For all their power, computers still find it difficult to tell the difference between a cascade of manipulative buy and sell orders, and a trader who simply changes their mind a lot. AI trade surveillance is now helping to weed out the false positives.
Already some are anticipating the next stage. Earlier this year Nasdaq joined Goldman Sachs and Credit Suisse Asset Management with an investment in Digital Reasoning, a Silicon Valley start-up aiming to to use “cognitive computing” techniques to spot abuses in capital markets. That will aim to combine monitoring of trading patterns and electronic messages together in “holistic surveillance”, says Mr O’Brien. Monitoring of electronic messages, like trading patterns, is too imprecise and generates too many “false positives,” he adds. “Electronic trading platforms lend themselves to carrying out sophisticated spoofing but that also lays out a really great order trail.”