The UK Financial Services Authority (FSA) published issue 33 of its Market Watch newsletter on August 28. It includes articles warning about order book manipulation and emphasizing the importance of Suspicious Transaction Reports (STRs) in preventing and detecting insider dealing.
The FSA highlighted conduct termed “layering” and “spoofing” in particular as manipulation of the order book for firms who offer direct market access (DMA) to their clients. This refers to the use of multiple orders which may give a false or misleading impression about the supply and demand for securities.
The FSA considers that such behavior can constitute market abuse and stated that it expects DMA providers to have appropriate systems and controls in place to identify and prevent it just as exchanges and multilateral trading facilities are required to do.
The FSA stated that in general it considers that the market abuse STR regime is working well, pointing out that suspicious transactions sometimes come to its attention where the firms involved have not submitted an STR, although the FSA would have expected to receive one. As a result, the FSA is “increasingly initiating telephone contact with firms as a matter of course in these cases.” The regulator wants to understand why firms do not submit STRs. It also explained that these phone calls will help it to identify where a firm’s practices may have fallen below the standards expected under the rules and that in appropriate cases this will lead to disciplinary action. The next item highlights the consequences of a failure to file an STR.