On 28 January 2019, the FICC Markets Standards Board (FMSB) has published the final version of its standard on secondary market trading error compensation under its remit to improve conduct and raise standards in the wholesale fixed income, currencies and commodities markets.
The new standard sets out expected behaviours that are designed to improve the practice of payment of compensation for trading errors. It advises that compensation should be paid in the following ways, by:
- direct payment to the compensated party’s account;
- reducing or increasing net brokerage; or
- another means which does not create a false market in, or a misleading impression as to the value or liquidity of a financial instrument.
The standard makes clear that methods of compensation such as wash trades should not be used as these can create a misleading impression regarding volume or price in the market.