Joseph comments on JP Morgan’s new pre-crime surveillance program..
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ZeroHedge – Earlier today we noted that Gregg Berman, the SEC’s HFT “investigator” whose algorithm investigating hilariously involved the use of a platform created by an HFT firm, will be leaving the regulator later this month. Perhaps he can give Jamie Dimon a ring because as it turns out, JP Morgan is in the process of creating a new division which, much like the SEC, will deploy machines in an effort that’s ostensibly designed to catch people doing things wrong, but which will, in the end, likely prove completely ineffectual at rooting out the type of manipulation and general chicanery that has over time transformed nearly every market into a farcical, manipulated shadow of its former self.
The idea at JPM is to identify employees who are exhibiting the early signs of going rogue (we would suggest that placing giant notional bets in off-the-run CDS indices would be one such early warning signal) by using algorithms to “monitor dozens of inputs,” like measures of excessive risk-taking and substituting martini lunches for compliance meetings. Here’s more via Bloomberg:
Sally Dewar, head of regulatory affairs for Europe, who’s overseeing the effort. Dozens of inputs, including whether workers skip compliance classes, violate personal trading rules or breach market-risk limits, will be fed into the software.
“It’s very difficult for a business head to take what could be hundreds of data points and start to draw any themes about a particular desk or trader,” Dewar, 46, said last month in an interview. “The idea is to refine those data points to help predict patterns of behavior.”
JPMorgan’s surveillance program, which is being tested in the trading business and will spread throughout the global investment-banking and asset-management divisions by 2016, offers a glimpse into Wall Street’s future. An industry reeling from billions of dollars in fines for the actions of employees who rigged markets, cheated clients and aided criminals is turning to technology to police itself better. Failure to do so will provide ammunition for those pushing to separate trading operations from retail banks…
The program was hinted at in a report published in December on the bank’s website, “How We Do Business,” signed by CEO Jamie Dimon. It outlines ways the firm is improving compliance, including starting a global communications surveillance program.
“We recognized that enhancing market conduct would require using multiple preventive and detective levers in a coordinated way,” JPMorgan said in the report.
If this sounds creepily reminiscent of a sci-fi thriller, that’s because it kind of is:
SF Source Joseph Farrell