Shield - Read the FCA’s Market Watch

This article begins with a yawn.

The mere mention of a regulatory authority's publication or planned set of guidelines triggers a reflexive reaction that sets us up for a snooze fest. Reading them on a regular basis – as they are published – as part of your job's routine best practice sounds about as appealing as a long winter's nap curled up beside a hibernating bear. Thank you, but no!

However, that is precisely what each of us in the RegTech industry should be doing. Market Watch is published on a regular basis by the Financial Conduct Authority (FCA) for a reason: there is always something new to learn. The FCA's acts apply to more than 51,000 financial institutions. With so many rules in place, Market Watch notifications are the only method to effectively communicate changes.

The FCA utilises Market Watch to highlight enforcement outcomes, not just as a courtesy — in the form of censored case studies The former makes it appear as if the notification is giving something valuable, but as you get further in, you realise it's a stick dangling in front of you, not a carrot. The FCA admits that it is a tool for businesses to "understand the entire range of implications of participating in inappropriate behaviour." All the more incentive for RegTech workers to keep up with the magazines to see what's coming next.

The FCA examines suspicious transaction and order reports (STORs) and compares them to order book data gathered from trading platforms around the United Kingdom. The findings are shared with the firms and trading venues in order to help those who receive them improve their ability to prevent market misconduct as well as identify and report it when it occurs.

The FCA launched an automated procedure for ingesting orderbook data in 2017; on a typical day, around 150 million transactions are recorded. At the moment, only equity market data is automatically assimilated. "This does not mean that we do not cover orderbook activity and possible manipulative trading for other asset classes," the FCA said.

The FCA has created a number of surveillance algorithms. One of these recognises trader "spoofing." When the FCA noticed unusual conduct, they alerted the company, which implemented more surveillance and training for its traders. Market Watch 67 then goes on to openly condemn traders, including executives, for engaging in illegal behaviour. Even if the entire business isn't actively reading the publication, it's not a list you want to be on, because there is a sizable contingent that does.

"We are worried that standards for market abuse surveillance are still not being fully met, 5 years after the adoption of the Market Abuse Regulation (MAR) in 2016," the most current edition, Market Watch 68, begins. With an opening like that, you know there are going to be changes — and they aren't going to be good. For some asset classes, the agency has discovered some loopholes in market abuse surveillance.

The need of preserving records is self-evident. However, if the operation is not automated, and the broker fails to enter all of the communication related with a trading event (or non-trading event), criminal activity may go undetected. The potential for market abuse grows as the adoption of web-based user interface (UI) portals grows. Neither messages sent before a transaction nor messages sent after a non-trading occurrence, such as modifications, are allowed.