Market Surveillance

Market Watch no.49

In last edition (no. 49) of the UK Financial Conduct Authority (“FCA”) Market Watch publication, the FSA provides an overview of the review of commodities firms’ compliance and governance structures including market abuse controls. 12 firms, including brokers, interdealer brokers (IDBs), and commodities trading firms were reviewed.The review focused on firms trading and broking across the Oil, Energy,Metals and Soft commodities sectors.

Key messages from the Market Watch publication:

The full Market Watch can be found here:

In the “General Findings” chapter interesting details can be found and we would like to highlight the following paragraphs:

With a few exceptions awareness of market abuse risk was poor. This was demonstrated by the lack of awareness of market abuse cases specific to the commodities markets, ignorance of firm obligations in relation to the FCA’s Suspicious Transaction Report (STR) regime and unwillingness to consider how recent market manipulation cases such as those in LIBOR, FX and Gold fix could relate to the markets they traded.

Firms that did not fully recognise the risks of market abuse were more likely to employ inappropriate surveillance, in terms of the choice of automated or manual systems, calibration of systems and frequency of monitoring. Overall, there was little order level monitoring, making it difficult for firms to demonstrate effective monitoring for market manipulation, and we often found surveillance being done on an inadequate or poorly targeted sample basis.

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