In American football, the best defenses are good not just at stopping the other team from scoring, but also opportunistically putting their own points on the board, via safeties, fumble recoveries and interceptions returned for touchdowns.

For large global banks that need to keep tabs on the trading of securities within their ecosystem, the state of the art of surveillance and monitoring is subtly crossing the divide from defense to offense. That is, moving beyond just policing to ensure compliance with regulation (loss prevention), to generating actionable business intelligence (gain-seeking).

“That is possible because once you have behavioral monitoring to stop bad behaviors, you can tweak that to spot behaviors that may lead to revenue opportunities,” said Theo Hildyard, head of solution marketing at Software AG. “It’s about bringing the kind of customer insight, intelligence and customer responsiveness that we see quite a lot in retail, retail banking, telecommunications and other areas, into capital markets.”

Leveraging monitoring systems to generate revenue goes well beyond Surveillance 101. Hildyard noted the firms that are attempting this are typically global, sophisticated, and perhaps most importantly, far-sighted. In other words, the largest ‘bulge bracket’ banks on Wall Street — Goldman Sachs, Morgan Stanley, JPMorgan Chase et al — are leading the way.

Banks have been reticent to talk about the specifics of what they are or are not doing in terms of leveraging surveillance to generate revenue, but reading between the lines of some executive comments, one can reasonably infer that it’s on the radar.

Last year, Goldman Sachs Chief Executive Lloyd Blankfein suggested that the ubiquity of electronic trading in many markets means the company sits on a massive storehouse of data. “Orders are taken and entered into by clients electronically, and it drives the whole back-end operations into the books and records of our company and their company,” Blankfein told Bloomberg Television. “We are a technology firm, and (technology) doesn’t stay still.”

In April 2015, Harvey Schwartz, Goldman’s chief financial officer, noted the firm’s technology is the product of decades of investment, and recently a healthy portion of the tech buildout has been directed toward regulatory compliance. Beyond clearing that baseline and maximizing operational efficiency, “are there ways we can grow revenues from technology?” Schwartz asked on an earnings conference call. “We are constantly monitoring that.”

Technology is typically ‘democratized’ by being available and affordable to more market participants over time. For now at least, generating business intelligence via trade monitoring and surveillance is the purview of the banks at the top of the sell-side food chain.

In an era of tepid overall trading volumes, “it makes sense for big banks to invest in smart technology to juice returns,” said David Hendler, founder and principal of Viola Risk Advisors. “Regional banks don’t have the same ability to invest. So this might preserve the leadership and perpetuate the strategic advantage of the big New York and London banks.”

Software AG’s Hildyard observed that so far, banks’ generation of  business intelligence from trade-surveillance systems has been concentrated in one line of inquiry. ”People want to know if their customer is doing less trading with them today than they typically do,” he said. “They don’t want to know that at the end of the day. They want to know that by about the middle of the day, so they can get on the phone with them and nip it in the bud.”

“This is about detecting behaviors that could lead to negative outcomes, or behaviors that could lead to positive outcomes,” Hildyard said. “So someone not trading would be a positive behavior, but knowing about it could lead to a positive outcome. It’s a subtle but important distinction.”

Featured image by Brocreative/Dollar Photo Club