“We continue to see instances of possible flying and printing in several markets, including fixed income, commodities, and currencies in instruments such as bonds, swaps and options.”

The FCA’s latest Market Watch (76) re-emphasises the regulator’s ongoing concerns about firms publishing incorrect volume data and the possible market abuse risks that ensue. “Flying” and “Printing” were first brought to light as a concern in November 2018, in the FCA’s 57th edition of the Market Watch series. 

• Flying involves a firm or individual falsely communicating to clients or other market participants that it has bids (offers to buy) or offers (offers to sell) which are not actually backed by a genuine order. This communication can be done through various channels such as trading screens, instant messages, voice calls, or other electronic methods. 
• Printing involves falsely communicating that a trade has been executed at a specific price and/or size when, in reality, no such trade has occurred. 

Both flying and printing intend to distort the true supply and demand dynamics in both quoted and OTC markets, influencing the perceived value of, or demand for, assets, prompting other market participants to trade based on false and/or misleading information. Despite highlighting these market abuse typologies in Market Watch 57, the FCA continues to see instances surfacing in a range of markets. Additionally, the regulator has ongoing concerns related to organisations’ management failing to deal with these behaviours in a robust and timely manner, including:

• Failing to recognise the risks of flying and printing
• Failing to implement appropriate surveillance
• Failing to submit suspicious transaction and order reports, or market observations, relating to flying or printing
• Taking a long time to investigate potential misconduct

Case study: FCA fines TFS-ICAP £3.44 million for market misconduct

In November 2020, the FCA imposed a fine of £3.44m against TFS-ICAP Ltd, an FX options broker, for ‘printing trades’ between 2008 and 2015. This involved brokers communicating to their clients that a trade had occurred at a particular price and/or quantity when no such trade had actually taken place. TFS-ICAP brokers, across multiple broking desks, did this openly and over a prolonged period.

The firm’s failure to detect or prevent these actions, a lack of record-keeping, and inadequate oversight highlighted significant compliance deficiencies

Which firms need to take note?

The FCA’s regulations of market conduct apply to a wide array of financial firms, including investment banks, brokerage firms, asset managers, and entities involved in trading derivatives, commodities, and currencies. However, certain firms are at higher risk of dealing with practices such as flying and printing than others.

Price Printing and Flying are more at risk of occurring in firms that have clients, such as brokerage firms and sell side firms, and are trying to generate interest to trade or execute. While buy-side firms are less likely to be at risk, precautionary measures still need to be considered. 

Hedge funds, for example, with their substantial capital, are capable of significantly influencing market prices and liquidity. Their use of complex strategies, alongside high-frequency and algorithmic trading, increases the potential for inadvertently engaging in activities that could be perceived as market manipulation. This heightened risk profile necessitates stringent compliance and surveillance measures to ensure these firms adhere to market integrity standards.

What firms can do

In addressing the risks of market manipulation through flying and printing, the FCA advises firms to adopt stringent measures to preserve market integrity:

• Prohibit misleading practices: Incorporate explicit prohibitions against flying and printing in compliance manuals, and secure annual attestations of compliance.
• Enhance training programs: Implement training that covers the nature, prohibition, and consequences of flying and printing, with a focus on enhanced training for high-risk desks.
• Implement clear disciplinary procedures: Establish clear and consistent disciplinary processes for handling misconduct, ensuring that decisions are not influenced by commercial interests.
• Strengthen surveillance systems: Ensure surveillance systems are robust enough to detect and report flying and printing activities. This may involve advanced detection techniques that can identify tell-tale signs of manipulation through spread compression, order cancellation rates, order to trade ratios, and the use of specific lexicons in electronic communications.

Advanced detection techniques

Effective surveillance hinges on sophisticated algorithms capable of detecting irregularities indicative of market manipulation:

• For flying: Algorithms analyse order books for abnormal patterns, such as high volumes of non-executed orders, and monitor for spoofing activities where large orders are swiftly cancelled. Statistical benchmarks and correlation analysis further aid in identifying discrepancies between orders and actual trades.
• For printing: Trade reconciliation processes are crucial, identifying mismatches between reported and executed trades. Surveillance also extends to monitoring communication channels through NLP techniques to flag mentions of non-existent trades, alongside analysing trade sequences for manipulation patterns.

TZTS: A cutting-edge trade surveillance and market abuse solution

eflow’s TZTS solution exemplifies how technology can be leveraged to monitor for and analyse suspected instances of market manipulation effectively. This comprehensive trade surveillance platform utilises a mix of data enrichment, automated monitoring and real-time insights to identify manipulative patterns, including insider trading and market abuse. Its ability to analyse both real-time and historical data ensures a thorough scrutiny of trading activities.

TZTS can be configured to meet specific regulatory demands and uses sophisticated algorithms to automatically monitor your trades for more than 40 types of market abuse, facilitating the prompt identification of suspicious activities. The integrated workflow management system aids in the swift investigation and documentation of these alerts, ensuring regulatory compliance and facilitating detailed reporting on detected market abuse incidents.

For more information on TZTS, click here or get in touch to arrange a consultation.