FCA Issues Further Market Watch on Flying and Printing
February 08, 2024
The Regulator Calls for Strengthening of Compliance Controls As It Again Warns Against Continued Observations of Deceptive Practices in Market Watch 76.
The Financial Conduct Authority (“FCA”) has issued a further market watch on firms flying prices and printing trades. We have also seen fines levied in recent years for these abusive practices, by both the FCA and the US Commodity Futures Trading Commission (“CFTC”).
Across Market Watch 57 and 76, the FCA emphasises the obligations of firms to establish and maintain effective management oversight, policies, procedures and systems and controls to ensure market facing employees are not engaging in behaviours that may constitute a criminal offence, market abuse or unacceptable market conduct.
What Do Regulators View As Flying and Printing?
Flying involves a firm communicating to its clients, or other market participants, via screen, instant message, voice or other method, that it has bids or offers when they are not supported by, or sometimes not even derived from, an order or a trader’s actual instruction.
Printing involves communicating, by one of the above methods, that a trade has been executed at a specified price and/or size, when no such trade has taken place.
Creating a false impression of a financial instrument’s liquidity and/or price, can result in investment decisions being made on misleading information and can undermine the integrity of, and confidence in, a market.
Markets in which possible instances of flying and printing have been observed include fixed income, commodities and currencies in instruments such as bonds, swaps and options. This has included entering prices in lit markets to generate orders in dark markets.
The FCA has also observed instances of management failing to deal with this behaviour in a robust and timely manner by:
- Failing to recognise the risks of flying and printing;
- Failing to implement appropriate surveillance;
- Failing to submit suspicious transaction and order reports, or market observations, relating to flying or printing; and
- Taking a long time to investigate potential misconduct.
What Should Firms Do?
- Review and challenge themselves on the contents of the Market Watch; assure themselves that surveillance procedures and risk assessments to identify and report the practices are robust. Factors to consider include properly targeted surveillance to identify spread compression, order cancellation rates, order to trade ratios and the lexicons embedded in e-comms for surveillance systems.
- Senior management should ensure that they effectively communicate their expectations on culture and compliance. Disciplinary procedures should offer clear and consistent processes for dealing with misconduct; commercial interests should not be drivers of outcomes.
- Review compliance manuals, training and ensure annual attestations of compliance are obtained.
- Consider enhanced training for higher risk desks.
How Can We Help?
Our financial services experts have deep industry experience and regularly support firms with reviews of surveillance frameworks, investigations and in the face of regulatory inquiries. For more information see: fticonsulting.com/uk/industries/financial-services
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