Capital Markets Compliance with the Market Abuse Directive

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The capital markets or financial markets, as they are commonly referred to, are a distinctive type of trading platform that allows trading in the stocks of companies and other securities. Securities in this context are financial documents that represent a certain monetary value in an economic sense. The Market Abuse Directive is a law intended to streamline the functions of the market especially those conducted by traders and ensure a secure, reliable, and trusted financial platform. It provides guidance on how to accomplish market functions in a manner that achieves best results for all the parties involved, especially the clients.

It curbs market manipulation by stipulating rules for achievement of market directives. These are rules that criminalize insider trading, and other forms of market abuses. This is achieved by increasing the levels of transparency within a trading firm by imposing stricter disclosure requirements, higher penalties both in criminal and civil sanctions and mandating a best execution policy that all trading firms must enact internally. The latter is termed the best execution policy and mandates the agency to act in a fair manner, keeping the interests of its clients in their transactions foremost. This it does by mandating the agency to consider:

  • Type of the client involved in the transaction; they can be either professional clients, for example, incorporated companies or retail clients who are individuals.
  • The nature of transaction that is mandated by the client’s order.
  • The types of financial instruments the order addresses.
  • All the methods of executing the client order those are possible in the given situation.

On the disclosure side, a company is mandated to provide market regulators with accurate information of all the trades they have undertaken within a specified period; a month. This includes all the trades executed by physical traders and computing software. The latter are built with market analysis algorithms that allow them to make quick decisions regarding stocks and execute them in a fraction of seconds. This has led to High Frequency Trading becoming more commonplace in more advanced markets and powerful trading firms.

Ensuring capital markets compliance for any firm is increasingly becoming more difficult due to the astronomical amounts of trades that can be done within a week or even day. Disclosure of this information to the regulator becomes a challenge if it is to be undertaken manually, however there are software solutions in the market that provide services of ensuring that internal business processes meet market regulations.

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Tapas Kumar has 379 articles online and 4 fans

Author has 5 years of experience in Internet marketing. Market abuse directive help financial investors have unreasonable disadvantaged, directly or indirectly

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Capital Markets Compliance with the Market Abuse Directive

This article was published on 2013/05/07