The Financial Conduct Authority (FCA), the UK’s main regulator has upgraded its own market monitoring tool to better track insider trading abuse.
The UK’s main regulator has upgraded its own market monitoring tool to better track insider trading abuse
The UK Financial Conduct Authority (FCA) has updated how it measures insider trading through its Market Cleanliness Statistic (MCS) with the aim of improving accuracy and reliability in spotting unusual stock price movements linked to takeover announcements.
Featuring in every FCA annual report since 2008, the previous MCS methodology estimated a stocks’ cumulative abnormal returns (CAR) in the two days before the announcement (compared to a period without an announcement).
However, following a review of its processes, the FCA has pressed ahead with a number of key updates to the indicator, which now include:
- Same-day detection: The MCS will now account for abnormal price movements on the same day as an announcement, using more frequent pricing data.
- Market comparison test: A new test makes the statistic less sensitive to major market events, like the Covid-19 pandemic or geopolitical disruptions.
- Expanded scope: The measure includes more announcements from firms with multiple takeover offers.
Following these changes, the revised MCS measure is higher, with the scope of the statistic now capturing potential insider trading on announcement days. The news comes after the recent criminal proceedings the UK regulator took out against two individuals on suspicion of insider dealing.
While the new methodology is more robust in relation to periods of market volatility, the regulatory body has so far not found any evidence of increased market abuse based on insights received from reports, alerts and market intelligence.
Alongside the MCS, the FCA uses other tools, like the Abnormal Trading Volume and Potentially Anomalous Trading Ratio, to detect and address insider trading. They combine these with non-public data in an effort to tackle market abuse effectively.
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