Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Wednesday, April 30, 2008

Market abuse on the rise?

There’s something ironic about the timing. As the Treasury closes its consultation on aligning the UK’s market abuse regime – which is “super equivalent” (we have more detailed rules) – more closely with the Market Abuse Directive, we receive a report from the FSA commenting that market abuse is on the rise.

In yesterday’s Market Watch, the FSA is highlighting again (this is the third year it has published estimates) that more than a quarter of takeovers in Britain last year were preceded by suspicious stock trading, including possible insider trades.

The FSA is highlighting its intent by introducing measures and sanctions to crack down on the problem.

The Financial Services Authority has faced criticism that it isn't aggressive enough in prosecuting cases of market abuse. The FSA itself expressed concern about the level of "informed price movement," - abnormal stock moves before takeovers. One of the problems is that trading can be the result of people trading based on media reports, speculation about likely mergers and acquisitions, as well as outright insider dealing.

The level of suspicious trading is "too high and not reducing as we would wish," said Sally Dewar, FSA's managing director of wholesale and institutional markets, in the newsletter.

In response to the criticism, the FSA said it will introduce more criminal prosecutions and request jail terms as punishment. It said it will push people to report suspicious trades and market abuse, among rivals and even within their own organisation.

And next year, the FSA will require that firms trading in securities record all phone conversations and electronic communications relating to client orders. The recordings must be kept for six months. About 80% of FSA-supervised firms currently do this.

And the FSA has also promised to be robust in investigating ‘system failures’. These could potentially include procedures in place at listed companies. It may be time to get a check-up on those in house systems and control procedures


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