Managers may support EC phone tapping proposals

National financial regulators should be able to tap telephones and computers at will in order to combat market abuse, according to proposals put forward by the European Commission today.

The proposal is among a number intended to extend the scope of the Market Abuse Directive (MAD), and in markets such as Sweden may find support from fund managers who have become increasingly critical of activities such as automated high frequency trading (HFT), which they say is putting valuations of shareholders units at risk.

The general thrust of the EC’s proposals, put forward by Internal Market and Services Commissioner Michel Barnier, is to extend MAD to cover instruments only traded on new multilateral trading facilities, other organised trading facilities, and over the counter (OTC) trading.

“It also clarifies which HFT strategies constitute prohibited market manipulation, such as submitting orders without an intention to trade but to disrupt a trading system (“quote stuffing”). Commodity markets have become increasingly global and interconnected with derivative markets, leading to new possibilities for cross-border and cross-market abuse. The scope of the legislation is therefore extended to market abuse occurring across both commodity and related derivative markets,” the Commission’s statement reads.

The proposals also seek to give regulators far greater powers to track those they suspect of market abuse.

This includes giving them “the power to obtain telephone and data traffic records from telecoms operators or to access private documents or premises where a reasonable suspicion exists of insider dealing or market manipulation. A prior judicial warrant is also required for access to private premises.”

The Commission proposses that fines for any abuse detected should not be less than the profit made, and that a maximum fine should not be less than twice the profit made. In a parallel move, it is proposing a new Directive that would force member states to introduce criminal sanctions for offenses such as insider dealing and market manipulation, where these are committed intentionally.

The proposals have been passed to the European Parliament and the European Council for “negotiation and adoption”.

Further background to today’s developments is found here: http://ec.europa.eu/internal_market/securities/abuse/index_en.htm

 

 

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