Brattle Principal Shaun Ledgerwood and Associate John Tsoukalis have authored a white paper that outlines a cost-effective, learning-driven approach for companies to develop in-house trade surveillance systems to analyze potentially manipulative behavior. When executed successfully, these systems can help companies reduce enforcement concerns.
The recommended framework is consistent with the “effective practices” outlined in two white papers recently published by the staff of the Federal Energy Regulatory Commission (FERC). These white papers discuss the need for jurisdictional companies to develop trade surveillance systems as a key component of developing a “culture of compliance” with respect to the FERC’s anti-manipulation rule.
While the FERC’s clarifications and their view of best practices regarding compliance are useful, they do not provide a blueprint for how to design and implement a practical system from the ground up that incorporates best practices learned through experience. The approach suggested by Dr. Ledgerwood and Mr. Tsoukalis is designed to incorporate such learning through implementation in phases, focusing initially on detecting easily identifiable behavior that poses the most enforcement risk. The knowledge gained provides the basis to develop broader, more complex surveillance tools as time and resources will allow.
Because this approach follows the broader logic of cause-and-effect used to tie intentionally manipulative acts to their resulting benefits to the actor, it is also broadly applicable to other manipulation-related trade surveillance applications, such as for the Commodity Futures Trading Commission (CFTC).
The white paper, "Building an Effective Trade Surveillance System: Guidance from FERC White Papers," is available for download using the link below.