Topic Market manipulation, Insider monitoring Market abuse analysis
Content
Article from BaFin's 2017 annual report
In the year under review, BaFin analysed 811 transactions (previous year: 706) for indications of market manipulation and insider trading (see Figure 7 "Market abuse analyses").
Figure 7 Market Abuse Analysis
Market abuse analyses
In 241 cases, BaFin found indications of market abuse. 181 of these cases (previous year: 103) related to market manipulation and 60 (previous year: 46) to insider trading.
Most of the analyses were again triggered by suspicious transaction reports. Their number had risen significantly in the previous year as a result of the introduction of the new provisions of the Market Abuse Regulation (MAR) for reporting suspicious orders and transactions. This trend continued in 2017. BaFin received 2,830 reports (previous year: 1,274) from a total of 292 different parties subject to reporting obligations (see Figure 8 "Suspicious transaction and order reports").
Figure 8 Suspicious transaction and order reports
Suspicious transaction and order reports
Driven especially by the large number of reports of trade-based market manipulation (in particular wash sales and pre-arranged trades), 2,467 of the reports were about alleged market manipulation and 344 related to suspected insider trading. There were 17 reports of possible violations of the prohibition on insider trading as well as the prohibition on market manipulation. 58 percent, and thus the vast majority of reports, related to market abuse involving equities, 20 percent affected warrants and certificates and 14 percent were attributable to bonds. They related to a total of 1,786 different financial instruments (previous year: 765).
In addition, BaFin again published 7 consumer warnings on its website in order to alert private market participants of market manipulation in the form of concerted manipulation attempts, such as phone calls or spam e-mails.
Market manipulation analyses
149 of the total of 181 positive market manipulation analyses dealt with sham activities such as wash sales and pre-arranged trades (previous year: 81; see Figure 9 "Subject matter of positive market manipulation analyses"). In 24 cases, there were indications of information-based manipulation, such as incorrect, misleading or withheld information as well as manipulation in the form of scalping (previous year: 15). Almost all other cases were based on manipulation of order situations or reference prices.
Broken down by stock exchange segment, 69 percent of the alleged cases of market manipulation were identified on the regulated unofficial market (Freiverkehr). The share attributable to this segment was thus virtually unchanged compared with the previous year (68 percent). Analyses relating to the regulated market accounted for 31 percent (previous year: 32 percent).
Figure 9 Subject matter of positive market manipulation analyses
Subject matter of positive market manipulation analyses
Insider trading analyses
The main focus of positive insider trading analyses – 20 cases – was on issues relating to companies' earnings figures (previous year: 17; see Figure 10 "Subject matter of positive insider trading analyses"). 13 cases were recorded in connection with mergers and acquisitions (previous year: 10). As in previous years, most alleged insider trading took place on the regulated market (72 percent; previous year: 80 percent). The remaining cases (28 percent; previous year: 20 percent) related to the regulated unofficial market.
Figure 10 Subject matter of positive insider trading analyses
Subject matter of positive insider trading analyses
Recommendations and financial analyses
At the end of 2017, 392 credit and financial institutions that provide their customers with in-house recommendations or recommendations developed by third parties within the meaning of Article 20 of the Market Abuse Regulation were supervised by BaFin (previous year: 431). In addition, BaFin was notified of 236 independent natural or legal persons or associations of individuals that produced or disseminated recommendations (previous year: 213).
In addition to the Market Abuse Regulation, which has been in force since the middle of 2016, parties that produce and disseminate research material have, since 3 January 2018, also had to comply with the MiFID II Delegated Regulation, which sets out certain organisational requirements.1 While the MiFID II Delegated Regulation continues to use the term "investment research", the Market Abuse Regulation uses "investment recommendations". Despite using different terms, they refer to the same thing in both cases. The use of different terminology led to a number of queries in the year under review. Both investment recommendations within the meaning of the Market Abuse Regulations and investment research within the meaning of the MiFID II Delegated Regulation are addressed to a wider group of recipients and are therefore unable to take individual targets and the risk appetite of an individual investor into account. They must therefore not be confused with the personal recommendations that investment advisors provide in the context of individual investment advice.
Footnotes:
- 1 See section 80 (1a) sentence 2 no. 2 of the Banking Act (Kreditwesengesetz) in conjunction with Article 37 of Delegated Regulation (EU) 2017/565.