The UK Financial Conduct Authority
in its latest market abuse peer review or Market Watch said it found “gaps in
surveillance” among contracts for difference (CFDs) providers. According to the financial watchdog, its study of nine CFDs providers in the country show
that they are not paying enough attention to market abuse risks in non-equity assets
classes.
This is despite the fact that
the regulator’s findings “were largely positive” as all the reviewed CFDs
providers had surveillance in place to detect insider dealing. The watchdog
considered most of these surveillance mechanisms to be “effective.”
“All 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,” FCA said.
Poor Monitoring of Market Manipulation
The regulator also found that
the firms are not doing enough to capture “narrowing the spread” market
manipulation. This is a practice where traders seek to influence the prices of
spread bets or CFDs by placing a buy or sell order of a security with a direct market access (DMA) brokerage in order to “narrow” the spread of the security and
influence the execution price of a CFD or spread bet based on them.
FCA noted that while some firms
were not aware of this type of practice, most knew as they submitted
Suspicious Transaction and Order Reports (STORs). However, none of the examined
CFDs providers listed this practice in their risk assessments or had a
compliance-based surveillance in place to detect them.
“CFDs and spread bets are
particularly vulnerable to being used for insider dealing due to the
speculative and leveraged nature of the products. They are a major source of
Suspicious Transaction and Order Reports (‘STORs’),” FCA explained.
“We are also aware of a
potential increase in a type of manipulative behavior where spread bets and
CFDs are being used to realize profits following manipulative practices in the
underlying market via other firms,” the regulator added.
FMA flags fraudulent broker; new FX pairs on Admirals; read today’s news nuggets.
This article was written by Solomon Oladipupo at www.financemagnates.com.
