When Managing Trading Data, Ditch the Spreadsheet

“Spreadsheets allow you really only to load so many physical trades or orders,” he said. “A lot of what we’re talking about in the realm of compliance is order based. Let’s say you do 10,000 physical trades per day. You might do 10 times that in the number of orders you place because you can cancel those orders, other things can happen.”

Spreadsheets are good at sorting data, he said, but “what they’re not good at is finding patterns, and that’s where the next generation of compliance is at.” For example, he said, “if I’m wanting to trick you, as another trader in the market, I might place an order to buy something that’s below the bid price. That might trigger you to actually match that particular bid and place another buy order in the marketplace, in which case I would turn around and cancel my buy order and do a sell against your buy. What I did was actually manipulate the market; I tried to trick you by putting something out there that I had no intention of fulfilling. That’s the kind of sequence of events that we try to hunt for, and they’re only getting more complex. The complexity gets even worse as you add more data.”

One of the reasons some traders still rely on spreadsheets rather than more advanced databases is because they don’t have the skill set. “They use what they know, even though it might not be the best tool. I’m pretty good with a hammer and I can use the claw of a hammer to screw in a screw, but that doesn’t mean it’s the right tool.”

He recommended advisors who don’t have the skills to manage a trading database on their own contract with a vendor who has the “compliance and the surveillance to look through this information and at least put them in the ballpark, hopefully close to home plate, where they might be able to identify problems and more quickly resolve them.”

“The whole idea,” he added, is that “as your business grows, as your volume and physical number of transactions increases, you don’t want to have to be continuously adding more people to your compliance group. You’d like to have a solution where that’s more scaled; where I can keep the same group, let the system do the work and I’m just looking for various problems.”

— Check out FINRA Hires SEC Data Analytics Guru Kurtas for New Post on ThinkAdvisor.