Market Conduct, Surveillance and Information Barriers

In recent years, global regulators have increased their enforcement activities relating to market abuse, in terms of size and count of fines, not only against rogue traders and market abuse offenders, but also against firms and senior management individuals for failures in maintaining adequate systems and controls to prevent and detect abusive behavior conducted by their employees and clients. In light of the on-going, multi-jurisdictional regulatory probes into alleged FX and LIBOR benchmark manipulation, regulators are increasingly expecting firms to have a robust and sound governance and risk mitigation framework in place to avoid being a conduit for financial crime.

In the UK, the FCA undertook the following thematic reviews during 2014 and 2015:

• Market abuse controls within asset managers

• Trader controls around the risk of benchmark manipulation

• Controls over flows of confidential information in investment banks

• Conflicts of interest in investment banks

In addition, to keep a pace of technological advances and increased level of sophistication of trading strategies, global regulators are deepening their focus, supervision and stringent regulatory reach around electronic, algorithmic and high frequency trading (HFT) to minimize the risk of unfair and disorderly markets.
In the U.S., the surveillance of abusive algorithmic and HFT strategies remains a high priority for FINRA. The securities regulator has reiterated its continuation to assess whether firms’ testing and controls, relating to HFT and other algorithmic trading strategies and systems, are adequately in line with the SEC’s Market Access Rule and other regulatory obligations through forms of examinations and target investigations.

In Hong Kong, the SFC introduced a new electronic trading regime with effect from 1 January 2014 to enforce a new set of rules on electronic trading of securities and futures contracts listed or traded on an exchange, forming part of the SFC’s Code of Conduct. As a result of these new rigorous regulations, the industry is anticipating increased supervision by the SFC of electronic trading and the requirement for firms to commission independent reviews of their market and trading conduct, system testing and adequacy, management and supervision and on-going monitoring.

Last but not least, the submission of high quality suspicious transaction reports to your relevant competent authority, as and when appropriate, and having effective information barriers, wall crossing and employee trading approval and monitoring processes and procedures are of paramount importance.

Our services include:

• Market monitoring and surveillance

• Electronic and algorithmic trading strategies and systems

• Control room and information barriers