Market Abuse: Market Manipulation and Insider Trading
Securities dealing is subject to strict monitoring by the supervisory authorities. The aim is to ensure the proper functioning of fair trading in securities as well as compliance with legal regulations (e.g. Directive 2003/06/EC, Directive 2004/39/EC (Markets in Financial Instruments Directive – MiFID) ). Within the scope of this legislation, the monitoring of stock-market transactions is becoming an ever-increasing focus for the compliance officers of banks. Financial institutions play a key role in the detection and tracing of prohibited insider trading, the manipulation of securities pricing and non-compliance with the rules of conduct.
SironMM: Monitoring, detection and prevention of insider trading
Insider trading is the exploitation of internal information for one’s own benefit or the benefit of third parties and is punished as a criminal offence by national supervisory authorities. Banks are obliged to keep an insider list of all the people who work for them and have access to insider information about securities. SironMM records the insider knowledge of employees, organisational units and customers in a database-driven insider list. The organisational structure stored in the system allows easy allocation of insider information to the relevant group of people. Trading bans/blackouts imposed on the basis of insider knowledge can be defined permanently or for a limited period. All securities dealings of the institution are checked against the insider list and the associated trading bans. If an infringement is identified, the suspicious securities activity is forwarded to the relevant compliance officer for further analysis.
SironMM checks securities dealings for market manipulation
The withholding of disclosable information and deceptive practices which manipulate the price or performance of a financial instrument are illegal trading practices which are uncovered and combated through proactive risk management and intelligent IT systems. For this purpose, the SironMM software employs a set of predefined business rules for standard issues as well as freely configurable rules for identifying deceptive practices and market manipulation in the securities business. Rules can be entered and modified independently by the compliance department via an intuitive dialogue. For example, the following types of market manipulation are uncovered through standardised business rules:
- Marking the close
- Price manipulation in narrow markets
- Scalping
- Transaction cancellations
- Wash trades
Automated monitoring of behavioural, organisational and transparency obligations
SironMM acts as a checking instrument for ongoing monitoring of a bank’s behavioural, organisational and transparency obligations, such as:
Prompt execution of customer orders
- Best execution of orders (MiFID)
- Checking the pre-clearing of employee dealings
- Monitoring proprietary trading of employees / Monitoring trading in risk papers
- Checking appropriate investment advice (suitability test)
- Checking for front running on large orders
- Identifying day trading
- Monitoring compliance with trading windows and trading blackouts
SironMM at a glance
- Satisfies the legal regulations and directives (Directive 2003/06/EC and Directive 2004/39/EC (MiFID) )
- Efficiently identifies cases of market manipulation and insider trading, including churning, front/parallel running, marking the close, scalping, transaction cancellations, wash trades
- Checks employee dealings against watch lists and restricted lists, for example to monitor compliance with trading restrictions and check lock-up periods
- Database-driven recording, maintenance and monitoring of an insider list to fulfil compliance obligations imposed by supervisory authorities and EU market-abuse directives
- Automated checking of rules of conduct for proper rendering of financial services
- Comprehensive case management for analysis and assessment of market-abuse cases
- Audit-proof documentation of all actions and decisions in a database