Significant Equity Trading by ORGANISED CRIME GROUPS [OCG] in the UK – What to look for.

The FCA has reported that in there are significant suspicious trades by OCGs in the UK equity markets – they say:-

• Suspicious trading by members of OCGs in products whose underlying securities are UK and internationally listed equities, forms a significant component of the overall volume of suspicious trading

Section 45 (6) of the Serious Crime Act 2015 defines an OCG as a group that:

• Has as its purpose, or as one of its purposes, the carrying on of criminal activities, and
• Consists of 3 or more persons who act, or agree to act, together to further that purpose.

The following are characteristic of the activity of OCGs in equity spread bets and CFDs:

1. A pattern of trading before merger and acquisition (M&A) announcements, and before press speculation about M&A
2. Pro-active recruitment of sources of inside information
3. The use of intermediaries who broker inside information.
4. Using umbrella accounts at overseas broking firms, which do not display equivalent standards of safeguards to UK firms, and through which the identities of the account holders may be masked.
5. The use of facilitators, including employees of authorised firms, to open accounts with such overseas firms
6. Feeding stories about mergers and acquisitions, both true and false, to major financial media outlets, to benefit from the ensuing price movements.
7. Links with other types of serious crime

Suspicions that a firm might be executing trades on behalf of OCGs could be triggered by:

1. Clients regularly generating Suspicious Transaction and Order Reports (STORs)
2. Clients frequently trading before announcements of M&A activity.
3. Clients opening positions shortly before, and closing those positions immediately after, publication of speculation about M&A in the media, without waiting until any relevant issuer has commented on the speculation
4. Several clients trading in the same security for the first time.
5. Clients with any connection to other current or former clients about whom the firm has concerns, or whose trade has resulted in STORs. This might include trading in similar ways
6. Advisory firms should be alert to members of their staff who have access to inside information being approached by members of OCGs with a view to disclosing inside information.

What firms can do to guard against OCGs?

Some measures executing firms may want to consider guarding against being used to facilitate insider dealing by OCGs include:

1. Communicating to all clients, both existing and prospective, that the firm has a zero-tolerance approach to market abuse, has an open relationship with its regulator, submits STORs to the FCA, terminates accounts based on very low thresholds of suspicion, and liaises with other law enforcement agencies as appropriate.
2. Requesting all overseas broking firms that are clients to submit documentary evidence of adequate surveillance arrangements and a zero-tolerance approach to market abuse.
3. Regarding trades placed before media reports of M&A as potentially suspicious, and submitting STORs where appropriate, even if no public confirmation of the matter described in the media reports is made.

Measures that advisory firms may want to consider guarding against staff being recruited by OCGs as sources of inside information include:

1. Advising staff who work in M&A advisory, whose names don’t regularly appear in regulatory announcements, of the risks of including references to having access to inside information in their social media profiles. It’s likely that OCGs’ recruitment of information sources is targeted at junior members of staff.
2. Considering whether it’s appropriate to reference the names of staff engaged in M&A advisory in the firm’s own social media profiles, beyond its principal senior contacts

SOURCE

https://www.fca.org.uk/publications/newsletters/market-watch-77