Shanghai Futures Exchange works with Nasdaq to ramp up dirty dealing surveillance

Exchange becomes first mainland bourse to use SMARTS system to monitor trade activity for signs of market abuse

PUBLISHED : Wednesday, 19 October, 2016, 2:00pm
UPDATED : Wednesday, 19 October, 2016, 10:39pm

Shanghai Futures Exchange is partnering with New York-based Nasdaq in a bid to step up its surveillance to protect against insider trading and other forms of market malpractice.

The exchange, one of the largest futures markets in the world, has become the first mainland Chinese exchange to roll out a surveillance platform powered by Nasdaq’s flagship SMARTS system, the American exchange operator announced on Wednesday.

The new system gathers large volumes of data in real time and distils it into an easily readable snapshot, allowing Shanghai Futures Exchange to detect anomalies such as market abuse, said Nasdaq, which generates a quarter of its revenue through selling market technology.

The platform, which is currently used by both Hong Kong Exchanges and Clearing and the Securities and Futures Commission, also includes tools that help analysts make sense of vast amounts of data for investigative purposes.

Nasdaq and Hong Kong exchange sharing information on blockchain technology

“As the Chinese exchange continues to increase its footprint globally, it simultaneously needs market monitoring capabilities that are scalable and match this growth,” Nasdaq’s North Asia and Japan vice-president and regional manager Ulf Carlsson said.

“Part of the uniqueness of the China markets is the large retail participation which we can help exchanges monitor.”

Shanghai Futures Exchange is now the 10th largest futures market in the world. Its trading volume grew 24.7 per cent in 2015 from the year before, according to the Futures Industry Association’s annual survey released in March this year.

Markets globally have become increasingly sophisticated, but the SMARTS technology was able to build models of the overall market and each participant’s behaviour at any point in time, Nasdaq’s head of exchange and regulator surveillance, market technology, Tony Sio said.

“Market integrity is core to effective marketplaces and it is a privilege to be able to assist Shanghai Futures Exchange as the exchange evolves and grows,” he said.

“Markets are evolving at a fast pace and we’re constantly working to stay ahead.”

Nasdaq president: we’re not competing with Hong Kong for Chinese listings

Nasdaq announced last year that it would launch its system for domestic Chinese brokerages and an exchange this year, but did not name the exchange at the time.

The SMARTS solution is currently used by over 120 market participants, 45 exchanges and 13 regulators around the world, and Nasdaq said it hoped Shanghai Futures Exchange would be the “first of many” mainland exchanges to come on board.

The US company has a number of other technology projects under way in Hong Kong and China. It is currently in discussions with the Hong Kong Stock Exchange to bring its blockchain-enabled technology to the local bourse, and provides surveillance technology to the Shanghai-Hong Kong Stock Connect. It will do the same for the Shenzhen-Hong Kong Stock Connect when it launches next month.

Shanghai Futures Exchange was formed in 1999 from the amalgamation of three other exchanges, and trades futures contracts in copper, aluminium, zinc, natural rubber, fuel oil and gold.

On its website, the exchange says its goal is to develop into an internationalised futures exchange and establish itself as the leading exchange in the Asia-pacific time zone.