Regulators have seen a surge in the number of suspicious transactions and orders reports under the Market Abuse Regulation (MAR), prompting Europe’s watchdog to call for greater supervision of the reporting.
According to a peer review on how regulators are handling suspicious transactions and order reports (STORs) from investment firms and market operators, the European Securities and Markets Authority (ESMA) said it had identified areas of improvement for the regulators’ supervision, amid increasing reports.
Following the implementation of MAR in mid-2016, ESMA found the number of STORs reported by firms reached 10,653 in 2017 and 11,130 in 2018. The number represents a 130% increase compared to the last 12 months of the Market Abuse Directive (MAD), the predecessor to MAR, which saw less than 5,000 reports.
ESMA said a vast majority of 84% of STORs submitted to national regulators were made by investment firms, and 75% were related to equities trading. For suspected violations, 39% were related to suspected market manipulation and 60% to insider trading, ESMA’s review stated.
In terms of geography, the UK’s Financial Conduct (FCA) received the most STORs by far in 2017, with 5,501 reports representing 52% of the total across Europe, although ESMA said this is in line with expectations, as the UK makes up around 60% of all equity trades in the European Union.
“Suspicious transactions and orders reporting is an important tool to fight market abuse. Both regulators and market participants need to play their role when it comes to detecting and reporting suspicious activity to support the prevention or investigation of market abuse,” said Steven Maijoor, chair of ESMA.
“Our review highlights good examples of NCAs’ (national competent authorities) supervision and enforcement of STOR requirements. However, we as European regulators need to make further progress in ensuring firms’ compliance and in challenging poor-quality reporting.”
ESMA added in its peer review that six national regulators assessed were found to be compliant in at least four areas of the supervision of STORs, including the UK, Belgium, France, Italy, Portugal and the Netherlands.
In identifying areas with room for improvement, ESMA recommended that regulators ensure market participants, including asset managers, are complying with the rules, with further advice to focus on suspected non-reporting of STORs.