A general assessment of market abuse policies and procedures does not achieve this.Īlthough the risk of certain types of market manipulation may be lower for this sector, others may still be relevant. It enables a firm to document all the market abuse risks that apply to its business and consider what monitoring it needs to detect them, in a structured and comprehensive way. If done properly, undertaking a risk assessment is an effective and efficient way of achieving this. To maintain effective arrangements, systems and procedures to detect and report suspicious orders and transactions, firms need to understand how they could facilitate market abuse. Two firms split out different types of manipulation in their risk assessments, considered how the risks differed depending on trading platforms and trading method and documented why specific risks were less relevant for their businesses. Two firms had documented an assessment of the policies and procedures for market abuse, rather than an assessment of the market abuse risks applicable to the business.Īll these firms offer CFDs and/or spread bets in non-equity asset classes, but there was little consideration of these in their market abuse risk assessments and limited detail about market manipulation in all asset classes. Firms that could do so had a market abuse risk assessment which documented that they had considered different market abuse risks. However, not all firms could demonstrate they had considered all market abuse risks relevant to their business. Firms should also read Market Watch 73 alongside our December 2022 portfolio letter: Our Contracts for Difference (CFD) Strategy.Īll firms recognised insider dealing in single stock equities as the predominant market abuse risk. While this article draws specific observations from our CFD peer review, the themes of that edition are equally relevant. You should read this edition in conjunction with Market Watch 69. Given these risks, our review aimed to improve our understanding of CFD providers’ arrangements to identify and report potential market abuse and raise standards. We are also aware of a potential increase in a type of manipulative behaviour where spread bets and CFDs are being used to realise profits following manipulative practices in the underlying market via other firms. They are a major source of Suspicious Transaction and Order Reports (‘STORs’). In this Market Watch, we discuss our observations and findings from our recent market abuse peer review into firms that offer Contracts for Difference ('CFDs') and spread bets (‘CFD providers’).ĬFDs and spread bets are particularly vulnerable to being used for insider dealing due to the speculative and leveraged nature of the products.
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