The Hidden Risks of Emojis in Financial Trading

In the ever-evolving landscape of financial compliance, one might not expect emojis to be a point of concern. However, with some regulatory bodies announcing their intent to scrutinise financial firms' use of emojis, a new frontier in compliance and communications surveillance has emerged. 

Emojis: More Than Just Playful Symbols

When emojis stop being a playful form of expression and instead serve as a tool for bad actors to outsmart regulators, the stakes get high. Consider the rocket ship, stock chart, and money bag icons. These emojis, while seemingly innocent, can convey specific market-related beliefs or suggested actions when related to trading financial assets. In fact, in 2023, a US District Court judge ruled that emojis could be used as objective evidence of financial advice.

Thus, according to regulators, business-related messages with emojis could pose a problem for financial institutions if the correspondence isn’t captured and monitored properly. This raises questions about how to monitor the use of emojis within communications surveillance compliance frameworks.

The Challenge of Capturing Emojis for Compliance

Traditional surveillance systems, reliant on keyword-based monitoring, often struggle to capture and interpret the context of emojis. These systems typically focus on text and lack the capability to capture the nuances of modern communication methods, including emojis, slang, and regional language variations. As a result, compliance teams risk overlooking sophisticated ways in which wrongdoers might be evading regulatory supervision.

Examples of Emojis and their Potential Meaning in Trading

Rocket Emoji 🚀

• Use: Associated with rapid growth, or stocks "going to the moon."
• Abuse: Traders could use this emoji to signal that a particular stock is about to take off, potentially tipping off insider information or artificially inflating sentiment around a stock.

Money Bag Emoji 💰

• Use: Represents money or wealth.
• Abuse: Traders might use this emoji to falsely signal significant profits from a trade, luring other investors into following their trades without proper due diligence. 

Fire Emoji 🔥

• Use: Conveys that something is hot, exciting, or trending.
• Abuse: Traders could use the fire emoji to exaggerate a stock's performance, creating a false impression of its attractiveness. 

Chart Decreasing Emoji 📉

• Use: Indicates a decrease in value or performance.
• Abuse: This emoji could imply that a stock is going to dip, suggesting now is a good time to sell. It could also spread negative sentiment about a stock or market without a valid reason, causing panic selling and driving down prices.

Phoenix Emoji 🐦‍🔥

• Use: Symbolises rebirth, renewal, or resilience.
• Abuse: Traders could use the phoenix emoji to falsely signal a struggling stock's imminent turnaround, encouraging other investors to buy in and potentially artificially inflating its price.

The use of these emojis in such contexts could constitute market manipulation if done with the intention of sharing insider information or artificially influencing the share price of a stock. 

Solutions for Safe Emoji Use in Trading

Addressing the challenge of emoji use in trading requires advanced surveillance systems capable of contextual analysis and comprehensive monitoring. These systems must account for a broad spectrum of words and phrases, including emojis, slang, and linguistic variations to effectively detect misconduct.

Leveraging Advanced Technology

By embracing advanced technology, financial firms can proactively mitigate the risks associated with emoji usage and ensure the integrity and transparency of financial markets. SteelEye, for instance, offers a communications surveillance solution that goes beyond language barriers with its Lexica-packs, enabling the identification of emojis used in trading communications.

SteelEye's platform combines trading, communications, reference, and market data for integrated surveillance. SteelEye’s Compliance CoPilot uses Large Language Models (LLMs) to optimise the communications surveillance workflow, maintaining human oversight while revolutionising the detection of market abuse, even in cases involving emojis.

Conclusion

The use of emojis in trading has introduced a nuanced challenge for compliance teams and regulators. By recognising these risks and adopting advanced surveillance technologies, financial firms can proactively address the complexities posed by emojis. Embracing innovative solutions will safeguard the integrity of financial markets and ensure compliance with evolving regulatory requirements.

By Matt Smith, CEO of SteelEye