FCA voices concerns about “flying” and “printing”
The regulator is concerned about the use of trading platforms and persistent chat systems by broking firms, to advertise prices which are not supported by a client order and trades which they claim have been executed, but are in fact fictitious.
The latest “Market Watch” newsletter published by the UK Financial Conduct Authority (FCA) highlights the regulator’s concerns about unacceptable practices employed by certain broking firms.
The FCA is particularly worried about firms engaging in the practices of ’Flying Prices’ and ‘Printing Trades’.
- “Flying” involves a firm communicating to its clients, or other market participants, via screen, instant message, voice or other method, that it has bids or offers when they are not supported by, or sometimes not even derived from, an order or a trader’s actual instruction.
- “Printing” involves communicating, by screen, instant message, voice or other method, that a trade has been executed at a specified price and/or size, when, in fact, no such trade has taken place.
The FCA explains that in case false prices and/or trading activity are advertised to the market, there is a risk that trading decisions may be made based on misleading information. This, in turn, could cause market participants financial harm, and could undermine the integrity of the market. The FCA believes that these practices may amount to criminal offences, market abuse and/or unacceptable market conduct in breach of the Principles for Businesses.
MAR and MiFID II define unacceptable conduct and practice. The definition covers giving false or misleading impressions to the market. Some firms have implemented the necessary changes to the ways in which they communicate prices or advertise trades. For instance, they make a clear distinction between a price which is supported by an order or a trader’s bid or offer and one which is indicative only.
According to the regulator, firms should implement systems and controls to ensure that the instructions which employees place on trading venues, or share via persistent chat systems and trades which they publicly report, do not mislead the market. This includes the supply of, or the demand for, or the price or value of the instrument in question.
In addition to the obligations that rest upon firms, approved persons must act with integrity and observe proper standards of market conduct in carrying out their accountable functions. Individuals performing an accountable higher management function must exercise due skill, care and diligence in managing the business of the firm for which they are responsible, the FCA explains.
The regulator advises firms to consider the procedures they use for training and informing staff about the potentially abusive nature of these practices. Furthermore, firms are encouraged to review the degree to which they can monitor trading platforms and persistent chat systems to identify instances of ‘printing’ and ‘flying’.
In case any areas of concern are detected, the FCA expects firms to conduct an assessment. If these practices have occurred, they must inform the regulator.
