Are CFD brokers subject to Market Abuse Regulation?

Market Abuse Regulation

The increasing globalisation of financial markets has given rise to new trading platforms, market behaviours and financial technology. This in turn has opened up new possibilities for market manipulation. Regulations which are specifically designed to prevent market abuse, increase the overall market integrity and protect investors have been imposed or tightened by regulators around the world in recent years.

What’s Market Abuse Regulation?

EU MAR

The European Union (EU) introduced the Market Abuse Regulation (MAR) on 3 July 2016, repealing the Market Abuse Directive. It aims to combat market abuse within financial markets as well as across commodity and related derivative markets in the EU (i.e. markets trading primary products such as silver and corn, and financial instruments based thereupon). Alongside MAR, the Criminal Sanctions for Market Abuse Directive requires all EU countries to harmonise their laws on criminal offences for market abuse.

UK MAR

The EU MAR was onshored into UK law on 31 December 2020 by the European Union (Withdrawal) Act upon Brexit.

5 Aspects of MAR

MAR deals with the following 5 aspects:

  1. market manipulation;
  2. inside information;
  3. insider dealing and unlawful disclosure;
  4. market soundings; and
  5. buy-back programmes.

What financial instruments are subject to MAR?

MAR applies to any transaction, order or behaviour concerning financial instruments traded on trading venue (i.e. regulated market, Multilateral Trading Facility (MTF), Organised Trading Facility (OTF)), or certain derivatives based on these instruments.

Are CFD brokers subject to MAR?

Yes, CFD brokers must comply with MAR as they commonly trade financial instruments captured under the scope of MAR.

Recent MAR Breaches and Penalties

ESMA’s annual report published in December 2020 indicates that National Competent Authorities (NCAs) and other authorities imposed a total of €88 million in fines during 2019 related to 339 administrative and criminal actions under MAR. This demonstrates a significant increase from €10 million in 2018.

The below are the 3 examples of the MAR breaches in the recent years:

NCACySEC
When13 August 2021
Company/PersonCIF London Capital Group (Cyprus) Ltd
Reason of breach• Non-compliance with article 16(2) of EU MAR
• It did not maintain effective arrangements and procedures to detect and report suspicious orders and transactions, which also ensure the monitoring those.
Penalty€40.000
Referencehttps://www.cysec.gov.cy/CMSPages/GetFile.aspx?guid=1e34c3a4-2e5f-4778-95b0-098d68aa09d5
NCAFCA
When15 December 2020
Company/PersonCorrado Abbattista - former a portfolio manager, partner and Chief Investment Officer at Fenician Capital Management LLP
Reason of breachEngaged in market abuse as an experienced trader by creating a false and misleading impression as to the supply and demand for equities between 20 January and 15 May 2017
Penalty• £100,000
• Personal prohibition from performing any functions in relation to regulated activity
Referencehttps://www.fca.org.uk/news/press-releases/fca-publishes-decision-notice-against-corrado-abbattista-market-manipulation
NCAFCA
When25 January 2018
Company/PersonInteractive Brokers (UK)
Reason of breachIt failed in its post-trade systems and controls for identifying and reporting suspicious transactions in the period February 2014 to February 2015.
Penalty£1,049,412
Referencehttps://www.fca.org.uk/news/press-releases/fca-fines-interactive-brokers-uk-limited

TRAction’s Recommendations

  1. Assess if your trading products fall within the scope of MAR
  2. Ensure you have trade surveillance measures and procedures in place

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