We’ve recently had some very interesting conversations with companies about MAR. Despite going live in July 2016, it’s clear that companies are falling into two camps. Those that are doing their best to ignore it. And, those that are really grappling with some of the finer points of surveilling manipulative behavior. Things like:
- When does a Spoof become a Spoof, instead of just plain old bidding behavior?
- How would we detect manipulation in the spot market via the futures market and vice versa?
- Is there a scenario where MAR might reach into REMIT’s territory?
- What constitutes a “reasonable suspicion” such that we have to submit a STOR under MAR?
These are all really important questions. But even as a software vendor we are really encouraging companies to focus efforts on starting their POLICY & PROCEDURE (P&P). Just for context, I am a guy who sells data connections & surveillance software and I’m suggesting that you don’t buy a single thing… until P&P is in place.
Why? Well, when it comes to surveillance it pays for companies to take the long view. The potential surveillance universe is large and the data required is complicated. There is no possible way to take this down in a big bang.
Food for Thought
Your MAR P&P boils down to three things:
- How will we surveil for known manipulative practices?
- How do we close gaps in our surveillance to cover known about but un-monitored activities?
- How do we stay current with manipulative activities that we hadn’t thought about?
For example, most compliance officers know about wash trading as a manipulative behavior. We can capture data and generate reports that detect this behavior. But rogue traders are a clever bunch and will certainly come up with manipulative ideas that no one ever thought of. Likewise when they come up with something it’s going to take some time to close this surveillance gap.
A surveillance program at any given point in time will have 3 universes.
- Behaviors that we don’t know about yet (bottom sphere);
- Behaviors that we know about but don’t monitor yet (big sphere);
- Behaviors that we know about and monitor (widening sphere)
Why? Well, the biggest risk is that the data is just not available, and may not be for a long time. In other cases, we can get the data but implementation of surveillance over that behavior will take “x” months.
So the objective of your MAR P&P is to create a control framework that tracks, plans and expands the scope of known and monitored activity. This directly leads to an actionable scope for buying software, data connections and the like. This will relieve a lot of pain in the process and prevent your surveillance program from spiraling out of control.
If You Would Like to Kickstart this Process We Have a Template Surveillance Policy that covers this and more. Tom Eisner directly at +1-646-461-3820 or tje@broadpeakpartners to get a copy. And as always if you have any questions or comments please don’t hesitate to contact us.