On 7 February 2020, the FCA published a speech by Mark Steward (Executive Director of Enforcement and Market Oversight, FCA) entitled Market integrity and strategic approach.
Highlights from Mr Steward’s speech include:
- the FCA works with a very high degree of precision and collaboration with both US regulators and EU authorities on issues that affects the markets;
- the market cleanliness metric was first published in 2008 when it found that approximately 30% of takeovers showed abnormal price movements 2 days prior to an announcement. The FCA’s latest figure published in 2019 is currently at its lowest score at around 10% and the regulator has developed a new measure which has produced a lower figure of 6.4%;
- the FCA has taken a strategic and integrated approach to its market integrity efforts encompassing enforcement, primary and secondary oversight and surveillance, and wholesale supervision which could explain improvements recorded by the market cleanliness metric and abnormal trading volume ratio; and
- would-be abusers should be aware of the FCA’s increased detective power which materially ratchets up the risk of those committing market abuse being found out.
In terms of market manipulation Mr Steward makes the following points:
- the FCA made a strategic decision to ingest the equity order book into its Markets Data Processor as its very difficult to detect trading manipulation with transaction data alone;
- the FCA can now look for manipulative trading more easily and the proportion of investigation work is now split 60:40 between insider dealing and manipulation. This is a big change from relatively recent days when the FCA’s wholesale investigation caseload was almost exclusively based on suspected insider dealing;
- the FCA’s reach and ambition is not confined to the cash market as it develops equally broad and sensitive radar for other traded asset classes and markets, especially where insider dealing is less of a threat than manipulation; and
- the FCA has a smaller number of very significant investigations on foot where it appears false and misleading statements have contributed to the destruction of considerable shareholder value: (i) in one case, which remains anonymous at the moment, the FCA is investigating the demise of a listed company which it suspects was surreptitiously stripped of assets while its controllers fed the market with false and misleading information to boost the share price, which they may also have profited from; and (ii) in another case, the FCA is looking at action against two directors of another failed listed company whom the regulator alleges orchestrated a complex fraud to falsify the firm’s revenue and profits and to mislead the market.