Banks’ Market Abuse Risks Are Ebbing After Pandemic Spike

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The return to the office seems to be helping curb the risk of market abuse at big banks and money managers, according to TradingHub, a market data firm.

Signs of potential market abuse have returned to pre-pandemic levels after spiking in the early stages of the global outbreak, according to the firm’s analysis of data from clients who have a combined $20 trillion in assets under management.

Home working “naturally weakens surveillance of traders” and volatility provides more opportunity for them to hide abusive tactics, TradingHub said in a report due to be published Wednesday. This year, volatility has been subdued compared to the wild swings of 2020, while companies are adapting their oversight policies for remote working -- and also bringing more employees into offices.

Banks’ Market Abuse Risks Are Ebbing After Pandemic Spike

The virus resurgence late last year prompted further lockdowns and a second, smaller increase in market abuse risk, the firm said. Its findings come from a benchmark of transactions in stocks, bonds, derivatives and commodities that are flagged by its systems for review.

“This improvement in risk has coincided with declining market volatility, improving sentiment around the outlook for lifting Covid restrictions and the development of plans to encourage staff in financial institutions to start planning to return to their offices or work in combination between home and office,” Neil Walker, chief executive officer and founder of TradingHub, said in a statement.

Red flags of potential abuse declined faster at banks than at money managers, which may have smaller budgets for technology upgrades, the firm said.

In the immediate aftermath of the outbreak, regulators across the world gave the financial industry leeway to remove almost all staff from the office. By the fall, some authorities were stressing the importance of compliance and oversight, regardless of where employees worked.

©2021 Bloomberg L.P.

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