Managing Mobile Compliance for Swaps Trades

Mobile phones have become an increasingly important tool in trading. As a result compliance efforts are catching up, requiring conversations and the associated data to be recorded.
By Soapbox

By Mark Miller, general manager of the U.S., T-Ware Connect

Mobile phones have become an increasingly important tool in trading. As a result compliance efforts are catching up, requiring conversations and the associated data to be recorded. Call compliance is not new; it is something that has been debated and discussed around the world for a number of years. However there are still uncertainties around who is implicated, the severity of the potential impact to businesses and the operational costs associated.

In the U.S., this call compliance comes in the form of Dodd-Frank Title VII. Its aim: to increases transparency and promote market integrity with regards to swaps and Security-based Swaps (SBS) transactions, consequently lowering the levels of risk. Title VII requires any firm that has swaps deal volumes greater than $3 billion annually to be able to reconstruct a swaps trade across all written and oral communications. This requires the capture of relevant communication whether it’s by email, Instant Message (IM), SMS text, landline phone call or mobile calls.

For those regulated Swaps Dealers (SD) and Major Swap Participants (MSP), they must provide the following:
• Transactional record associated with trades
• Pre-trade execution communication including oral communication on cell phone
• Trade execution information entered on trade order system
• Post-trade execution information including confirmation, termination, amendment etc.

So organizations that meet these criteria must now record mobile as well as desk (fixed line) communications and keep a record for one year after the life of the swap. Exposure can come in many different forms from both inbound and outbound dialogue, as people increasingly want to communicate on their terms, at a time that suits them—whether someone is in the office, off-site or in-transit. Irrespective of how a workforce wants to communicate, when representing one’s organization, any dialogue wherever and whenever it might occur can leave a firm open to regulatory exposure. Even if the sale is concluded in writing, all calls up to that sale must be recorded.

The first place to start is to capture the relevant modes of communication that are used pre-trade, trade and post trade in your environment. This typically involves logging email and IMs, which many firms do, as well as fixed and mobile voice communications and SMS text.

There are different vendors that capture the structured data of email and IM very well, and there are also a number of fixed line recording market leaders that have been providing voice recording for many years. However, with mobile and SMS it’s been much more complicated process.

In the U.K., following the FCA’s introduction of mandatory call recording in 2011, a number of financial services organizations have opted for app-based solutions. However, these have been criticized for a number of reasons, including handset incompatibility, an inability to capture SMS, roaming issues and severe limitations on service availability due to inadequacies in call concurrency. Other organizations reacted by simply banning mobile trading, but living in a 24/7 connected world, business can’t stop because after leaving the desk, so it makes no sense to restrict employees to desk-based trading only.

We believe that SIM-based solutions are the most elegant. The in-network solution means there is no opportunity for user intervention or deactivation, so organizations can be safe in the knowledge that their mobile workforce is 100% compliant. For the user, there is no interference or degrading of call quality—it means business as usual.

This element of the Dodd-Frank Act is vital. It essentially protects consumers from abusive financial services practices by limiting the institutions’ actions. By doing so, it increases transparency in an industry where previously there was a prevalent notion of institutions being ‘too big to fail’.

For financial organizations, despite the fact that compliance requires the purchase of technological software and the introduction of new systems, having a system in place to adhere to this particular regulation is essential not only financially (the fines can go into the millions), but also reputationally. In the long run, many believe that compliance will increase corporate credibility, consumer confidence and business profitability.