FCA rears its head on insider trading after 5 years of silence
The FCA has noticed a spike in buying activity of shares in companies that are about to conduct a major deal, therefore has launched an inquiry into insider trading.
Britain’s Financial Conduct Authority (FCA) may well be one of the world’s most highly respected regulatory authorities when it comes to protecting the interests of customers of electronic trading companies, as well as one of the most forward thinking in terms of keeping pace with new developments in the financial sector by way of providing a framework to stimulate innovation in the form of its FinTech sandbox.
More traditional forms of trading involving more traditional asset classes, however, have gone by the wayside slightly over recent times, however, with the means by which company stock is traded having been a silent point for five years.
Insider trading – the practice of trading company stock whilst armed with knowledge from inside the company that other traders are not party to, is illegal in most jurisdictions and often punishable by criminal trial, however in Britain, the FCA has not brought any insider trading cases to court since 2011.
This week, the sleeping giant has woken from its 5 year slumber and has begun an investigation into what it considers to be inside traders targeting new companies that have floated stock on London’s exchanges post IPO.
This investigation was brought about as a result of a sudden spike in the price of shares of newly floated companies just before events such as mergers and acquisitions took place involving companies whose stock was present in this spike.
Whilst very hard to prove, largely due to the common practice of traders seeking to execute deals on stock with regard to which they have inside knowledge asking acquaintances that are outside the firm to conduct the trading based on information passed to them, thus covering their tracks, investigations into sudden patterns such as this can sometimes be fruitful even if very complex.
Indeed, in some cases, even courts are unable to determine the root cause, resulting in very high costs and long, drawn out trials.
In this particular case, the FCA has noted that companies that were involved in 19% of all mergers and acquisitions have been subject to suspicious buying activity before official announcements were made, which is a 14% increase since 2014.
The FCA maintains that whilst no censuring of insider deals has taken place since 2011, the regulator has been training companies to spot unusual trades and also encourages brokerages to submit suspicious transaction reports when they see signs of market abuse, thus placing the onus on companies in the way that a self-regulatory organization may do.
Britain remains a transparent market, despite its sheer volume and size, and indeed actions such as this by the FCA are vital in order not just to preserve its reputation as a first class regulator, but also to preserve that of London’s prestigious venues.
