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Dodd Frank, MAR, REMIT

Anti-abuse fines on both sides of the Atlantic and more

There has been an increased focus on anti abuse activity in the energy and commodities markets over the past year, due to a combination of the start of MAR in July 2016, the start of REMIT data collection and also increased investigations by both financial and energy regulators.

This year has already seen a fine of over £1M by the FCA for inadequate monitoring . The fine was levied last week against Interactive Brokers, with the press release here and the notice here. The notice describes how on three specific occasions, there was a failure to submit Suspicious Transaction Reports and to properly investigate suspicious activity. The firm’s market abuse policy was not sufficiently tailored to the business, and also stresses that outsourcing of monitoring is not a defence against any inadequacies. It also covers training deficiencies and other issues such as inadequate calibration of the system and an over reliance of the surveillance system.

Although the activity took place before the start of MAR, the offences are now applicable under those rules. MAR includes a wide definition of those who must carry out “effective monitoring” which includes non financial counterparties such as those in energy and commodities. Data to monitor for infringements of MAR is now being collected from Investment Firms under MiFID II transaction reporting. Once this data is being read, National Competent Authorities will be better able to identify further breaches.

The first MAR fine in the UK of £70,000, for failure to disclose inside information in a timely manner, was levied in December against Tejoori Limited (see here). In early January, Neil Danziger, a former RBS trader, was fined £250,000 for offences between 2007 and 2010 relating to wash trades and also benchmark manipulation in interest rate derivatives (see here).

On the REMIT side of things (which applies to all physical and financial gas and power trading in the  EU), ACER has made an announcement reproduced here on the Mondo-Visione web site, that they processed over  90 million transactions in 2017, and reviewed 137 cases. There is an intention to issue new guidance on transmission capacity hoarding, following the paper on wash trades issued last year (see here).

In the US, this story on the Reuters web site reports that the CFTC is close to levying large fines on UBS, Deutsche Bank and HSBC for spoofing in the futures market.  According to the article The activity was partly detected due to other investigations, and partly due to self reporting.

As advised in our opening post of the year, we can expect increased anti abuse activity from regulators in 2018, which will be one of the drivers for more focus from energy and commodity market participants on this topic, as well as financial institutions. The rules, combined with best practice, require that each market participant determine the best route to take in ensuring effective monitoring, and largely rule out any “standard” approach. Many firms are finding that a customised but pragmatic approach allows them to implement a road-map that  is best suited to the business, at the same time as being pragmatic.


About avivhandler

Aviv is the Managing Director of ETR Advisory, a niche consultancy focused on the regulation of the commodity, energy and financial markets. He has more than 23 years of experience in the financial, energy and commodity markets, covering regulatory compliance, credit, risk and financial technology. Prior to founding ETR, he was Partner at SunGard Global Services, where he built a Centre of Excellence in European Energy and Commodity Regulation. Before that, he founded Coherence, a consulting firm specializing in credit risk in commodity and energy trading as well as software product management. The credit practice ultimately became part of Sirius Solutions, where he was the Managing Director of Europe. He has also held management roles at KWI and Iris Financial, among other organizations. Mr. Handler holds a degree in computer science from Imperial College, University of London.


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