The market opportunity for trade surveillance systems is steadily rising. A recent report from The Insight Partners asserted that the market will reach $2.7bn by 2028 – rising from $850m in 2019. Back in 2014, Travis Schwab sensed there would be growing demand for the sector and decided to capitalise on the gap in the market by founding Eventus Systems.
At the time, Schwab was serving as the CEO and chief compliance officer of RGM Securities, which was acquired in 2017 by principal trading firm DRW. Trade surveillance technology served as a critical function in RGM’s daily operations. However, Schwab sensed that all types of organisations within the financial market ecosystem would soon need reliable trade surveillance technology that could handle a full range of asset classes. Joseph Schifano, global head of regulatory affairs at Eventus, said, “Eventus set out to be the most responsive and knowledgeable trade surveillance and market risk solution provider in the market. Our clients have extremely challenging roles, and we have been in their shoes – as Chief Compliance Officers, trade surveillance analysts, financial services practitioners and more”.
The future Schwab had envisioned has come to fruition, and it is now crucial that firms through the financial markets ecosystem have extensive trade surveillance programs that can meet the requirements of the ever-changing regulations in the market. They need to have the capacity to monitor all traders and participants for evidence of fraud, behaviour patterning, market manipulation and more.
If a firm fails to meet regulatory standards, it could mean hefty fines. In 2019, the European Securities and Markets Authority (ESMA) noted a significant increase to fines issued by National Competent Authorities (NCA) for failures under the Market Abuse Regulation (MAR). It claimed that NCAs issued a total of €88m in fines related to 339 incidents. This is a sizable jump from 2018 stats, where just €10m in financial penalties were issued across 472 infringements.
This is exactly why Eventus was founded. The Austin, Texas-based company is committed to helping companies meet the evolving regulations and exchange rules in jurisdictions around the world. Its technology can quickly identify and address potential market manipulation behaviour, receive actionable alerts and boost efficiency with follow-up actions. Not all companies have the same systems or problems. To that extent, Eventus collaborates with clients to identify their challenges and develop features that address their specific issues.
As threats continue to rise and regulations become ever more complex, this approach ensures clients have a flexible, comprehensive solution that can adapt to a changing environment. Schifano explained that compliance teams are under immense pressure and need to do “more with less”. Having a solution that addresses the unique needs of a firm is crucial. “Automation is key to creating efficiencies and keeping costs under control”, he said. “We helped one client automate review of their cross-trade alerts, tagging 99.6% of them with explanations through automation, and escalating the balance for human review. This enabled the staff to focus its attention on those areas requiring human intervention, while maintain an audit trail of the rest for trend analysis. We note that automation does not solve all challenges either, but firms need to explain their behaviours to regulators. Our unique approach and flexible technology give clients powerful tools and the expertise of a reliable partner for meeting their regulatory obligations”.
How does it work?
The company’s Validus platform offers trade surveillance and market risk management services, as well as anti-money-laundering and transaction monitoring capabilities, across various asset classes. These include equities, listed derivatives, foreign exchange, fixed income and digital assets. Its platform, powered by machine learning and robotic process automation, is designed to be flexible and deployed rapidly as a cloud-based or on-premise solution. Validus can either work in real-time, in T+1 environments or both. There is also a sandbox environment that allows clients to test and deploy new procedures and calibrations.
To ensure nothing is missed, the platform normalises and interweaves masses of data, including tens of billions of messages per day in market data, trade lifecycle data and reference data. All of this is then compiled into easy-to-understand alerts for immediate action when needed.
Schifano said, “No other trade surveillance platform gives clients the level of flexibility and customisation, integration and automation tools that Validus and our team provide. We continuously update the platform and scale it as needed, to the benefit of all clients. We actively surveil activity for clients on 100+ exchanges and trading venues across asset classes globally”.
