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What are Suspicious Transaction and Order Reports?
Suspicious transaction and order reports (STORs) are one feature of the EU regulation to prevent financial market abuse.
The main purpose of STORs are to reveal cases of inside trading and market manipulation (whether planned, attempted or successful) in Europe.
History of Market Abuse
The EU Market Abuse Act was introduced in 2016, in an effort to prevent the complex techniques that criminals had developed to manipulate the financial markets. This market abuse regulation is an important deterrence measure against financial crime. It helps to protect market integrity and keep the playing field fair for consumers. Furthermore, prohibiting market abuse enables increased competition.
Under the European Securities and Markets Authority (ESMA), suspicious orders can be reported and investigated. There are seven key behaviors within the financial markets that may cause reason for concern, including:
- Insider dealing
- Unlawful disclosure
- Misuse of information
- Manipulation of transactions
- Manipulation of devices
- Distortion and misleading behavior
How to report
When financial firms are monitoring transactions and the flow of information, they are obligated to report suspicious market abuse activities immediately through a STOR.
Under this obligation, each individual country has its own template and system. For example, the UK’s FCA has a portal, whereas, in the Netherlands, AFM receives market abuse notifications.
Typically, the financial institution or reporting entity will fill out the STOR form by attaching data like graphs or trade data, alongside specific information. Of course, any indication to the customer or colleague that they are being investigated would violate the terms of ESMA regulation- so this should be completed with the strictest confidence.
Moreover, it is important to note that a suspicious activity report must only be submitted for one of the above seven suspicious activity behaviors, rather than another activity in the financial market that causes concern. Suspicions around money laundering or terrorist financing have their own reporting requirements.
Who must comply?
This regulation applies to market operators and investment firms that undertake or facilitate trading transactions. Any individual or reporting institution with ‘reasonable grounds’ surrounding unusual transactions or trading instruments is obligated to file a STOR.
Firms that fail to comply with submitting Suspicious Transaction Order Reports face punitive regulatory actions. To better understand your regulatory requirements, speak to our team.