* "Traderspeak" incomprehensible to most people
* Firms developing software to detect dubious activity
* Programme can scan billions of communications
By Jamie McGeever
LONDON, April 16 "What's your interest in Bill
and Ben in the pick?"
While most people wouldn't understand the question, this is
common vernacular for London currency traders active in the
daily 4 o'clock "fixing" of global reference exchange rates.
A basic translation of that particular line of Cockney
rhyming slang, originating in London's working class East End,
would run something like: "Are you a buyer or a seller of
dollar/yen at the daily benchmark rate-setting fix?"
The wisecracking, rhyme-based language that can make a
"whistle" mean a suit (from "whistle and flute") or a "Barnet"
mean hair (from "Barnet Fair") has been used by traders in the
City of London for decades. But can a computer crack the code?
Financial regulators are now trying to translate such
exchanges into plain English as they investigate whether dealers
have colluded to rig benchmark foreign exchange rates used to
price trillions of dollars' worth of deals.
Britain's financial watchdog, the Financial Conduct
Authority (FCA), has 50-60 staff dedicated to the foreign
exchange investigation, some of whom are former market
participants who are helping to decode the traderspeak.
Banks now want to go one step further, and are looking at
acquiring "Big Brother" technology that can spot and prevent
inappropriate communication or fraudulent activity rather than
piecing together evidence afterwards.
"There is a huge market for this right now," said Sang Lee,
founding partner at Aite Group, an independent research and
advisory firm focused on business, technology and regulatory
issues in Boston.
Lee said the focus is on software that can monitor and
understand the language traders speak in their electronic chats,
instant messaging and emails, and alert the bank to potentially
inappropriate communications or nefarious activity.
"For at least 12 months now, this has been one of the major
focus areas for both market participants and the technology
companies," he said.
Traders at banks and other financial institutions often
communicate with each other via third-party chatrooms including
those offered by Bloomberg LP and Thomson Reuters Corp.
, parent of the Reuters news agency.
The world's biggest banks, Britain's FCA, the Bank of
England and the U.S. Department of Justice are among those
trawling through countless chatroom transcripts for evidence of
questionable activity as part of a global investigation into the
Online communications featured prominently in a separate
five-year inquiry into manipulation of an interest rate known as
the London interbank offered rate, or Libor. So far 10 banks and
brokerages have been fined a total of $6 billion in penalties,
and charges have been brought against 13 individuals.
One of the technology companies that has gained from banks'
increased vigilance is Digital Reasoning, based outside
Nashville in the U.S. state of Tennessee.
Digital Reasoning's software can scan up to billions of
communications from thousands of traders, spotting language
patterns and raising a red flag to potentially dubious activity.
Rob Metcalf, the company's president and chief operating
officer, told Reuters there has been a sharp increase in
interest for this software from banks over the last six months,
just as the global investigation has taken off.
"The big banks will drive this, and regulators are
interested too. It will be a 'base-line' capability across major
banks in two years," he said.
Metcalf says his firm is in "active conversation" with 10-20
of the world's leading financial institutions, particularly U.S.
and European firms.
Reuters contacted UBS, Deutsche Bank AG
, Credit Suisse AG, JP Morgan,
Citigroup, Royal Bank of Scotland and Barclays
to see whether they were buying such technology. None
of the banks commented for this report.
Banks have been active in moving towards more sophisticated
analytics across all forms of electronic communications over the
last year, said Michael O'Brien, head of sales for SMARTS Broker
market surveillance platform, part of NASDAQ OMX.
One area they are looking at is "relationship forensics",
tracking traders' communications with each other to spot
patterns that point to a close working relationship. These could
include behaviour such as always copying a particular person on
emails, or if someone always responds to a message or email
within a couple of minutes.
That's because any dubious activity between two or more
people is bound to be carried out by those who have a close
relationship with each other, O'Brien said.
O'Brien estimates that 10-20 percent of a big investment
bank's compliance operation is geared towards trading analysis
and the detection of - and protection against - market abuse and
trading related risk.
Banks are looking for software that is able not only to
detect language patterns in traders' electronic communications,
but to match that up with patterns detected across other media,
such as social media profiles, Aite Group's Lee said.
"It's a huge challenge," said Lee, noting that the $5.3
trillion a day over-the-counter currency market operates 24
hours a day across all time zones and remains virtually
Thomson Reuters runs one of the two dominant global currency
trading platforms, along with ICAP Plc-owned EBS.
So far, more than 30 traders at many of the world's biggest
banks have been placed on leave, suspended or fired as the
global investigation has gathered momentum over the last six
months. Even the Bank of England has suspended an employee.
No individual or institution has been accused of any
(Editing by Carmel Crimmins and David Stamp)