Support for digital assets is one of its newest additions and came in response to understanding the market’s future. Digital assets need to be monitored 24/7 and in real-time, with billions of messages each day. Traditional surveillance systems are not designed for this level of work. The Eventus team capitalised on this and built new tools that would cope. Schifano said, “We recognised early on that the cryptocurrency space presented a major opportunity for growth and we signed our first digital asset exchange back in 2018.”
Effects of the pandemic
It is no secret the Covid-19 pandemic brought a lot of challenges for many firms. The global financial sector moved quickly to digitise their operations and ensure they could still function whilst working remotely. A big challenge of this was ensuring compliance processes were not neglected and could still operate efficiently. Unfortunately, this might not have been the case for some firms. With teams working remotely, it became easier for things to get missed. The UK’s Financial Conduct Authority identified potential insider dealing in 21.9% of the activity it monitored in 2020, which is up from 17.5% in 2019.
Like our clients, when regulators ask firms to pay close attention to an issue, so does Eventus. Schifano said, “We worked closely with clients during the pandemic, particularly on the insider dealing issue in the UK. We took their feedback and developed a series of enhanced visualizations to maximize the efficiency of analyst review and make it easier to spot potentially problematic behaviour”.
“Our clients employ our technology for mission-critical functions”, he added. “Missing some sort of market abuse can jeopardize a client’s reputation, subject its firm to regulatory repercussions and even expose an executive to personal liability. Clients must be able to rely on our technology and service to ferret out and address potential manipulation, while avoiding time-wasting chases. And surveillance tools and procedures must follow suit and be robust, whether they are conducted from a firm’s headquarters or a work-from-home environment”.
Eyes set on the future
The RegTech company is in the midst of a major growth effort after a period of unprecedented growth. To support this, it recently closed a $30M Series B round in September 2021. The round was led by US-based growth equity firm Centana Growth Partners, with additional contributions coming from DRW VC, CMT Digital, Live Oak Venture Partners, Jump Capital and others. Schifano remarked that the company was undertaking ‘aggressive hiring’ across the globe, with the aim of doubling its staff again following the Series B.
He added, “The funding is enabling us to build further on the Validus platform and expand our product suite across more asset classes. We are introducing new financial risk applications to the platform and finding new ways to leverage the massive data sets we absorb daily”. He noted that Eventus has rapidly expanded its presence and client base outside of the US in EMEA, Canada and Asia Pacific, with critical hires already on the ground in each of these regions. “We are looking forward to bringing our high-touch and responsive client support model to each region with our existing and future staff.”
Looking to the future of the digital assets market, Schifano added, “Our clients value the robust trade surveillance and transaction monitoring we currently provide, and we also recognize that clients in the digital asset market increasingly want to aggregate data from their Best-in-Breed KYC/AML tools in a more holistic view of compliance risk.” Eventus recently announced a strategic partnership with TRM Labs and Notabene called Project TEN. Schifano explained, “With the launch of Project TEN, crypto-native firms and traditional financial institutions moving into virtual assets will benefit from our joint service that will feature Eventus’ trade surveillance and market risk applications; TRM Labs’ transaction monitoring, wallet screening and forensics tools; and Notabene’s counterparty risk management and Travel Rule compliance software.”
Eventus also has expanded its capability relative to monitoring algorithmic trading activity. Schifano explained that Validus’ Algo Monitoring solution provides real-time insight into the state and behaviour of a client’s algorithmic trading and client Direct Market Access (DMA) flows to manage and reduce risk, monitor and analyze flows and ensure compliance with relevant regulations including the Market Abuse Regulation (MAR) and MiFID II’s Regulatory Technical Standard 6 (RTS 6). He further remarked, “We plan to expand our machine learning initiatives to provide risk profiles off of a trader’s unique trade history, giving firms valuable new insights into trading behaviour.”
Earlier this week, Eventus was named in the fifth annual RegTech100 list, which identifies the most innovative companies that compliance teams must know about in 2022. To view the full list and get more information on Eventus, visit RegTech100.com.
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