In March the UK Financial Conduct Authority (FCA) published its business plan for 2024/25. When discussing market oversight, in keeping with its recent drive to become more data-driven, the regulator stated that it intends to carry out increased market monitoring of fixed income and commodities markets and is increasing its ability to detect and pursue cross-asset class market abuse.

The UK’s civil market abuse regime is set out in the UK Market Abuse Regulation (UK MAR) which it onshored (inherited) following Brexit. In this Regulation are prohibitions on insider dealing, unlawful disclosure of inside information and market manipulation, and provisions aimed at preventing and detecting these. There is also a criminal regime including an insider dealing offence and an offence of making a false or misleading statement.  A separate but corresponding civil and criminal regime applies to wholesale energy products under UK REMIT (the UK’s version of the EU Regulation on wholesale energy market integrity and transparency) which is enforced by the UK’s energy regulator, Ofgem.

As with the EU regime, the UK market abuse regime contains no restrictive pre-condition for the existence and breach of a specific duty – whether owed by the insider to: (i) the issuer or its shareholders; or (ii) the source of the inside information. In other words the US misappropriation theory does not apply.

As regards commodities, the scope of this article is not to provide an exhaustive analysis of UK MAR and UK REMIT but key points which are relevant to this market include:

  1. First, like the US regime, there are a number of key definitions that are relevant to the scope of the prohibitions set out in the UK MAR and these include, ‘financial instrument’, ‘commodities derivatives’, ‘spot commodity contract’ and ‘emission allowance’. The defined term, ‘financial instrument’ is taken from the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 and is similar but not identical to the definition in the EU Markets in Financial Instruments Directive. A ‘spot commodity contract’  is defined in UK MAR as a contract for the supply of a commodity traded on a spot market which is promptly delivered when the transaction is settled, and a contract for the supply of a commodity that is not a financial instrument, including a physically settled forward contract. In addition, ‘spot market’ is also defined in UK MAR as a commodity market in which commodities are sold for cash and promptly delivered when the transaction is settled, and other non-financial markets, such as forward markets for commodities.

Similarly, as UK REMIT applies to all market participants in Great Britain entering into transactions or orders in wholesale energy products, relevant definitions include ‘wholesale energy product’ and ‘market participant’.  In this regard it is worth bearing in mind that UK REMIT specifies certain contracts and derivatives that will fall within the scope of wholesale energy products irrespectiveof where and how they are traded.  A market participant is any person (natural or legal and including transmission system operators) entering into a transaction including placing orders to trade in one or more wholesale energy markets (this includes transmission system operators).  It is also irrelevant whether the market participant is resident in the UK or EU.

  1. Second, Article 12(1) of UK MAR provides that the market manipulation offence comprises the following four activities: (i) manipulating transactions, (ii) manipulating devices, (iii) dissemination, misleading behaviour and distortion, and (iv) misleading behaviour or inputs in relation to benchmarks. Each of these are further described in UK MAR. 

Article 2 of UK REMIT defines ‘market manipulation’ by reference to similar categories of activities but in relation to the supply of, demand for, or price of wholesale energy products,

