STORs biggest market abuse hurdle for firms

Suspicious transaction and order reporting has been raised by industry experts as a big issue for firms ahead of MAR implementation.

Industry experts have agreed suspicious transactions and order reports (STORS) remains an issue for firms amid changes to market abuse regulation (MAR).

In July this year, the Financial Conduct Authority (FCA) will apply MAR’s level 2 texts and firms will be expected to comply with new rules covering market abuse and manipulation.

On Tuesday, The Trade brought together industry experts to discuss MAR at the London Stock Exchange, and dealing with STORs was highlighted as one of the biggest issues facing buy- and sell-side firms.

FCA statements on MAR say it: "extends the existing obligation to report suspicious transaction reports, to include suspicious orders too. Trading venues are also caught by the obligation to submit STORs.”

Speaking at the exchange, Morgan McDonnell, president of ACI-UK, explained: “Firms have to be careful when reporting STORs because if everything is reported, the FCA will not be able to consume all the data and guarantee there are no abusive trades within the reportings.”

Reporting STORs is not an easy task, as McDonnell highlighted: “From a manager’s perspective, we should report everything, but all of a sudden you find you have a backlog and a huge amount of reporting which could slow down liquidity or market engagement.”

Christopher Robinson, partner at Freshfields Bruckhaus Deringer, raised the issue on a discussion panel. Robinson asked, “How much time is required to look for STORs? Are we expected to file STORs if turnover is low or we don’t trade certain assets?”

The Investment Association’s Adrian Hood also raised several problems facing firms trying to implement MAR by the July deadline, due to the tight deadline and regulatory texts that have yet to be finalised.

Hood said: “If Level 2 is delayed then the entire timeline will be changed. These rules aren’t finalised, which makes it difficult to allocate budgets when we cannot be sure what the costs of complying with the rules will be.”

He added: “Many guidelines are expected to stay in MAR 1, but then lots are expected to be changed, and it is very difficult to run a project based on this information.

“We advise firms raise issues with their trade associations to try and understand what other firms are trying to do.”

Stéphane Blais, associate director in risk and regulation at Deloitte said: “The ability to identify high quality STORs, helps to confirm to the regulator that the firm has developed a quality market surveillance framework. It closes the loop.  I expect that those who submit quality STORs to the regulator will be able to demonstrate a good level of compliance with MAR.

“Based on my experience as a supervisor, there is an expectation that the market surveillance framework will generate MI (e.g., Alerts) to be reviewed and escalated the relevant management committee(s).

“In the absence of STORS, supervisors will often ask to see a firm’s ‘near misses’ to help assess the quality of the framework.”

Stefan Hendrickx, executive director and founder of Ancoa, also highlighted big data technology as a good tool to support STORs and market surveillance.

He said: “To have a full view you need to have data on every call and trade. Big data technology can help firms with that issue, by creating patterns and alerts making it a little easier to spot market abuse.”

Panellists agreed that the collection of data to comply with MAR could prove to be very valuable.

Managing director at LIST, Enrico Melchioni considered: “The first step is to get the data, and the second step is to extract information from the data, but the sheer volume of information to retain is an issue.”

He concluded: “Collecting the data for MAR could in fact prove to be potentially very valuable, as the data can be then used and sold on as business intelligence.”

In a keynote speech at the event, Helen Boyd, manager of thetrading conduct and settlement policy team at the FCA, confirmed that the regulatory body fully expects firms to be ready for MAR by the July application date.

She explained that although current regulation will not be changed in its entirety, it is subject to change by July and so businesses should be prepared for that.

Boyd’s advice to firms when implementing and preparing for the July deadline is to read all the information now to form a basis of plans.

The FCA expects firms to be already well underway with MAR implementation.