The UK’s Financial Conduct Authority (FCA) continues to see cases of potential flight and printing across markets, including fixed income, commodities and currencies in instruments such as bonds, swaps and options. This includes entering prices on dark markets to create orders on open markets.
Flight involves a company notifying its customers or other market participants, by screen, instant message, voice or other method, that it has offers or offers when they are not supported or sometimes not from an order or a merchant. actual instruction.
Printing involves notifying, by one of the above methods, that a trade has been executed at a specified price and/or size, when no such trade has been executed.
These activities create a false impression of the liquidity and/or price of a financial instrument. As a result, the investment decisions of clients and other market participants may be based on misleading information. This can cause financial harm to these participants, as well as undermine market integrity and confidence.
Such conduct may breach various provisions of the law, including section 12.1.a(i) of the UK Market Abuse Regulation and/or Sections 89 and 90 of the Financial Services Act 2012 (Misleading Impressions), as well as sections of the FCA Handbook.
The FCA has also seen cases where management does not deal with this behavior in a robust and timely manner, such as:
- failure to recognize the dangers of flying and printing.
- failure to implement appropriate supervision;
- failure to report suspicious transactions and orders, or purchase observations, related to flight or printing;
- it takes a long time to investigate potential wrongdoing.
To mitigate the risks of damage caused by flights and printing companies may want to:
- Ensure that compliance manuals prohibit flight and printing and that annual certifications of compliance are obtained. Senior management should ensure that they effectively communicate their expectations regarding culture and policy compliance.
- Ensure that training includes the nature and prohibition of flying and printing and the consequences of such behaviors. Companies may also want to consider enhanced training for offices considered higher risk.
- They take all steps to ensure that surveillance processes for flight and print detection and reporting are robust and that behaviors are taken into account in risk assessments. Factors to consider could include properly targeted surveillance to detect spread compression, order cancellation rates, order-to-trade ratios, and the dictionaries built into electronic communications surveillance systems.
- Ensure that disciplinary processes offer clear and consistent procedures for dealing with misconduct and that commercial interests do not drive outcomes.
The regulator warns that it will not hesitate to intervene when it suspects conduct damaging to the confidence and fairness of UK markets.