Reports on potentially manipulative trades and orders declined last year during the global pandemic as traders worked from home, the UK’s financial watchdog has said.
Executive director of enforcement and market oversight at the Financial Conduct Authority (FCA), Mark Steward, stated in a speech that the regulator noted a decline in suspicious transaction and order reports (STORs), despite a 34% increase in transaction reports during the year.
“This was temporary and perhaps reflecting a reduction in market abuse opportunities in a pandemic-focussed market as well as new compliance challenges arising from everyone largely working from home,” Steward said.
Steward also attributed the decrease to “a reduction in market abuse opportunities in a pandemic-focussed market”.
STORs have since returned to levels that the FCA would expect to see across all markets, he added, given the extreme market conditions and although trading volumes were lower overall in 2020 compared to other years.
According to Matt Smith, chief executive officer of regulatory technology provider SteelEye, the decrease in reported suspicious trades may reflect some firms seizing the pandemic as an opportunity to deliberately not send reports.
“While the spike in STOR reports went down fairly early on during the pandemic, it does not necessarily mean that market abuse decreased,” Smith said. “With intense volatility and trading volumes, there was a lot of opportunity in the market, and it might be that some firms saw the chaos of the initial lockdown as an opportunity to not send some reports.”
Alongside the decrease in STORs, Steward said the FCA has launched an initiative aimed at improving transparency in short selling reporting. A new reporting mechanism has been implemented that enables short positions to be reported on the FCA’s electronic submission system.
The European Securities and Markets Authority (ESMA) renewed its stricter short selling reporting rules to extend until December, in September last year. Initially implemented in March, the regulator kept them in place following fears that a second wave of covid-19 infections could cause further volatility.
“The transparency is good as the regulator will be aware of large positions and larger positions become more visible to the broader market,” added Smith. “However, short position visibility influenced the social frenzy that led to the short squeeze with GameStop.”