The FCA has published issue 67 of Market Watch, its newsletter on market conduct and transaction reporting issues.
Issue 67 focuses on how the FCA uses orderbook data to conduct surveillance to identify suspected market manipulation. Issue 67 covers the following:
- Identifying equity manipulation. The FCA uses suspicious transaction and order reports (STORs) and other notifications about suspected market abuse under article 16 of the UK Market Abuse Regulation (596/2014) (UK MAR). The FCA undertakes its own surveillance of market activity and uses orderbook data provided by UK trading venues to do so. Data is blended to provide a consolidated “helicopter” view to detect manipulative trading. Firms and trading venues are requested to maintain good records of their orderbook data. The FCA may make information requests for orderbook data in order to assess whether effective surveillance arrangements are in place.
- Algorithm design. The FCA’s surveillance algorithms identified trading by an algorithmic trading firm that raised potential concerns about the impact the algorithms responsible for executing the firm’s trading strategies were having on the market. As a result, the firm adjusted the relevant algorithm and its control framework to avoid having an undue influence on the market.
- Staff conduct. The FCA’s internal surveillance algorithms identified a small number of instances of potential spoofing by a trader at a firm. Following enquiries by the FCA, the firm introduced additional market abuse training for all trading staff and enhanced surveillance capabilities.