The global economic upturn means vastly expanded opportunity for some entities, but also increases the possibility and scope of unfair exploitation of the markets, financial and otherwise, within which they operate. Market abuse regulation (MAR) exists to keep those playing fields level across the multiple sectors and economies in which a modern enterprise operates simultaneously.

This post is meant to explain briefly what is covered under market abuse, how its regulation works and how an effective software platform can leave your entity carefree and satisfied that all of its operations will be up to the standards of each market in which it operates.

What is meant by the term “market abuse”?

Market abuse is defined as behavior that intentionally harms the integrity of markets. Most frequently, this takes two forms: insider trading and market manipulation. Insider trading is well known as the use of knowledge not available to other investors in order to profit from trading in financial instruments. Market manipulation can take different forms, but some examples include when an investor artificially drives up trading volumes, and then unloads shares to profit, or the reverse of insider trading, spreading misleading information in order to drive prices down on the expectation that they will increase in the future.

All the way back in June 2012, it came out that Barclay’s, for almost the entire past decade, had been engaged in daily manipulation of both the London Inter-Bank Official Rate (LIBOR) and the European Inter-Bank Official Rate (Euribor) — two of the leading international benchmarks for financial entities engaged in lending money to each other. Barclay’s was fined $200 million by the US Commodity Futures Trading Commission, part of the Federal Trade Commission (FTC), and the governments of Britain and the EU moved to implement rules that enable better detection and thwarting of these behaviors.[iii]

Brexit, if anything, makes it more important for entities with interests there and in the remaining EU countries to tighten up their practices where market abuse is concerned — because now they may be dealing with an extra set of regulations.

How does regulation of market abuse work and why is it important?

British, European and other law aim to tighten and increase penalties for market abuse while clearly defining the scope and exemptions. Everyone knows, more or less, what insider information is, but the MAR framework in the EU, for example, extends the penalties of using it to activities that include amending and canceling an investment, as well as encouragement or inducement of other parties to market abuse. Under the market manipulation category, benchmarks (following the LIBOR scandal) are now included, as are unsuccessful attempts to influence prices.

Regulations to enforce market abuse penalties most frequently include requiring large firms to keep lists of everyone in their employ who has access to inside information, to report suspicious transactions or orders to regulators, and to maintain an objective presentation while recommending investments at the same time as the party discloses any conflict of interest. Firms also must have established best practices for whistleblowers to come forward without fear of retribution.

Buy-back programs and stabilization measures are still kosher in MAR frameworks, as is the understood and common establishment of market practices.

What can software do to help my entity’s MAR framework?

The requirements of MAR are a nearly impossible task for large-scale, international entities without a software platform to ensure compliance. As the European Parliament states in its directive on MAR, “unless firms embrace technology as a base for managing the vast amounts of data and reporting for which they will be responsible, they face an insurmountable task.”[iv]

Some of the features a good software platform needs to handle MAR include:

  • Tracking close periods, projects, permanent sections and associated insiders
  • Categories of person and function fields to facilitate compliance
  • Automated notification to insiders that integrates relevant documentation

Blueprint OneWorld’s Insider Manager software offers a number of elegant and practical solutions along these lines. It allows batch adding and editing of insider subscriptions; tracks details of close periods, projects and permanent sections with their associated insiders; and enables the efficient production of MAR reports for regulation authorities.

We hope to be your business’s all-access entry point to ensure your entity retains fair and compliant practices in every market within which it operates. Please call or email us to discuss these and other products.

[iii] Library of the European Parliament, “Tracking financial abuse in the EU,”  p. 2.

[iv] Ibid, p. 8.