The global trade surveillance system market size was valued at USD 888.42 million in 2021. It is projected to reach USD 2,866.36 million by 2030, growing at a CAGR of 13.9% during the forecast period (2022-2030). A trade surveillance system is used for monitoring trading transactions to detect potentially illegal or abusive trading. Most financial regulators worldwide require a functioning and up-to-date trade surveillance system. A trade surveillance system can be a web application or stand-alone software that automatically scans a firm's trade data to detect potential market abuse. The majority of authorities around the world anticipate that businesses will be aware of the need for trade surveillance.
According to the EU Markets in Financial Instruments Directive II (MiFID II) regulation, the regulator may request that the registered firms for a trade or order reconstruct the scenario at any time. This necessitates that businesses be available to show any pertinent documents along with the specifics of the transaction. Providers of trade surveillance have a vast opportunity to grow their product and service offerings. Businesses invest in cutting-edge technology like artificial intelligence and machine learning, which can not only integrate a trader's electronic communications and trades but also ensure that firms can detect patterns across multiple data sets and improve their detections.
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Growing Need to Control Market Manipulation and Market Abuse
The market is expanding due to rising investments in trade surveillance tools for tracking pre- and post-trade activities and investigating cross-asset and cross-market trades among numerous organizations. The adoption of the trade surveillance system is also fueled by the fact that multiple fintech companies are implementing it to increase their revenue potential and boost service effectiveness. Many organizations are adopting sophisticated surveillance regulators like Market Abuse Regulation (MAR), MAR, MiFID II, and Dodd-Frank to identify trading activities that undermine consumer trust in the markets, supporting market expansion.
Additionally, overcoming business challenges like detecting anomalous behavior, enabling risk-based discovery, and others because of the growing significance of the trading system spurs market expansion. For instance, according to SteelEye, it is required that financial firms implement trade surveillance systems to reduce the risk of fraudulent malpractice, safeguard the firm's reputation, and ensure that firms comply with regulations. To increase the effectiveness of their trade services and their revenue growth, more than 65% of organizations in the U.S. and Canada are implementing trade surveillance systems, which promotes the expansion of the market globally.
Strict Regulations by Regulatory Agencies
The responsibility of compliance has increased for capital firms, hedge funds, and traditional asset managers due to changing trade patterns and more regulations. Trade surveillance solutions were previously only used for review by sell-side companies. But with recent revisions to financial instrument regulations like Reg BI, MiFID II, MAR, and Dodd-Frank, buy-side firms are focusing more on implementing cutting-edge trade surveillance and monitoring solutions. In addition, regulatory agency guidelines from the U.S. and European economies' CFTC, SEC, and FINRA further encourage financial institutions to adopt compliance. At the same time, adhering to trading regulations aids in reducing trading risks, preserving reputation, regaining investor confidence, and sustaining the business.
High Implementation Cost
Implementing a trade surveillance system is expensive and encounters significant challenges, particularly in developing countries. The market's expansion is hampered by insufficient funding from organizations in developing nations like Qatar, South Korea, and others to adopt security technologies in various organizations. Developing the trade surveillance market in developing countries is constrained by the high cost of using enhanced surveillance technology. These surveillance systems are often expensive to build and maintain because markets, laws, and businesses continuously change.
Rising Demand for Artificial Intelligence Based Trade Surveillance
AI-based solutions can process structured and unstructured data, automatically adjust to changing regulatory requirements, and immediately report suspicious events. The architecture of the AI-Based Trade Surveillance System feeds historical alerts, trader communications, orders, cancellations, and raw data on orders into a big data framework. The data is then analyzed using AI-based models to spot suspicious activity and issue alerts for dubious transactions, fraud, and potential future incidents. Finally, visualization and reporting tools simplify interpreting results, documenting solutions, tracking progress, etc.
FIs and regulators can effectively monitor suspicious activity and keep track of market participants' actions in real-time thanks to AI-based surveillance systems. Increased transparency, effective case management, comprehensive communication surveillance, effective alert and case management, automated compliance procedures, detection of novel manipulations, and intuitive reporting and visualization are the main advantages of AI-based trade surveillance systems.
The global trade surveillance system market is segmented by component, deployment model, enterprise size, and end-user.
Based on components, the global market is bifurcated into solutions and services.
The solution segment is the highest contributor to the market and is anticipated to grow at a CAGR of 13.7% during the forecast period. The larger share is due to the increased use of internet protocol in surveillance systems. The smart trade surveillance system offers more advantages than conventional trade surveillance, resulting in market growth. Implementing an efficient surveillance system solution also lowers operational costs because fewer people are needed to monitor the data, which ultimately leads to efficient use of all resources.
Most businesses have started implementing trade surveillance solutions to handle the enormous amounts of data from various sources produced for real-time market insights and to increase client profitability. Additionally, businesses use smart trade surveillance solutions to create new opportunities for investor growth and revenue generation. These solutions enable the discovery of abusive behavior and provide in-depth information on a person's behavior within market conditions. Additionally, major market participants are implementing various strategies to expand their product offerings, which is anticipated to fuel market expansion.
Based on the deployment model, the global market is bifurcated into on-premise and cloud.
The on-premise segment owns the highest market share and is expected to grow at a CAGR of 12.1% during the forecast period. Instead of providing cloud-based servers, the on-premise deployment model for trade surveillance enables software installation and permits applications to run on systems present on an organization's premises. These enhanced security features encourage large financial institutions and organizations to adopt these solutions.
