For this installment of our CCO Spotlight series, ComplySci’s CEO, Jean-Marc Levy, interviewed Michael Sanocki, Chief Compliance Officer at Volant Trading.
Michael Sanocki, CCO
Mr. Sanocki has over 10 years of legal and regulatory experience. Currently, Mr. Sanocki is the CCO and General Counsel of Volant. Here he develops supervisory procedures, trains employees on compliance and regulatory matters, responds to regulatory inquiries, advises on rules and regulations, develops surveillance for the Firm’s trading activities, and advises on day-to-day legal issues. Prior to that, Mr. Sanocki was the Assistant General Counsel at International Securities Exchange (“ISE”), a U.S. options exchange, where he drafted exchange rule filings and worked with the ISE’s surveillance group and FINRA to discipline member firms for violating exchange rules.
From Law to Compliance
Tell us a little bit about your journey:
Michael: I didn’t have a career in compliance on my mind until I came to Volant Trading. After undergrad, I went to law school and quickly realized that I liked the law but I also wanted to be a more integral part of business discussions. I ended up turning my law degree into a joint JD/MBA, and my first job was at a law firm called Schulte Roth and Zabel LLP representing broker-dealers and hedge funds in various regulatory proceedings and law suits. After about 3.5 years of working there, I decided to explore what it would be like working for a regulator.
I ended up getting a job at the Securities and Exchange Commission in their Office of Compliance Inspections and Examinations, Office of Chief Counsel. We oversaw examiners who went out into the field to examine different regulated entities. After this, I went to work at my first semi-inhouse role which was at the International Securities Exchange (ISE) – the first electronic options exchange. I was living in Washington, DC at the time but I moved to NY for the job at ISE. Ironically, ISE got purchased by NASDAQ within the year and their plan was to move everyone down to their Philadelphia office. Fortunately, Volant was looking for a CCO and counsel at that time because my family wasn’t ready to move again. In the interview with Volant, I was upfront and let them know that I hadn’t been a CCO before but that I felt I had the groundwork to be successful, and they agreed. I had to take the Series 7 and 24 before getting that title, but I was able to jump right in.
What makes your job easier?
- The People: Having hard working and trustworthy people on your team
- The Business: Working at a company where compliance is part of the culture from top to bottom
- Technology: Implementing great tracking systems that help you manage what needs to get done
No CCO is going to have 100% oversight of everything and you need to rely on different line supervisors to hold their teams accountable or to come to you with questions when they don’t know the answers, or things are unclear to them. Electronic trading really generates so many more orders than trading used to, so having a good surveillance system that generates exceptions is key. For example, ComplySci’s ability to get electronic feeds to employee trading makes my life so much easier as opposed to having to look through every single paper statement that comes in.
How do you manage driving compliance without stopping innovative or risky ideas?
Michael: It’s definitely tough. During those discussions I always try to look through the lens of a compliance officer and lawyer but as the discussions progress, I try to work with the business to come up with new ideas that will also mitigate regulatory risk. Or, as I stated earlier, if there aren’t any different ways to do something, I try to quantify what the risks are so that when they’re moving forward they know what regulators may or may not take issue with.
If there aren’t any different ways to do something, I try to quantify what the risks are
What are some best practices you use to deal with the demands of the job?
Michael: I think being in compliance role can be difficult. Generally regulations are drafted to be applicable to big firms. In part, that makes sense because if something goes wrong at a big firm it will have a larger impact on the market or investors compared to a smaller firm. The problem for smaller firms like Volant or new entrants is that they don’t have many exemptions. As a small broker dealer, we need to have the same compliance program as a huge company with thousands of people and 50+ compliance personnel. To deal with the demands of the job we try to use technology to automate compliance as much as possible. For example, I have a dashboard on my computer that tracks all of our supervisory reviews, and I know when people close them or comment on them in real time.
What helps to drive compliance at Volant Trading?
Michael: A culture of compliance takes place when everyone works together. We have supervisors train their teams and also keep up with new regulations. Employees also have to feel comfortable coming to compliance if they do something or see something wrong. I believe in “doing better.” It is important for my colleagues to see me as an ally and partner rather than as someone that is around to simply enforce the rules and add additional tasks to their days. I trust employees and management to come to me with issues just as they trust that I’m looking out for the best interests of the firm as much as possible.
