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.

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.

More on Surveillance Exceptions

Next, learn more about layering.