Watch out FICC, the FCA has something in STOR for you


Mark Baker
Published on:

The UK regulator thinks that bond markets could step up their approach to reporting market abuse

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Imagine for a moment that equity-insider-dealing-related Suspicious Transactions and Orders (STORs) accounted for, say, 70% of all STORs reported to UK regulators. It’s a useful number because it’s the real one.

There are a couple of conclusions you could draw from it. One would be that equity-related-insider-dealing happens a lot more than equity-related-market-manipulation, which is another and perhaps even more exciting kind of STOR.

Another would be that there are many, many more wrong ’uns in the equity market than there are in fixed income, currencies and commodities (FICC), whose STOR count is a tiny fraction of the total.


Julia Hoggett, FCA

But then this: $10 billion of FX-rigging fines, $9 billion of Libor-related fines. You get the point. Which leads to another shocking conclusion: FICC businesses are just not very good at monitoring themselves. Or not very good at spotting potential abuse. Or something else. Hmm.

Whatever, UK regulators think something’s up, and they’re putting the industry on notice. Ex-banker Julia Hoggett is the newish director of market oversight at the UK’s Financial Conduct Authority (FCA) and in a speech in London on Tuesday she set out the case for the prosecution – albeit in regulator-speak.

“The limited number of non-equity insider dealing STORs does feel like a leading indicator of the capability of the industry to identify potentially manipulative behaviour in equity markets and to monitor and perform surveillance for all types of abuse in fixed income and commodity markets.”

To translate: equity markets don’t seem to be doing enough to spot manipulation (as opposed to insider dealing), and FICC participants struggle to spot anything at all.

The most recent STOR data available covers the second half of 2016 – STOR reporting came into effect in July 2016 as part of the implementation of the market abuse regulation (MAR). It’s a fairly startling picture (see graph).

Taking insider dealing and market manipulation STORs together, equity-related reports account for fully 90% of the roughly 1,900 reports made in that time. Fixed income accounted for 6%, commodities 3% and FX 1%.

STOR graph mb

It sounds like Hoggett might be giving fixed income and commodities folk the benefit of the doubt – perhaps they’re just not as good at spotting stuff as their equity colleagues, perhaps because it’s harder to do. After all, equity is a mostly public market. It’s less technical than some other asset classes. We’re not talking bitcoin, but market movements can be sudden and big. When stuff happens, it’s a bit more obvious.

That said, it’s hard to see her comments as anything other than a verdict of “must do better” on the FICC business.

How much better is unclear. The FCA is not going to start saying what it thinks the right percentage split of reported STORs should be. As Hoggett reasonably notes, it’s impossible to do that without knowing how much market abuse is going on in the first place, which is kind of what all the monitoring and reporting is supposed to be about, etc etc.

Note also that the equity crowd doesn’t get off scot-free. Practically all the equity-related STORs are for insider dealing, not market manipulation, and it’s stamping out manipulation that Hoggett thinks is critical to appropriate price formation. So much so that the FCA has now come up with a system for seeing all order book data from all equity venues in one place.

But it’s FICC that’s firmly in Hoggett’s sights.

“If compliance with the market abuse regime is a state of mind, then the state of mind that market abuse only takes place in equities, which still feels like an unreconstructed assumption in certain areas of the market, needs to be thoroughly broken,” she said.

Don’t say you weren’t warned.