The International Organization of Securities Commissions (IOSCO) has published a report which describes the tools and approaches its members use to discourage, identify, prevent and sanction misconduct by individuals in the wholesale markets.

The report identifies the tools used by market regulators to minimize misconduct risk arising from the particular characteristics of wholesale markets, such as a decentralized market structure, opacity, conflicts of interest involving market makers, size and organisational complexity of market participants and increasing automation.

While there is no widely accepted definition, for the purposes of this report, wholesale markets may be understood to be those markets that predominantly consist of professional counterparties where both counterparties are persons or firms that are considered more sophisticated than typical retail customers or participants. These wholesale markets can have a decided impact upon the rest of the economy, and so misconduct can have a detrimental effect on large and small companies, investment decisions, and markets’ efficient and fair operation.

Mr Ashley Alder, Chair of the IOSCO Board and Chair of the Task Force on Market Conduct said:

“Misconduct erodes investor trust and confidence in financial services and undermines the effective operation of financial markets, including wholesale markets. The LIBOR and FX scandals highlight the severe consequences when firms or individuals fail to manage risk effectively or to observe proper standards of market conduct. This report provides tools to help IOSCO members minimize conduct risk in wholesale markets.”

In addition, the report also describes the regulatory requirements for market participants in wholesale markets, which are based upon broad expectations of their market conduct, such as honesty, integrity and competence. These expectations are consistent with existing IOSCO principles, standards and other initiatives on conduct regulation, including the Principles for Financial Benchmarks, published in July 2013.

Finally, the report provides an overview of the ways in which market regulators can help ensure that firms and individuals meet their obligations under the legal, regulatory and supervisory frameworks in their jurisdictions.

View IOSCO report on reducing misconduct risk in wholesale financial markets, 13 June 2017