This a copy of a post Carl-Frederik Scharffenorth publisehd on LinkedIn.

A tribute to the market surveillance community

An open letter to Joseph Cusick and (indirectly) to Theodor Weimer

Dear Joseph Cusick,

Your letter to Mr. Weimer and me has triggered a lot of thinking about the surveillance work, the community and its specifics. While I am personally flattered being praised for doing my job in the Intermarket Surveillance Group (ISG), I would like to reach out to our surveillance community. If surveillance conjures the image of fighting against windmills I need to speak out publicly on how much surveillance at Deutsche Börse and all other market operators benefited from the surveillance community and above all how that made my brain survive the windmill-battle.

We (in surveillance/compliance) need to justify our budget requests just as everybody else but, as you correctly outlined, for surveillance there is no measurable return on investment. That complicates requesting appropriate resources. The ongoing COVID-19 pandemic makes it for everybody easy to understand that there is no fame in prevention - the same applies for market surveillance. We usually get attention if it goes south (regardless of the previous budget round). However, that is not the battle of the figurative windmills. At least, that never mattered to me. After all, it is our job and, if we fail, I am happy to take blame and discuss consequences. More worrisome is when we have success, because in succeeding we see ugliness. Our success encounters greed at best, if not worse, the (deliberate) ignorance of human nature. While our business colleagues are greeted with happiness and instinctive smiles if outcomes exceed expectations, we are reminded how imperfect we are as humans. Unfortunately it does not stop here. What makes us successful is being suspicious about, doubting and questioning what is brought to our doorstep. I think most of you would agree, that there is a rule of thumb for surveillance success. The more doubt the better! Doubt creeps into everything that someone presents to you. Doubt can creep into every cell of your brain. Doubt can shatter the pillars of what you believe in. Earlier this year I talked to a journalist and I was relieved to hear that others (journalists) have to bear the same. There are countless surveillance analysts that have the strength to continue without doubting the whole system. That has been continuous encouragement!

The marginal rate of doubt is to us what the marginal rate of return is to our business colleagues. To assess the appropriate rate of doubt, the surveillance community needs organizations like the ISG. Standardization and benchmarking of surveillance processes is key to ensure a common level playing field as it is to keep the surveillance analyst mentally sane. The surveillance collaboration should not stop by setting standards. We must strive for surveillance interoperability, which will turn surveillance and compliance units into something that a CEO prefers to deal with, namely return on investment. Whilst interoperability (with a tokenized anonymity) would not necessarily ensure lower overall regulation costs, it would create measurable and reproducible (sic!) surveillance results with all obvious benefits for regulated entities, statutory regulators, shareholders and rule makers.

I want to thank a few people individually. Without their feedback, support, knowledge, insight and encouragement I would not have been honored to come such a long way. My gratitude especially goes to Maureen Jensen, Susan Tibbs, Victoria Pinnington, Margaret Williams, Martina Rejsjö, Andrew Dodsworth, Kelvin Koh, Jon Kroeper, Joakim Strid, Astridel Radulescu and Michael Zollweg. I also want to thank the members of the ISG executive committee for their work over the last two years. I am most obviously indebted to my ex-colleagues at Deutsche Börse. When I had to leave so unexpectedly early for family reasons, I encountered flexibility and generosity. A special thanks goes to Theodor Weimer and his colleagues for making that happen. I am delighted to see Andreas Mitschke heading the Trading Surveillance Offices at Deutsche Börse Group. Not because he is a friend of mine, but two decades of tackling surveillance together is a convincing voucher! I am more than confident that Andreas and Theodor will have each other’s back and that they will keep contributing to the noble cause of the ISG. As for the future of ISG I know that you, Joe Cusick, will take care of it.

As much as this is a genuflection, I need to stop. My knee hurts. My dear surveillance fellows, get up on Rocinante’s back and keep on fighting!

Carl-Frederik Scharffenorth