Capital Markets Compliance with the Market Abuse Directive

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…

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