A multi-million dollar project led by the University of Sydney will investigate the murky world of insider trading and market manipulation in financial markets across the globe.
"Insider trading and market manipulation is estimated to potentially play a role in one in every 100 transactions in Australian financial markets," said Professor Alex Frino, Chair of Finance at the University and chief executive of the project. This adds up to approximately $5 billion in trading activity per year.
"It is the financial market equivalent of using steroids in sport to improve your performance," he said. But there is currently no sophisticated equivalent to the drug tests used on athletes that can identify illegal activities in financial markets.
Detecting insider trading involves labour intensive investigations, and knowing where to start looking is often based on little more than "gut feeling", said Professor Frino.Consequently the illegal trades that are detected represent only the tip of an iceberg.
Professor Frino will be working closely with University colleagues from the School of Information Technology (SIT), who will be developing complex algorithms to help researchers analyse massive databases of trading information from around the world.
Professor Sanjay Chawla and Peter Eades, from SIT, will be creating visual and other representations of the data in order to help analysts discover a geography or topology of the numbers, according to Professor Frino.
"We will be sampling illegal trading convictions and looking at the entrails or the smoking gun in order to detect patterns. We also aim to develop systems that will ultimately improve the integrity of financial markets."
Together with his research collaborators, Professor Frino has raised $104 million from the Australian Government and industry partners to establish a Co-operative Research Centre to host the project, which will fund 60 to 70 new PhD scholarships.
"During the course of their research PhD students will spend six months abroad working with industry partners collecting data, then six months in Australia analysing it," Professor Frino said.
Other project partners include the Australian Securities Exchange, the Australian Prudential Regulatory Authority, the Hong Kong Securities and Futures Commission, the London Stock Exchange and the Swiss Exchange. Professor Frino expects the centre to be operational by July. -University of Sidney
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