Share fraud tracker

SunderlandUniversity researchers have created CASSANDRA, a prototype software tool designed to detect insider trading fraud within the stock exchange.



CASSANDRA (Computerised Analysis of Stocks and Shares for Novelty Detection of Radical Activities) has been designed to detect trading anomalies almost instantaneously.



The research effort has been awarded £90,000 by Northstar Funding to investigate the feasibility of combining artificial intelligence technologies with headline analysis techniques to track suspicious share dealing.



The Financial Times recently reported that as much as 25 per cent of UK share dealing may be tainted by insider trading.


A study commissioned by the New York Times suggested as many as 41 per cent of North American deals may be similarly affected.



Dale Addison, project manager for the CASSANDRA project, said the development of effective anti-fraud methods has never been more important.



‘The figures from the FT and the New York Times research are extraordinary, especially when you consider that the UK and US stock markets are among the most highly regulated in the world – so God knows what is happening in other countries,’ he said.


‘But the big problem with current anti-fraud systems is false positives.


‘The stock market is highly volatile, with stocks and shares going up and down all of the time, and sometimes there is a perfectly rational explanation for these fluctuations.


‘As much as 75 per cent false positive flagging has been observed by some systems.’



The CASSANDRA system will prevent these false positives by analysing movement of particular stocks and shares for a specific company and news stories which may affect the company.



The news will be accessed from providers such as Reuters, Bloomberg and Associated Press, and the company’s own websites, to see what news is available to their employees.


This will enable them to track potential insider trading.



Addison said such an occurrence could happen when two companies are in the process of a merger and a rumour emerges that the deal is not going ahead.



‘A key player will go out and buy or sell stock shares and make a killing on the markets,’ he said.


‘Using our system, that information may be detectable by analysis of news.’



Sunderland’s team are working in conjunction with a Canadian company called Measured Markets, which is providing the academics with data on the US and UK stock markets.



‘With CASSANDRA we think we have a technique which has identified a gap in the market,’ said Addison.


‘This system will have the ability to allow users to look at news information and rank it according to how significant an impact it has had on share dealing.’



The initial research in the prototype software tool is funded until December 2009, but Addison and his team have more plans to track down rogue traders using artificial intelligence in the future.



‘We have plans to develop a larger system which will allow CASSANDRA to tackle not just insider trading but larger issues related to “market abuse” such as false, exaggerated or highly misleading news stories released by individuals or groups.


‘Such stories can massively influence the markets, and yield huge profits for unscrupulous traders.


‘If successful, CASSANDRA will make it more difficult for unscrupulous traders to make a killing on the stock market at the expense of others.’