EU Markets Abuse Regulation

In mid-2016, MAR (596/2014/EU) will replace the EU Market Abuse Directive and the current UK Market Abuse Regime.

While market participants, including sell-side, buy-side, trading venues and technology providers, should be familiar with many concepts in the new regime, there are some fundamental changes that need to be prepared for ahead of the 3 July 2016 implementation of MAR.

Key changes for market participants

Extended Scope

  • MAR scope includes new asset classes, new offences and new manipulative and abusive behaviors
  • The hiatus between MAR and MiFID II implementation (expected January 2018) means MAR’s current scope of instruments will widen further when MiFID II comes in 

Suggested actions

  • Firms should assess and prioritize their key market abuse risks addressing any major vulnerabilities in the limited time available
  • Strategic decisions about investment in new systems and business processes should take account of the expanded scope derived from MiFID II

Market Soundings

  • MAR provides a detailed framework for firms involved in sounding out potential investors, including how inside information should be controlled during market soundings
  • The legislation also sets out arrangements, procedures and record keeping requirements for those receiving soundings

Suggested Actions

  • Firms should update their policy on giving and receiving market soundings
  • Review their record keeping arrangements to identify whether they need enhancing, such as tracking inside information and recording all communications taking place during a market sounding
  • Updated training for all staff who may receive soundings or other inside information

Market Manipulation

  • Widening of the manipulation offences to include benchmarks, attempted market manipulation and spot commodity contracts
  • The legislation includes numerous specific indicators of market manipulation, such as behaviors specific to HFT (‘quote stuffing’)

Suggested Actions

  • Firms should review their market manipulation risks across trading desks and asset classes to determine if additional monitoring is required
  • Front office surveillance may require enhancing to identify attempted market manipulation

Prevention and Detection of Market Abuse

  • Firms are now required to identify and report suspicious orders as well as transactions (STORs)
  • The new rules require firms to use automated surveillance systems, unless their business model justifies a manual approach
  • Surveillance is required for all instruments admitted to regulated platforms (MiFID II scope)  including electronic, voice, hybrid and RFQ trading

Suggested Actions

  • Firms will need an integrated approach to surveillance – encompassing orders, executions, communications, relationships and behaviors
  • Firms may need to upgrade their current surveillance systems or introduce automation for the first time
  • Surveillance/compliance officers must have appropriate level of expertise, skills and training to understand the products, types of potential abuses and red flags
  • Firms should foster a culture to support STOR and whistleblowing regime across all employees and departments

How Duff & Phelps Can Help

With our deep expertise in global market abuse regimes and surveillance implementation programs, we are uniquely placed to assist your firm overcome MAR challenges and ensure your readiness for this key piece of EU legislation. We can assist you with a broad range of challenges including:

  • Develop market conduct risk assessments across business areas, asset classes and market abuse offenses
  • Review and enhance market conduct systems and controls
  • Design and implement automated or manual surveillance processes to detect market abuse
  • Training of compliance and surveillance personnel
  • Review and draft market abuse policies and procedures
  • Review and enhance wall crossing processes and controls around information flow
  • Develop compliance monitoring programs
  • Advise on voice and e-communications surveillance and how to integrate with market and trade surveillance
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