The FCA’s latest Market Watch (77) highlights a very particular concern, namely insider dealing by Organised Crime Groups (OCGs) whether on their own account or through the use of mules.
“Suspicious trading by members of OCGs in products whose underlying securities are UK and internationally listed equities, forms a significant component of the overall volume of suspicious trading we observe in equity markets.”
FCA Market Watch 77
With 84% of all suspicious transaction and order reports (STORs) in 2022 being insider dealing, it is unsurprising to find the FCA placing a significant emphasis on this topic. It is important to note that the Regulator has highlighted particular patterns of activity that firms should be aware of and could lead to enhanced risk. These include:
- Regular generation of STORs by a client.
- Clients that frequently trade before M&A activity.
- Clients opening positions shortly before, and closing those positions. immediately after, publication of speculation about M&A in the media, without waiting until any relevant issuer has commented on the speculation.
- Several clients trading in the same security for the first time.
- Clients with any connection to other current or former clients about whom the firm has concerns, or whose trade has resulted in STORs. This might include trading in similar ways.
What action should firms take?
The FCA has outlined a series of measures that firms should consider in order to mitigate against these risks. Firms should:
- Disseminate their Market Abuse standards to clients, explain how they share information with the Regulator, and outline how they liaise with law enforcement agencies.
- Have thorough AML checks and controls in place as these are vital tools in guarding against Insider Dealing risks from OCGs.
- Request all overseas broking firms that are clients to submit documentary evidence of adequate surveillance arrangements and a zero-tolerance approach to market abuse.
- Guard against staff being recruited by OCGs as a source of inside information by advising employees working in M&A advisory about the risks of publicising their potential access to inside information.
Mitigating against the risk of insider trading
eflow’s TZTS Trade Surveillance technology monitors and analyses suspected instances of market manipulation through a mix of data enrichment, automated monitoring and real-time insights. It automatically monitors for more than 40 forms of market abuse and can be configured to offer firms a highly personalised and dynamic trade surveillance system that adapts to organisational and environmental change.
The platform’s ability to analyse both real-time and historical data ensures a thorough scrutiny of trading activities. The integrated workflow management system aids in the swift investigation and documentation of these alerts, ensuring regulatory compliance and facilitating detailed reporting on detected market abuse incidents.
For more information on TZTS, click here or get in touch to arrange a consultation.
