The implementation of EU Market Abuse Regulation was the latest key development in a long history of reform of the law relating to insider dealing and market manipulation, attempting to respond to the considerable challenges posed by:
fragmentation of financial markets
the rise of high frequency and algorithmic trading; and
a succession of market conduct scandals
MAR requires market participants to report orders and transactions that could constitute insider dealing, market manipulation, attempted insider dealing or attempted market manipulation. MAR expanded market abuse surveillance obligations on firms.
The new regime increases the number of suspicious behaviours that need to be reported to the FCA and requires that for each individual participant a new Suspicious Transaction and Order Report (STOR) must be submitted.
The recently released FCA Annual Report 2017/18 discloses that 4,829 insider dealing reports and 666 market manipulation reports were received in the reporting period. This is the first time we have been able to assess the impact of MAR and these figures will be the baseline for future reporting. In comparison to reports received under the previous regime, this appears to be a considerable increase in the number of reports being investigated by the FCA.
Another interesting statistic contained in the Annual Report concerned the Market Cleanliness statistic for the UK equity markets. This is defined as the proportion of corporate takeover events for which the FCA observed an abnormal movement in share price before the takeover announcement. It is recognised that this is not a perfect indicator of market cleanliness, but it is one indicator of possible insider trading.
The 2017 Market Cleanliness statistic was 22%. This means that 22% of takeovers in the UK were associated with abnormal price movements before the takeover announcement. The FCA have stated that they have increased the level of external engagement with issuer groups to ensure that issuers have a clear understanding of the application of MAR and that they are disclosing and handling inside information appropriately.
Just in….Financial Crime Guide
The FCA proposes to add a chapter to the Financial Crime Guide on insider dealing and market manipulation - outcome expected in autumn 2018.