The market for trade surveillance systems was dominated by the on-premise segment in 2021, and this trend is predicted to continue in the coming years due to large enterprises find on-premise deployment to be very practical, as it allows the software to be installed on their own IT infrastructure and offers higher security than cloud-based solutions. All of these elements contribute significantly to the market's growth. For instance, an on-premise data warehouse enhances scalability, speed, reliability, and connectivity while giving organizations complete control over security and other connectivity-related issues. Due to worries about information security and privacy in the cloud and that analytics frequently deal with highly valuable data, many businesses are choosing to stay on-premise, contributing to the market's growth.
Based on enterprise size, the global market is bifurcated into large enterprises and SMEs.
The large enterprise segment is the highest contributor to the market and is expected to grow at a CAGR of 13.2% during the forecast period. Large-scale companies are typically found in nations regarded as economic powerhouses, including the United States, Germany, Japan, Russia, and Australia. To achieve operational efficiency, industrial and other corporate enterprises are implementing improved physical and electronic security solutions. Large-scale businesses are becoming safer and smarter thanks to trade surveillance technology, which offers business intelligence to lower operational risk. The trade surveillance system for large-scale businesses offers security solutions like risk assessment, remote viewing and management, live monitoring, electronic and biometric access control, smooth solutions for improved security management and reporting, and mobile security management. The growth of the trade surveillance market among large enterprises is boosted by an increase in the need to protect data and an increase in awareness of security incidents.
Based on end-user, the global market is bifurcated into banks, institutional brokers, retail brokers, market centers, and regulators.
The institutional broker segment owns the highest market share and is expected to grow at a CAGR of 12.1% during the forecast period. Institutional brokers represent businesses, insurers, and investment firms. They assist their clients, which range from banking to mutual funds to pension funds and others, in making large-scale purchases and selling securities. These businesses offer institutional brokerage services that are completely different from those provided by retail brokers in terms of compliance, disclosure, clearing, and settlement regulations because they are a form of fiduciary holding money for others.
Additionally, because they typically focus on a specific investor, such as hedge funds and banks, commission fees are lower than those charged by retail brokers. One of the key trends driving increased adoption of the trade surveillance system in the institutional broker segment is the increase in the use of trade monitoring technologies by investment companies and the rise in demand for 24/7 web access to trade data among investment bankers. The increase in market manipulation and irregularities in corporate trading activities generate a significant amount of unstructured data, which fuels this industry's need for trade surveillance systems.
The global trade surveillance system market is bifurcated into four regions, namely North America, Europe, Asia-Pacific, and LAMEA.
Europe Dominates the Global Market
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Europe is the most significant global trade surveillance system market shareholder and is expected to grow at a CAGR of 13.4% during the forecast period. In the global trade surveillance market, Europe offers market players lucrative opportunities. The market is primarily driven by the expanding use of cloud-based trade surveillance systems by businesses of all sizes and the expansion of the European economy. The region's market is expected to grow due to rising living standards, rising per capita income, and increased adoption of technological advancements in surveillance and security systems. The trade surveillance system market is expanding due to the rise in suspicious activity among European businesses, such as insider trading and market manipulation, brought on by digitization, electronic devices, and networks. Additionally, the government has imposed several laws and regulations on financial institutions to improve organizational security and privacy, which fuels the market for trade surveillance systems.
North America is expected to grow at a CAGR of 12.7%, generating USD 884.62 million during the forecast period. The larger share is due to increased investments made in trade surveillance and monitoring technologies by U.S. companies, which fuels the demand for trade surveillance systems in the region. North America is one of the significant contributors to the growth of the market for trade surveillance. Additionally, the region is anticipated to take the lead in adopting trade surveillance systems due to its dominance with robust and established economies that allow it to invest in R&D activities and thereby support the creation and innovation of new technologies.
North America is anticipated to hold a dominant position in the trade surveillance market globally due to the presence of major players operating in the market and the availability of cutting-edge technology in the region. Major players in the area are providing advanced solutions due to the region's widespread adoption of innovative technology for the security of investors' trades and their organizational structure for managing and monitoring trading activities, which is anticipated to fuel market growth.
The Asia-Pacific market is growing in the region due to the expansion of the banking and insurance industries in Asia-Pacific nations like India, China, Singapore, South Korea, and Japan. Due to increasing security concerns from financial institutions for trading activities, the governments in these nations have begun to invest heavily in trade surveillance systems. The Asia-Pacific region is seeing significant growth in the trade surveillance system due to an increase in market abuse and fraud cases and the complexity of regulatory compliance requirements for businesses, banks, and insurance companies. Several sizeable regional enterprise organizations are also actively evaluating advanced trade monitoring solutions to strengthen their technology infrastructure for proactive surveillance and regulatory compliance.
Adopting a trade surveillance system in LAMEA is to improve the trading process by adhering to standardized regulations, boosting investor morale, and satisfying stakeholders. However, it is anticipated that the Middle East and Africa will experience significant growth during the forecast period. A comprehensive trade surveillance system has been implemented in the LAMEA region due to the growing demand for transparency and consolidated outputs from trade systems. The LAMEA trade surveillance system market is expanding due to the rise in demand for cloud-based trading surveillance solutions among various financial institutions' applications, including banking, financial services, hedging, wealth management, asset management, and others. The economic growth of South American countries such as Brazil, Chile, and Argentina will increase the adoption of trade surveillance systems during the forecast period.
The global trade surveillance system market’s major key players are IBM, Accenture, B-next, Red Deer, Software AG, FIS, Celent, ACA Compliance Group Holdings, LLC, Scila AB, CINNOBER FINANCIAL TECHNOLOGY, Trapets AB, Abel Noser Holdings LLC, Crisil Limited, Aquis Technologies, Cognizant, IPC System, Inc., OneMarketData, and SIA S.P.A.