Introduction to Wash Trades and Cross Trades
QUICK DEFINITION: Trades without a change in beneficial ownership.
One of the most common manipulation checks cited by regulators in enforcement actions is for wash trades. A wash trade is a trade with a single account on both sides of the trade, and a cross trade is a trade between two accounts within the same firm.
Because an investor could use riskless market transactions with himself to conceal the source of funds from subsequent transferees, wash trade detection has become an essential element of anti-money laundering (AML) surveillance.
Yet many firms use primitive methods to detect wash trades which erroneously capture legitimate market making strategies, resulting in thousands of wasted compliance officer man-hours.
An example of a wash trade shown in Surveyor
Detecting Wash Trades and Cross Trades
By looking at actual order IDs within each order message, Surveyor eliminates all wash sale false positives. Surveyor can also be configured to detect cross trades between different accounts that may be related to each other.
Reviewing Wash Trades and Cross Trades in Surveyor
You can learn more about reviewing these events in Surveyor in this article.
More on Surveillance Exceptions
Next, learn more about layering or see how to review events in Surveyor.