Trade surveillance for small firms, explained

Trade surveillance is the review a firm runs over the trades it makes for clients and the trades its own people make, looking for the ones that break a rule. Large firms buy it as a system with a desk behind it. At a firm of five or fifteen people it is usually one principal or one chief compliance officer, a blotter or a custodian report, and a habit of writing down what was looked at.

The rules never use the phrase. A broker-dealer's duty sits in FINRA's supervision rule, which asks for a principal's written review of every transaction and a separate process for the accounts where insider trading and manipulation could hide. An adviser's duty is spread across its code of ethics, which governs staff trading, and its compliance program, which has to keep client trading inside the firm's own policies. Neither regulator names a tool: FINRA puts it as “Final responsibility for proper supervision shall rest with the member.”

The rest of this guide takes the two firm types in turn, then follows one alert from the moment it is raised to the record it leaves, and ends on the question most small firms are really asking: when does a person with a report stop being enough. For the supervision rule itself, read our guide to FINRA Rule 3110.

The phrase covers two jobs. A market-abuse platform reads the orders and executions a firm handles itself and looks for patterns of manipulation in them. An account monitor reads the trades and positions in client accounts, tests them against each client's profile and the firm's own limits, and many also test employees' trades against a restricted list. The vendors below are the ones we read for our trade surveillance software comparison, sorted the same way.

Employee-trade monitoring sits on the account side. Comply's trade monitoring watches employee accounts, not client accounts; Hadrius covers both client and employee trading on one dashboard; and the tools built only for staff trading are compared in personal trading compliance software.

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A FINRA member's trade review comes in four layers, and only the first is the one people picture. The principal's review of every transaction is the floor. On top of it sit the account-level suitability tests, the review of the accounts where insider trading could hide, and the paperwork on staff accounts held at other firms.

The pattern in one account

A principal who reads each trade on the day it prints sees the trade, not always the account. FINRA's suitability rule names the pattern test: “the turnover rate, the cost-equity ratio, and the use of in-and-out trading” are possible factors in quantitative suitability. For recommendations to retail customers, Rule 2111 “shall not apply to recommendations subject to SEA Rule 15l-1”, and Regulation Best Interest carries the same test inside its care obligation:

By our reading, one set of turnover and in-and-out alerts serves both rules: Reg BI for retail recommendations, 2111 for the rest. Neither rule gives a number, so the threshold that raises an alert is the firm's own choice and belongs in its written procedures. Our guide to FINRA Rule 2111 sets out the three suitability obligations and when Reg BI takes over. The full care obligation is on eCFR.

Firm and staff accounts

A separate paragraph of the supervision rule asks for “a process for the review of securities transactions that are reasonably designed to identify trades that may violate” the rules against insider trading and manipulation, across the firm's own accounts, its associated persons' accounts and covered accounts. When a trade looks wrong, “Each member must conduct promptly an internal investigation into any such trade”. A firm with no trading desk still owes this review for its staff.

Staff accounts at other firms come under FINRA Rule 3210: the member's prior written consent before the account is opened, written notice to the executing firm, and, on request, duplicates of the account's paperwork.

Those duplicates are the raw material of employee-trade monitoring. FINRA's rule page shows an amendment effective June 17, 2026; the wording above is the current text as read on October 22, 2026.

The adviser rules read for this guide do not name trade surveillance at all. They ask for two reviews that a surveillance tool can carry: the staff's own trading, under the code of ethics, and client trading, as part of a compliance program that has to work in practice.

The reports have deadlines: “Each access person must submit a transaction report no later than 30 days after the end of each calendar quarter”. The review is the half small firms forget. A stack of quarterly reports nobody compared with the restricted list, or with the client trades of the same week, is a filed report but not a review. An adviser whose only access person is its owner is not required to report to itself if it keeps records of all its own holdings and transactions. Our guide to the adviser code of ethics covers each report, and the code of ethics reporting calendar works out the dates. The rule text is on eCFR.

Client trading falls under the compliance program rule. An adviser must “Adopt and implement written policies and procedures reasonably designed to prevent violation” of the Advisers Act, and must “Review, no less frequently than annually, the adequacy of the policies and procedures established pursuant to this section and the effectiveness of their implementation”. By our reading, account monitoring is evidence for that annual review: if the trading policy caps how much of one issuer a client may hold, a log of concentration alerts and how each was cleared shows the policy was tested. The annual compliance review planner lays out that review.

These rules bind SEC-registered advisers. A state-registered adviser should check its own state's rules with its compliance counsel.

Rules describe the duty; a single alert shows the work. The example below follows one flag at a small broker-dealer from the report that raised it to the note that closed it. The account, the dates and the people are invented.

Two rule phrases sit behind the last step. Transaction review is “evidenced in writing”, and when a trade in a firm or staff account looks like insider trading or manipulation, “Each member must conduct promptly an internal investigation into any such trade”. An alert cleared with no name, no date and no reason is the gap an examiner can see, whatever tool raised it. The same five steps fit an adviser's concentration or drift alert; only the rule cited in the note changes.

For a broker-dealer, the exception report itself has a clock, separate from the trade records it reads:

The same paragraph lets a firm skip storing the reports if it can instead “produce promptly the reports upon request by a representative of a securities regulatory authority.” That option depends on the system. If the system changed within the eighteen months and an old report cannot be rebuilt in its original format, a report rebuilt in the current system “must be accompanied by a record explaining each system change which affected the reports.” Before switching vendor, export the past alerts and keep a note of what changed.

The trades the review reads are kept longer than the reports about them: order and trade memoranda for “not less than three years, the first two years in an easily accessible place”. How a broker-dealer stores them electronically is a question of Rule 17a-4(f), set out in SEC Rule 17a-4 and WORM storage.

An adviser keeps “A record of each report made by an access person as required by § 275.204A-1(b)” and “Any records documenting the investment adviser's annual review” of its policies. Both run for “not less than five years from the end of the fiscal year during which the last entry was made on such record, the first two years in an appropriate office of the investment adviser.” The adviser rule asks for records safeguarded “from loss, alteration, or destruction” and says nothing of WORM. The retention calculator works out each date.

No rule we read says when a firm must buy software. A blotter that a principal initials and dates is still a review in writing. A tool earns its place when the volume, or a pattern spread across weeks, makes that review thin. These are the usual signs, and the kind of tool each points to.

The tool reads what it is fed, so ask about data before alerts. A small firm rarely holds its own trade data: the custodians hold an RIA's, and the clearing firm holds an introducing broker-dealer's; the clearing firm may keep the trade records but does not take over the introducing firm's responsibility for them. On the vendor pages we read, only Orion names custodians (Schwab, Fidelity and Pershing among its custodial sources); StratiFi reads positions from custodian statements. Every other vendor leaves the question for the demo.

The eight vendors, read against the rules column by column, are in the trade surveillance software comparison. A broker-dealer that wants surveillance inside a wider platform, with written supervisory procedures and branch inspections, should also read compliance software for small broker-dealers, and our guide to FINRA compliance for broker-dealers places trade review among a member firm's other duties.