The FCA is improving the accuracy of the market cleanliness statistic (MCS), used in its annual report to measure insider trading.
The MCS is based on abnormal stock price movements before takeover offer announcements.
In future, the FCA will:
- detect abnormal price movements that happen on the same day as an announcement because the price information used is more frequent
- introduce a market comparison test to ensure the statistic is less affected by market volatility, for example that caused by the Covid pandemic or Russia’s invasion of Ukraine
- include more announcements from firms with multiple takeover offers
The revised measure is higher, reflecting the scope of the statistic now including potential insider trading on the day of an announcement. In addition, the new methodology makes the statistic more robust to periods of market volatility. Based on the insights received from reports, alerts and market intelligence, the FCA has not seen an increase in market abuse.
The MCS is not the only indicator[2] of market abuse and insider dealing the FCA publishes. The FCA also uses the Abnormal Trading Volume, which looks at abnormal stock price movements, and the Potentially Anomalous Trading Ratio, which measures potentially anomalous trading in suspicious accounts. The FCA collects and analyses the results from these statistics alongside other non-public information to observe, pursue and disrupt cases of market abuse.
The FCA welcomes feedback from the public, industry and academic community on these changes.
Read our Research Note: A revision of our market cleanliness statistic methodology[3].