A culture of compliance takes place when everyone works together
What trends are you seeing in the industry?
Michael: In terms of immediate trends, I think regulators will be looking at Business Continuity and how firms dealt with COVID-19. They will be asking “how did the firm implement their business continuity plans” and “what did you do to mitigate the problems that resulted from employees working remotely?”
Cybersecurity will also continue to be a big focus, especially making sure that all the data and personal information you hold is secure while also assessing remote supervision. In the Broker Dealer industry regulators are very focused on how you supervise your employees and that’s obviously more difficult when you have every employee working out of their own house. I will say things are much easier today than they were maybe 15 years ago since everyone uses email, data is stored in the cloud, and technology has improved the way you supervise. I’m interested to see what regulators focus on once things go back to normal and the inquiries start coming in.
How quickly do you think regulators will drive CCOs to use more data?
Michael: That’s already happening. Volant recently went through an exam. Before I arrived, the Firm would conduct manual reviews, but that’s simply not acceptable any more given that trading is almost all electronic. Regulators know it’s very difficult to review that kind of trading activity, so they want to know that you have surveillance patterns in place to generate alerts for manipulative trading. Everything is going in that direction for improving business and compliance. We try really hard to keep up with new vendors who have built the best software and use machine learning or we build them internally depending on the lift.
Life Beyond Compliance
What are some of the things you do personally to stay ahead?
Michael: You know, one of my goals this year is to learn how to code. There are a lot of good, free online programs, and while I think I’m pretty good at talking to the developers and clients about what they’re doing, I want to take it to the next level and learn how to code. That way I don’t need an intermediary between myself and the underlying data. I think anyone who gets into this and has that kind of background will be lightyears ahead of those who don’t.
What would you say is your guilty pleasure?
Michael: I’d say two things particularly given the stay at home order: Netflix TV shows that have come out (even though I haven’t been able to watch them since my son was born) have been fun to sit down and binge watch with my wife. Also, I’m addicted to our Peloton. We join classes and try to beat our personal bests but these workouts are harder and more fun than I expected.
What advice would you give to others who are looking for the skills necessary to be a successful CCO?
- Attention to detail
- Proficient writing skills
- Hard work
- Able to understand the business
- HAVE A VOICE!
One of the things that I don’t think people typically mention, is the need to have a voice. The business is always going to push back on you if they feel you are being too conservative and test the limits of what they can do. It’s your job to say hey “we can’t do this” or “it’s not compliant” and be able to express your opinion. If you’re not willing to speak up, there’s really no point in having you in that role.
You also have to ask questions because there will be situations where you’re not going to understand that specific part of the business, and you can’t be scared to ask someone to sit down with you and explain every detail of it in order to make good determinations.
Volant’s main business line is options market making and we’re very fintech oriented. We like to be ahead of the curve with technology but the regulations haven’t always caught up with what we’re trying to do, so we’ve had to get comfortable working in grey areas and being able to think outside of the box. As an example, we expect Volant to soon be approved by FINRA, OCC, and DTCC as the first cloud based clearing firm in the US.
You have to work with the business in order to implement their ideas in the most compliant way possible. For each idea there are different iterations you can work through, and it’s your job to help them select the compliant option without compromising the result. Sometimes there won’t be clear cut regulations and it’s your job to say “this is the amount of risk I see here” and it will be up to the business to say “okay we’re willing to accept that risk” or not, but it’s really important to quantify that risk as you’re working with the business. In these situations we’ll also reach out to regulators to see if they will provide guidance.
Editorial Note: At ComplySci, we understand the tremendous value compliance professionals can gain from networking and learning directly from their peers. For the CCO Spotlight blog series, we are sitting down for candid conversations with Chief Compliance Officers from some of the firms we work with. This blog series will share those CCOs’ thoughts, ideas, and best practices for compliance programs with our readers. The views expressed in this blog post are the CCO’s own views and do not necessary reflect the views of their firms.