Subject Matter Expert
On 31 October 2023, the FCA published Market Watch 75 expressing concern about instances of possible market abuse in connection with market soundings under MAR.
Market soundings play a pivotal role in financial markets, aiding issuers and investors in gauging interest and facilitating price discovery for transactions. These interactions are instrumental to issuers and firms in maintaining market integrity by managing the risks of potential insider trading. The UK Market Abuse Regulation (MAR) market soundings regime formalizes the process of disclosing inside information, ensuring transparency and safeguarding against misuse. However, recent observations have highlighted the need for proactive monitoring to prevent potential violations and maintain market fairness.
Market soundings involve a series of critical steps:
The European Securities and Markets Authority (ESMA) Market Sounding Guidelines outline the responsibilities of MSRs in handling inside information, emphasizing independent assessment and controlled information flow. Recent instances have revealed a significant challenge: MSRs trading financial instruments before inside information is disclosed. Despite initial communications not revealing the specific details of the proposed transaction, MSRs often use available information to identify these details, potentially leading to unfair advantages.
The significance of proactive monitoring becomes evident in these scenarios. MSRs who can identify financial instruments before consenting to receive inside information may inadvertently engage in insider trading, as the market sounding regime only protects against unlawful disclosure by the Disclosing Market Participants (DMPs).
Here are some reasons why proactive monitoring is beneficial in this instance:
The increasing emphasis on stopping misconduct before it escalates reflects a critical shift driven by regulators, and financial institutions are now recognizing the benefits of proactive surveillance. In order to meet these needs, organizations are increasingly turning to AI-powered solutions to align with these evolving requirements against emerging threats.