FCA highlight their efforts in fighting Market Abuse and Manipulation

In an FCA Press Release of 17 June, FCA highlighted their efforts in fighting Market Abuse and Manipulation. Some of their comments are illuminating – others are more nuanced.

The FCA say "People seeking to abuse the insider knowledge they have to make a quick buck place their fingers on the scales." This is said to mean that as well as disadvantaging those who play by the rules, they undermine confidence in markets. 

Apparently in response to recent press reports about their approach, the FCA say they wanted to outline the work they do to tackle insider dealing and manipulation. 

• Tackling market abuse is one of the FCA's strategic priorities.
• They have a data-led approach, undertaking monitoring of over 30 million transactions and over 100 million order reports a day to ensure the timeliness and accuracy of the disclosure of inside information.
• These are analysed by the FCA's market data processor – " a source of regulatory sunshine" - overseeing the market in close to real time, with dedicated software and algorithms to detect potential issues.
• They use their data to publish market cleanliness statistics each year, which were quoted correctly in recent press reports (we found that, for example, the FCA's Market Cleanliness Statistic of 2021 concerning % of takeovers was 7.7%. The Abnormal Trading Volume (ATV) measure looks for abnormal increases in trading volumes ahead of potentially price sensitive announcements, covering equity instruments and some equity derivatives. The ATV measure for 2021 was 7.1%.).
• They say these statistics provide a helpful benchmark but FCA know from their work that "they cannot be extrapolated into evidence of market abuse. Abnormal price and volume movements can be triggered by a host of legitimate reasons".
• They also rely on Suspicious Transaction and Order Reports sent to the FCA. They received over 90 reports a week last year; the number sent increased by almost 15% on 2020.
• This intensive scrutiny "is as important as a deterrent as it is for detection".
• They have taken enforcement action where they have seen false or misleading statements or other forms of market manipulation, resulting in fines for both firms and individuals.
• Where it is right to do so, the FCA will take criminal action, referring to a number of cases which have been or will go before the Court. However, they highlight the burden of proof in a criminal case is high.
• They make use of their civil enforcement powers which has a different standard of proof. More than 10 subjects are currently awaiting decisions on their cases.
• Often it is not the case of criminal action being preferable to civil enforcement. Both have their merits, leaving aside the question of standard of proof. For example, civil action can be used to secure redress for investors.
• Often individuals and activities cross national boundaries, which means they may be out of reach of the FCA's enforcement powers or are abusing information obtained in the UK to trade in foreign markets. They say they work with our international partners to bring our data and intelligence to bear in these cases.

In closing, the FCA say the aggregate picture is one of increasing intensity, scrutiny and sophisticated action, in which criminal prosecution is one of several concurrent strategies being deployed. "We are determined to tackle market abuse and insider dealing".

Authors: Lynn Dunne and David Capps