FCA Market Watch 63 Addresses Market Conduct During Coronavirus Pandemic 

In their latest Market Watch newsletter, the FCA have addressed the importance of proper ‘market conduct and discipline in the context of coronavirus’. 

In a direct appeal, Market Watch 63 states that ‘all market participants, including issuers, advisors and anyone handling inside information to continue to act in a manner that supports the integrity and orderly functioning of the financial markets’. 

The newsletter goes on to define 5 key points of focus: 

  1. ensuring inside information continues to be appropriately identified and handled by all persons involved in the information chain so that it is not misused for insider dealing or for commercial advantage 
  2. ensuring inside information is appropriately disclosed by issuers so that investors are not misled 
  3. maintaining robust market surveillance and suspicious transaction and order reporting (STORs) by relevant market participants, in the context of changes in market conditions and the current use of alternative working arrangements 
  4. meeting the transparency and short position covering requirements under the Short Selling Regulation (SSR) for market participants to support the effective functioning of the market 
  5. identifying and managing conflicts of interest by market participants that may arise around capital raising events

It seems clear, then, that there is a particular focus on the increased threat of market manipulation, insider trading and the unlawful dissemination of inside information. Market Watch 63 makes explicit reference to the importance of maintaining proper compliance with the Market Abuse Regulation (MAR), frequently refers to the increased threat of insider trading and the disclosure of inside information, and emphasises the need for ‘robust market surveillance’. This message comes as no surprise. During periods of financial uncertainty, the risk posed by market manipulation is greatly increased. 

This, broadly, can be explained by two separate but closely related factors. First, the risk of market manipulation taking place is greater. During the COVID-19 pandemic, remote or alternate working arrangements, social distancing and other such interruptions to the normal functioning of the financial markets have created space for potentially abusive behaviours to take root. This has been compounded by the fact that, as acknowledged in the FCA’s newsletter, issuers have been ‘forced to raise substantial amounts of debt and equity’ which ‘gives rise to increased amounts of inside information, which needs to be appropriately controlled’. 

What’s more, these same contributing factors of various interruptions to normal working practices have led to the second factor: the increased difficulty of asserting proper control of and regulation over any such abusive behaviours. The contact between regulatory bodies and financial firms has been somewhat loosened by the disruption that Coronavirus has caused, making normal regulatory practices harder to follow. 

This has been acknowledged by Ben Parker, CEO of eflow. He states that ‘during times of heightened risk of potentially abusive behaviour, we have to ensure that controls are both effective and accessible’. He continues to emphasise that this is a responsibility shared by both firms and the regulatory sector. ‘Financial firms, issuers, NCAs, providers of regulatory compliance solutions – they all have a responsibility to ensure that the integrity of the market is upheld’.

You can read Market Watch 63 in full here.

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