On July 10, 2018 the STA Foundation held an Open Call with Gene DeMaio, Senior Vice President, FINRA, to discuss FINRA's regulatory priorities for cross product surveillance of the listed options & equity markets.
During the call, Gene DeMaio, Senior Vice President at FINRA, highlighted several key priorities for options-related surveillance. These priorities focused largely on specific manipulative behaviors that FINRA is monitoring within the options space.
Key Behaviors Noted:
- Pre-Hedging - Pre-hedging or anticipatory hedging of any portion of a block trade in the same product or a closely related product based upon a solicitation to participate in a block trade.
- Marking the Close - An attempt to influence the closing price of a security by executing buy or sell orders at or around the close of trading.
- "Mini-Manipulation" - Defined by FINRA as, "situations whereby the underlying price of an equity security is manipulated with what is often a small order that affects the price of a listed option on that equity security enabling a position to either be established or liquidated at advantageous prices."
Nasdaq's SMARTS Trade Surveillance solution offers 210+ preconfigured alerts scenarios to enable market participants to comply with these types of regulatory standards. This includes a package of alerts that are focused on market abuse carried out across or between an equity/asset and its related put/call option, including the following scenarios:
SMARTS Trade Surveillance Coverage
The alert identifies where a Trader executes a partial or completed hedge to a block trade prior to execution of that trade - alerts identifies Pre-
Hedging in the same security or in Option contracts with the same underlying security.
Marking the Close
The alert identifies a trading pattern at or near the close of trading which generates a price movement over that period, which is unusual given the trading history of that security.
This alert identifies where a broker house, proprietary account or trader trades in a related instrument ahead of information in the form of client order flows, which is not generally available and is price sensitive. Specifically, the alert identifies a Broker house participants trades in an option or stock future ahead of significant client executed volume in the related underlying equity security for that derivative.
The alert identifies where a participant attempts to benefit from their position in a derivative by creating or contributing towards a short term price movement in an underlying security.
Learn more about the SMARTS Trade Surveillance offering and alert coverage.