Trade surveillance alert management: reducing false positives

Every surveillance team knows the story: a constant stream of alerts blurs into background noise, draining time and attention while risk moves quietly under the radar.

False positives not only drain resources, but they also distract from the real job of detecting market abuse before it escalates. And when the backlog grows, the pressure does too: from internal stakeholders, external auditors, and regulators asking whether your systems are doing what they claim to do.

In this article, we'll look at the practical causes of alert fatigue, the common traps that keep false positives high, and the strategies that help teams focus their attention where it counts.

Why false positives are more than an operational headache

A mid-sized brokerage generates 10,000 alerts a month, with only 2% proving actionable, resulting in hundreds of analyst hours and a significant budget spent investigating irrelevant cases. This scenario represents an everyday reality for many surveillance teams, and also compliance risk. With finite resources, every false lead drains attention from genuine threats.

False positives waste analyst time, delay the escalation of real issues, and can cause regulators to question the effectiveness of your surveillance system. 

The result is a vicious cycle, with growing numbers of alerts leading to larger backlogs, slower response times, and greater regulatory exposure.

What drives false positives in trade surveillance?

The most common causes include:

• Rigid detection rules - Flagging legitimate trades due to inflexible logic.
• Poor data quality - Inaccurate or missing fields triggering false alerts.
• Lack of context - Failing to account for client behaviour, market trends, or past interactions.
• Outdated thresholds - Rules not adjusted to current conditions.
• Fragmented systems - No cross-referencing across venues, data sets, or alert types.

Best practices for effective alert management

Effective alert management is built on precision and clarity. By refining detection logic, enriching alerts with context, and continuously learning from investigation outcomes, firms can ensure that resources are focused where they matter most. Best practices for stronger alert management are:

1. Calibrate detection logic regularly: Review and adjust rules based on recent market data and confirmed case outcomes.
2. Incorporate contextual data: Enrich alerts with client history, market conditions, and related communications (see AI in Trade Surveillance).
3. Use AI for triage: Apply machine learning to score alerts by likelihood of being genuine, prioritising high-risk cases.
4. Integrate case feedback loops: Feed investigation results back into the detection engine to continuously improve accuracy.
5. Monitor KPIs: Track metrics like false positive rate, average investigation time, and regulator feedback to measure progress.

False positive reduction checklist

A well-structured checklist helps turn false-positive reduction into a disciplined routine. By asking the right questions and tracking the right metrics, firms can build a culture of continuous improvement in surveillance. Key points to assess are:

• Do we regularly review and adjust detection thresholds?
• Are alerts enriched with contextual market and client data?
• Is AI or automation used for alert prioritisation?
• Do investigation outcomes feed back into detection logic?
• Are we tracking false positive rates as a key performance metric?

The Trapets advantage

The Trapets advantage lies in turning alert management into a source of strength. 

With technology designed to sharpen detection and services that support continuous improvement, firms gain the clarity and confidence they need in their surveillance. 

Trapets Market and Trade Surveillance helps you:

• Identify patterns in real-time or T+1 to quickly respond to emerging threats.
• Use advanced analytics to spot unusual patterns.
• Monitor a wide range of asset classes and financial instruments within a single platform, regardless of whether you're trading equities, fixed income, derivatives, or alternative investments.

Final word

Expect more firms to adopt self-learning detection engines that adjust in real time to market conditions, client behaviour, and regulatory changes. 

Those who get ahead now will protect resources and maintain stronger regulatory relationships.

Reducing false positives strengthens surveillance, improves efficiency, and builds trust with regulators. 

With the right tools and expertise, alert management can become a powerful driver of market integrity.

Talk to a Trapets expert to see how we can help you turn alert management into a strength, not a burden.