  1. Third, as regards manipulative trading practices, UK regulators have traditionally published fewer enforcement outcomes than their US counterparts. Manipulative practices vary across different markets and instruments. It is therefore difficult to prescribe what makes a particular practice manipulative or deceptive in light of the descriptions provided in UK MAR. For instance trades which are executed for legitimate purposes may appear unusual and abusive, especially where the market is illiquid or volatile. Manipulative practices include: layering or spoofing, wash trading, squeezes or corners, share ramping or pumping or dumping, window dressing, printing and flying prices. In a similar vein, Ofgem has historically made clear that it considers practices which constitute market manipulation include layering, placing small bids ahead of placing large offers (and vice versa), marking the close and pre-arranged trading.
  1. Fourth, the FCA regularly comments on manipulative practices in its Market Watch newsletter which focuses on market integrity and. has published guidance that provides additional details on the types of behaviour likely to be flagged as illegally manipulative in its Handbook of rules and guidance. Ofgem has also published supplementary guidance on insider dealing, market manipulation and enforcement, for example in the form of open letters to the industry, procedural guidelines, penalties statement and a prosecution policy.
  1. The FCA has historically penalised firms for failures to ensure that there were adequate risk management surveillance systems for the purposes of detecting and identifying orders and transactions that could constitute insider dealing, market manipulation or attempted insider dealing or market manipulation.  It is worth highlighting the following FCA enforcement action: the FCA concluded its first notable enforcement action in relation to commodities in 2013 when it fined the US based high frequency trader, Michael Coscia, US $903,176 (£597,993) for deliberate manipulation of commodities markets. Between 6 September 2011 and 18 October 2011 Coscia used an algorithmic programme of his own design to instigate an abusive trading strategy commonly known as layering. More recently, on the securities side, the FCA censured the holding company of the largest private healthcare operator in the United Arab Emirates (UAE), NMC Health Plc (in administration), for misleading the market about the size of its debt, and failing to declare related party transactions, which was found to be market manipulation.

Ofgem has also issued substantial fines to corporate entities for REMIT breaches, including recently in August 2023 when it announced the first fine in Great Britain concerning the recording and retention of electronic communications under regulation 8 of the REMIT Enforcement Regulations.

In terms of general developments regarding the UK market abuse regime, there are perhaps two key ones.

  1. In March 2023 the UK Government announced that as part of the Future Regulatory Framework Review it intends to repeal UK MAR and replace it with UK-specific legislation. It stated that it will set out a timetable for this “in due course”. So far there is no information on likely timings or other information on UK MAR’s revocation and potential replacement.
  2. In May 2024 the FCA issued a Market Watch newsletter which discussed its observations on firms’ failures in relation to market surveillance.. One example related to a firm that designed and implemented an in-house surveillance model to identify potential insider dealing in corporate bonds, covering trading by clients and its own traders:

‘Firm B designed and implemented an in-house surveillance model to identify potential insider dealing in corporate bonds, covering trading by clients and its own traders.

The alert logic did not require news to be released for an alert to trigger (this would be considered during alert review). It did need a price movement at or above a defined threshold (X%) within a defined period after a trade. However, a mistake was made at the coding stage. This meant that for an alert to trigger, either for a client or through its own traders, the firm had to trade in the instrument on the day that the price moved.

With this alert logic, in a liquid, frequently traded instrument, this requirement for a trade on the day of the significant price move would not impede the monitoring. In less liquid instruments, however, the alert logic created a risk of potential insider dealing going undetected.

For example, if a client of the firm purchased a bond on a date (T) and 2 days later (T+2) the bond increased in price by X+3%, but on T+2, the firm did not undertake any trading in the bond, no automated alert would be generated.

The fault originated several years before, at the design and implementation stage. After this point, its identification was impeded by the fact that the model was generating alerts in reasonable numbers and of good quality.

The alert output contained true positives, some of which resulted in the submission of STORs. This led the firm to mistakenly believe that the model was working as intended. The firm’s compliance team discovered the reality when it received a front office escalation. On checking if a surveillance alert had been generated, the team found it had not.’

Comment: The recent FCA Market Watch provides firms, including those in the commodity and derivatives space, with a timely reminder that they need to test and review their market abuse surveillance arrangements. Firms in other jurisdictions may also find the FCA’s observations useful. In addition, at some stage there will be a consultation on possible changes to UK MAR which the UK inherited from the EU. Perhaps there won’t be wholesale changes to the regime, but there may be some interesting tweaks. As always with financial services, the devil will be in the detail, and firms with a cross-border footprint will face the additional challenge of staying abreast of the divergence between EU and UK regulatory frameworks as regards both UK/EU REMIT and UK/EU MAR.