Suspect movements in share price fall to an eight-year low

14 June 2011

Abnormal trading in UK companies before a merger or acquisition announcement fell last year to the lowest level since 2003, the Financial Services Authority (FSA) said in its annual report yesterday. The FSA monitors share price movement in the two days preceding a stock market announcement by a company to identify abnormal activity that could signal a market leak.

The so-called market cleanliness measure fell to 21.2 per cent in 2010, down from 30.6 per cent the previous year – the level at which it had hovered since rising to 32.4 per cent in 2004. The drop in suspicious price changes will provide a boost to the FSA’s recent efforts to increase its focus on market abuse.

Dr Richard Bentley, vice president for capital markets at Progress Software said:

“The drop in the market cleanliness measure is good news and evidence that the FSA's focus on dealing seriously with issues of market abuse is paying dividends, though many would argue a figure in excess of 20% is still far too high. Additionally, the window of 2 days for analysis is too short; such analysis of abnormal price movements needs to take place continually, in real-time, across all market participants and products, and the measure of 'market cleanliness' should reflect that.

A big issue here is understanding how many of the so called 'informed price movements' are the result of insider information, and how many the result of astute financial analysis and observation. This shows that detection, whilst vital, is only one piece of the jigsaw. Regulators need equally sophisticated tools to analyse and investigate abnormal trading patterns to distinguish potentially criminal activity from smart trading."