The latest edition of Market Watch outlines FCA’s views on industry implementation of MAR. FCA stresses the importance of industry participants properly calibrating their risk assessments to the markets and asset classes they operate in and showing it is responsive to changes. It notes the importance of strong judgment in market abuse compliance and emphasises that market participants should be confident their systems can detect and respond to abusive behaviours.
Generally, FCA found:
- a good understanding of MAR and what it means for firms;
- several firms struggled to comply with the order and transaction surveillance requirements – FCA expects that firms should by now have had time to complete and implement the additional technology builds necessary for quote surveillance;
- over 70% of the STORs FCA receives relate to insider dealing in equities, FCA reminds firms that the duty to report suspicious orders and transactions is a multi-asset exercise;
- encouragement that so many firms are using the protections the market soundings regime offers, and that investors have on the whole adapted well to the regime. FCA has noted increasing use of “gatekeepers”, which it says it recognises the benefits of, but that firms should ensure staff are properly trained and use the internal organisation that suits their business model. It also warns of the risks of even declined wall-crossing. FCA was concerned that fewer than half the investors it approached consistently use recorded lines for documenting soundings. Finally, the “cleansing” process seems to work well, but FCA is aware the framework may not have been stress-tested as yet;
- varying quality in the way firms prepare and maintain insider lists. Over 60% of firms have a list of permanent insiders, which can work well, but FCA says should not be disproportionately large. FCA also noted that market participants should be clear on which lists they use and for what purpose, and reminded firms that they should be able to return insider lists within 2 days of a request which most, but not all, firms said they could do;
- issues should, in particular, review their obligations to assess whether they are in scope of the STOR requirements – with 74% of issuers currently believing themselves to fall outside it.
Separately, FCA has noted behaviour in the CDS market that appears to involve “manufactured” events. It says the behaviour has not yet directly impacted the UK, but it considers the behaviour goes against the intended purpose of the instruments – and that manufactured credit events may constitute market abuse by the CDS counterparty and the firm referenced in the CDS.