04.26.2012
By Terry Flanagan

Staying One Step Ahead In Compliance

Firms are being urged to update their trading surveillance systems as European regulators look to tighten the rules regarding market abuse.

In October last year, the European Commission set out proposals to update and strengthen the original 2003 Market Abuse Directive on insider dealing and market manipulation due to the increasingly complex and global nature of trading platforms.

“Some firms are doing surveillance and monitoring already but I think firms will gain a competitive advantage if they do adopt these guidelines before they become mandatory as it will show they are conducting their business in a fairer manner,” Martin Porter, business development manager at Frankfurt-headquartered b-next, a provider of trading compliance and trading software, told Markets Media at WBR’s Trade Tech Europe 2012 industry event in London this week.

Porter believes that firms will be forced to put significant new investment into compliance operations as the European Securities and Markets Authority (Esma), the pan-European regulator, continues in its push to support clean, fair and orderly markets. While the Commission is expected to push through the new Market Abuse Directive, enhancing administrative and criminal sanctioning, by October 2014

“Some firms are ready for this,” he said. “Many tier one banks have already put investment, staff and systems in place. But smaller firms are concerned how much they will have to spend on this infrastructure because business is tight at this moment in time.

“So at the moment there is a preventative reason why you need to put in this type of infrastructure and systems. In the very near future, though, this could be turned into a positive result for firms as sophisticated technology will be in place, should you put in the surveillance systems, to add to the reporting of trading activity. So you can report on patterns and client requirements and how you have conducted your trading.”

Porter added: “But I wouldn’t want to be a compliance manager looking to keep up with all these directives, guidelines and regulations because so many firms trade multi-asset types in multi-venues now. The compliance officer is looking at market abuse by some very clever technology and traders and they have to talk in that language.”

Esma has also urged national regulators to try to establish a more unified approach to market abuse. In a report it published this week, it revealed that insider dealing fines imposed on individuals across Europe ranged from €64 to €6 million in the last three years, while penalties for market manipulation for individuals ranged from €100 to €1.5 million. The study also found that the number of staff at national supervisors dedicated to tackling market abuse ranged from two to 127.

“Esma believes that the availability and use of sanctioning powers by market regulators is an important factor in supporting clean and fair markets across the EU,” said Steven Maijoor, chair of Paris-based Esma. “However, while most authorities have made use of these powers, differences remain in their availability, regulators’ ability to use them and the allocation of resources.

“This report highlights a number of areas for improvement, which could assist national authorities in calibrating their regimes to achieve the desired outcome of a consistent pan-EU application of the sanctions regime and a harmonized approach to market abuse.”

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