Market Abuse Risk in Rates and Fixed Income Markets

Gaps in surveillance of web-based trading platforms are making it possible for firms to not identify instances of market abuse risks.

17 November 2021 5 min read
by Alex Viall

The UK Financial Conduct Authority (FCA) just released the latest issue of Market Watch, its regular newsletter on market conduct and trade reporting. Issue 68 focuses on gaps in surveillance of web-based trading platforms, which are widely used for Rates and Fixed Income products.

Some consistent themes have emerged in previous issues (48, 50 and 56) derived from the FCA’s suspicious transaction and order reporting (STR/STOR) supervisory visits. These have included record keeping, market abuse surveillance and the use of market abuse risk assessments.

The FCA says that surveillance has appeared less developed for some asset classes, making it possible that firms are not identifying instances of potential market abuse. The regulator now deems this as a growing area of risk. It is concerned that requirements for market abuse surveillance are still not being fully met. It is now five years since the introduction of the Market Abuse Regulation (MAR) in 2016.

The problem

Wholesale brokers are introducing types of electronic trading platforms to increase access to liquidity and efficacy in trade execution. There is a growing use of periodic, continuous, and dark liquidity, via web-based user interface (UI) portals, matching sessions and ‘pop-ups’. For some Rates and Fixed Income products, these platforms now supplement traditional services in a hybrid broking model.

Many electronic execution platforms require formal connection and interface with a user’s trading systems so that order and trade messages are systematically recorded. Some platforms’ connectivity is made via web-based UIs where direct connection to users’ trading systems is not required and users are unable to establish one.

Trade details for trades executed on web-based platforms are generally recorded in users’ trade booking systems. Users do not always systematically record the related order messages that precede execution, and those orders which do not result in a trade (including cancellations and amendments). Capturing and monitoring orders, as well as trades, is necessary to effectively and consistently identify potential market abuse.

The regulatory requirement for market abuse surveillance: Article 16(2) of UK MAR requires those arranging or executing transactions to establish and maintain effective arrangements, systems and procedures for detecting and reporting potential market abuse (layering; spoofing; cross-venue and product manipulation).

Data challenges:

Most users of these platforms find it hard to get useable data in a format suitable for surveillance. The FCA notes that a small number employ tactical solutions, but for many this is a significant gap in market abuse surveillance.

Compliance awareness:

The FCA found that some Compliance Surveillance teams have imperfect knowledge of their firm’s use of web-based platforms and associated surveillance gaps. Some are unaware of the platforms used by their front office staff or lack knowledge of the quantity of business on them, let alone any associated market abuse risk. Data capture gaps are either eradicated or ignored.

Market abuse risk assessments:

Many conduct assessments to evaluate and manage all market abuse risks facing the business. But the FCA states that these assessments often do not include business on web-based platforms, particularly orders which do not result in a trade.


Where firms do not capture all trade and order data, it is likely they will not be meeting Article 25(1) of UK MiFIR order handling and record keeping requirements. These require investment firms to keep data relating to all orders and transactions for five years.

Justifying MAR failings – a herd mentality:

some firms consider that their own failings can be excused by the fact their peers are failing in the same way. The FCA reiterates that where the industry in general faces specific challenges, it does not mean the regulator will accept failure to comply with UK MAR. It does not mean enforcement will not result

What should firms do now?

The key questions that Compliance/Surveillance teams need to ask are:

  • How serious is this and how likely is the FCA to enforce?
  • How thoroughly have they assessed their own market abuse risk in these markets?
  • What solutions are there to remedy gaps and unaddressed risk?

Market Watch newsletters are an excellent indicator of the FCA’s intentions and where it believes market practice needs improvement. This particular concern has been evident among practitioners for some time who have had STOR visits from the FCA. This notice references how long MAR has been effective and suggests its tolerance for foot dragging and an incomplete approach to data capture and surveillance is wearing thin. Enforcement to drive the message home and create a compliance benchmark might not be far away.

Firms who have had tricky STOR visits previously should review what happened and ensure they have remedied the gaps, as well as alerting senior managers to this fresh insight that the FCA has released. Those that have not had a STOR visit and are active in the Rates and Fixed Income markets, especially where this includes web-based platforms and hybrid models, should conduct a thorough and immediate review of their systems, with focus on complete recordkeeping and data gaps, and a review of the extent to which this is included in their market abuse risk assessment. A plan based on this review should be actioned after escalation to senior management.

Global Relay offers comprehensive compliant recordkeeping solutions that ensure regulated firms can reconstruct the dialogue that surrounds a transaction or order. These capture and enable efficient supervision of all data types that are now commonly used in trading environments.

We also run regular roundtables for market practitioners where these issues, and how to solve them, are discussed confidentially among peers in compliance and surveillance to establish best practice. Anyone wishing to attend these can email for the schedule.

The full FCA Market Watch 68 newsletter can be read at Market Watch 68 | FCA.

About Article

Published 17 November 2021

About Author

Alex Viall Director, Regulatory Intelligence

Share Article