head of monitoring and oversight at UBS, said at the time of the Digital Reasoning investment: "By combining existing trade surveillance alerting with communications data, it should quickly and holistically provide the surveillance analyst with specific electronic communications associated with potential market manipulation and/or conduct risk issues."
There are synergies with Nasdaq’s Smarts surveillance technology across the two investments. Sybenetix uses machine intelligence for advanced behavioral analytics and profiling while Digital Reasoning has unique natural language processing capabilities that enable firms to better understand the communications surrounding these behaviors and provide additional context.
Richard Johnson, an equities and financial technology expert in the market structure and technology practice at consultancy Greenwich Associates, said artificial intelligence will transform all aspects of finance.
https://twitter.com/_richjohnson/status/889831096153767937
Peter Oakes, founder of both Fintech Ireland and Fintech UK, said other exchanges will be interested in acquiring surveillance technology.
https://twitter.com/Oakeslaw/status/889848548145197056
Last year's implementation of the European Union’s revised Market Abuse Regulation and the bloc’s Directive on Criminal Sanctions for Market Abuse, has led to a renewed focus on the internal monitoring of trades by financial institutions to identify and investigate potential trading rule violations.
In addition MiFID II, the regulations coming into force in the EU from January, will also impact trading surveillance. For example, Smarts is used by customers that operate multilateral trading facilities to enabling the monitoring of trading of all participants into the venue for market abuse and gaming of their market and can be integrated with new venues that will start operating under MiFID II. The incoming regulations are expected to result in increased electronic trading in fixed income and Smarts has a globally deployed fixed income surveillance module which integrates market data from trading platforms.
Last month consultancy GreySpark Partners said in a report on trade surveillance that there is a growing trend for solutions to be hosted by a vendor so financial firms can take advantages of cloud technology – including enhanced scalability, performance, reliability and disaster recovery capabilities.
Rachel Lindstrom, GreySpark senior consultant, said in the report: “In-house developed systems are not able to take advantage of the specialised expertise of third-party vendors or automatically rely on the certainty that the system is updated to take account of periodic regulatory and technological evolutions.”