The FSA published Market Watch No. 29 on 30 October 2008. The newsletter contains an update from the FSA in relation to the unauthorised trading at Société Générale and the FSA's assessment of market abuse controls within hedge funds. We give an overview of these two sections of the newsletter below.
Market Watch No. 29 also covers the Alternative Instrument Identifier (that is, the data firms need to provide when reporting transactions in derivatives admitted to trading on regulated markets where the ISIN is not the industry method of identification) and a reminder of firms' transaction reporting requirements under the Markets in Financial Instruments Directive (MiFID).
Unauthorised trading at Société Générale: update
Following Société Générale's announcement in January 2008 that unauthorised trading had been identified within the organisation, the FSA contacted a number of firms in London to discuss informally their own reviews of the systems in place to deter unauthorised trading, and, where it occurrs, to detect it promptly and take corrective action. The FSA provides an update on the work it has undertaken since it published its initial response to Société Générale's rogue trader incident in Market Watch No. 25 back in March 2008. The FSA reports that the majority of firms have not found extensive control failures. The three most common factors identified by firms as potential gaps in their risk management were mandatory vacation periods for traders, access to IT systems and "cancel and correct" trades. The FSA also considers how firms can improve the time taken to identify abnormal trading.
Market abuse controls: hedge fund managers
In Market Watch No. 24 published in October 2007, the FSA reported on hedge funds' market abuse control procedures following visits to a number of hedge fund managers in 2007. The FSA has now provided some additional observations following visits to a wider cross-section of hedge fund managers. It highlights examples of good practice as well as areas where there is scope for improvement. The newsletter focuses on particular areas, namely, culture and senior management responsibility, compliance procedures and the use of consultants, control of inside information, monitoring of trading activity, training, personal account dealing and telephone taping/ mobile phone policies.
View Market Watch No. 29 (12 page pdf).