The UK’s Financial Conduct Authority (FCA) has shared its recent observations concerning ‘flying’ and ‘printing’ in its recent Market Watch 76 newsletter. The FCA explains that these activities create a false impression of a financial instrument’s liquidity and / or price through communicating in a misleading way.
Back in 2018, the FCA described these two activities in Market Watch 57, including their expectations on firms in relation to trade, order and communication surveillance. Of greater concern is that in Market Watch 57 the FCA reminded firms that (back in 2015) they had highlighted their concerns regarding firms publishing incorrect volume data in Market Watch 48, including their expectation of firms. A theme is emerging here, and the FCA clearly sees the need to repeat its observations and concerns indicating that perhaps firms are failing to take note?
The FCA’s most recent observations include cases where firms have failed to deal with ‘flying’ and ‘printing’ behaviour in a thorough or timely manner, including:
- Failing to recognise the risks of flying and printing
- Failing to implement proper surveillance
- Not submitting Suspicious Transaction or Order Reports (STORs) or market observations
- Taking too long to investigate potential misconduct.
The FCA recommends that firms mitigate the risks associated with flying and printing in the following ways:
- Ensuring compliance documentation prohibits this activity
- Including these activities in (market abuse) training content
- Ensuring that surveillance procedures to identify these activities are robust
- Having appropriate disciplinary procedures and ensuring that commercial interests are not drivers of outcomes.
This Market Watch reinforces the importance of having robust surveillance solutions in place to detect fictitious communications regarding bids, offers or actual trades and to automate reporting of such activity.
In addition, these examples continue to show that firms can only really achieve assurance around market abuse regulations by having comprehensive, expertise-driven, internal frameworks across the entire compliance process; from risk assessment & policy transparency through surveillance monitoring to training and visible consequences for non-compliance.
Given these repeated reminders and the severe consequences for firms that get this wrong, this Market Watch newsletter is an important read for all investment firms.