Europe Set to Get Tough on Market Abuse

Terry Flanagan

The fight against market abuse and manipulation is set to be ramped up, especially in Europe.

The European Union is expected to finalize its Market Abuse Regulation (MAR) and the revised Market Abuse Directive, or MAD II, in the coming months—the proposals are currently undergoing final three-way negotiations among the European Commission, the European parliament and the Council of Ministers, which represents the 27 member states.

The new measures, a directive and a regulation, aim to significantly increase enforcement against market abuse in Europe by raising sanctions, expanding the investigative powers of national securities regulators, strengthening cooperation among them, and, in the case of MAR, forcing a harmonized approach through the adoption of a regulation rather than a directive.

And the new regime, which will cover insider trading, market manipulation and ad hoc disclosure, is being compared to the more stringent U.S. approach taken by the Securities and Exchange Commission as Europe looks to finally move away from a ‘light touch’ approach to regulation.

“The MAR is still subject to debate between the European Council and the European parliament, especially as to the level of sanctions, double jeopardy, whistle-blowing and naming and shaming,” said Pierre-Henri Conac, a professor of commercial and company law at the University of Luxembourg, in a recent Columbia Law School blog posting.

“However, these differences are not great enough to prevent an agreement being reached during the pending negotiations. As a result of these proposals, European securities legislation is going to look much more similar to U.S. regulations than it used to, both as to its content and level of harmonization.”

And it is the sell side in Europe that is coming under greatest pressure to demonstrate that it has adequate systems in place to monitor their own and their clients’ trading activity for market abuse.

With trading technology also increasing at a fair gallop, regulators and market participants alike will have to up their game to monitor this landscape where speed is king.

“Suffice to say that as trading speeds increase around the globe—and volumes in some markets increase—it’s reasonable to assume that surveillance needs continue to grow,” said Joram Borenstein, senior director, global product marketing at Nice Actimize, a provider of financial crime, risk and compliance software, in a recent blog.

Last year, the European Securities and Markets Authority (Esma), the pan-European watchdog, issued guidelines on automated trading that were seen as something of a precursor to the upcoming MAR and MAD II rules.

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