A tool designed to detect market manipulation and insider dealing has been launched following the European Securities and Market Authority (Esma) announcement last week that it would be increasing surveillance of hedge funds and other short sellers trying to take advantage of the coronavirus-caused market rout.
Esma now requires net short position holders to report equity ownership of 0.1% in a company and above: down from a previous 0.2% threshold.
The regulator said that lowering the reporting threshold is an “essential” precautionary act in response to the Covid-19 pandemic enabling authorities to monitor developments in markets.
The solution – a joint venture from tech-focused firms Rimes and Soteria – aims to help firms comply with multiple requirements set by regulators in order to avoid “severe” consequences.
In what has been called an industry first, the service “marries trade and communication monitoring” to help financial services firms manage risk in the current global regulatory environment.
Andrew Barnett, global head of product at Rimes, said: “Being able to effectively navigate the complex regulatory landscape is one of the biggest challenges that financial services firms on the buy-side and sell-side are facing.”
Rimes provides data managed and regulation technology solutions, whilst Soteria – named after the Greek goddess of salvation – provides real-time surveillance analysis of business communications and market data.
During market downturns, the ethics of short selling arises without fail, according to Sussex Partners chief investment officer Jim Neumann – but “it should be considered a valuable segment of market activity”.
“Short-selling (by the rules of course) provides liquidity, price level discovery, exercise of shareholder rights, and profit/hedging for a variety of market participants,” he said.
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