Market manipulation on the rise

There are growing concerns over remote working and the security threats posed but analysis from London based law firm RPC shows that market manipulation  has been on an upward trajectory with the Financial Conduct Authority reporting 822 incidents last year, up from 666 in 2017 and 812 in 2018.

While the reports to regulators cover a range of asset classes, including bonds, oil, gold and FX, RPC found that 60% related to equities and equity derivatives. The alerts were likely made by brokers, trading houses and fund managers who noticed suspicious movements or order flows being posted by other market participants, according to RPC.

Simon Hart, partner, RPC

“Whilst banks, brokerage firms and other market participants have significantly improved their compliance controls over the years, it is clear that problems remain,” says Simon Hart, partner in RPC’s banking and financial markets dispute team. “However, the very existence of better internal systems and controls may itself be leading to more concerns being identified and reported.”

Hart adds, “It is often in periods of major market turbulence that more serious examples of market manipulation get unearthed. Market manipulation does not need to be on the scale of the LIBOR or FX for there to be a negative economic impact on other innocent market participants. Every distorted market carries a cost for someone.”

Market manipulation is the attempt to artificially increase or decrease the price of an asset, index or its derivative in order to make a gain. Following the LIBOR scandal in 2012, which saw significant fines being imposed on several investment banks, regulators tightened the rules and new benchmarks were introduced to replace LIBOR and SONIA.

However, in 2015, six banks – including HSBC and Barclays – were fined a total of $5.6bn for manipulating the currency market in a high-profile case of market manipulation referred to as the Forex Cartel.

The pandemic and lockdown has only exacerbated fears of market manipulation especially as analysts predict that working from home could become more of the norm as banks and fund managers look to reduce office space and costs.

While it is difficult to predict the new office paradigm, a recent report by Aite – ‘COVID-19: Challenges and Opportunities in Financial Services’, points out that trading-related jobs and institutional procedures and operations may be more challenging to perform at home. This is because it is beneficial for traders to share market colour and information in a live format, especially in asset classes such over the counter securities and fixed income markets that do not trade electronically.

The Aite report also notes that there is typically a higher degree of trade breaks and compliance challenges if functions are somehow excluded or reduced in coverage.

©BestExecution 2020

Trade bodies recommend changes to European third country rules

Six trade groups suggest that plans to implement a new European benchmark approval regime...

Abrdn becomes biggest shareholder of digital exchange Archax

Asset manager abrdn has become the largest external shareholder in the UK’s first regulated...

Regulation & compliance: Parting of the ways

The UK is carving out its own path in financial services. Gill Wadsworth assesses...

Trade bodies recommend changes to European third country rules

Six trade groups suggest that plans to implement a new European benchmark approval regime...

Abrdn becomes biggest shareholder of digital exchange Archax

Asset manager abrdn has become the largest external shareholder in the UK’s first regulated...

Regulation & compliance: Parting of the ways

The UK is carving out its own path in financial services. Gill Wadsworth assesses...