Z/Yen, with help from Sun Microsystems, the London Stock Exchange and several leading investment banks has just started a major research project, “Best Execution Compliance Automation”, investigating the automation of anomalous trades using dynamic anomaly & pattern response based around Z/Yen’s prediction system, PropheZy.

New EU regulation, the Directive on Markets in Financial Instruments (MiFID), will soon require banks to demonstrate that they achieve best execution when dealing on behalf of clients. Prices achieved are often not the best published price available at the time with price differences due to order size, significant market fluctuations, poor liquidity or information leakage. What is needed is an analytical approach that ‘sifts’ through trades and identifies the truly anomalous for further investigation.

If our research indicates that DAPR approaches work, then low-cost systems can be installed rapidly for UK equities. Moreover, if successful, this technique can be used in other markets, asset classes and jurisdictions than UK equities. If regulators accept automatic identification of anomalies, the savings on compliance costs throughout the entire financial services industry will be enormous.

Significant interest in the research has already been shown by reputable journals and financial services organisations. Anyone trading London Stock Exchange non-SETS equities commercially should contact Mark Yeandle immediately to get in on some exciting research.