Market cleanliness statistics

Each year we publish a Market Cleanliness (MC) Statistic for the UK equity markets. This is defined as the proportion of corporate takeover events for which we observed an abnormal movement in share price before the takeover announcement.

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The MC Statistic for 2019 was 17.5%. While this represents an increase relative to 2018, it is close to the average of the previous 5 years. The MC statistic is one indicator of possible insider dealing but it has several shortcomings as a measure of broader market cleanliness especially given the fall in sample size over the past decade. We cannot base our judgement on this statistic alone when assessing whether any abnormal price movements we observe reflect insider dealing. Other factors can influence the statistic, such as financial analysts or the media correctly assessing likely takeover targets or significant legitimate trades that fall before an announcement. Hence, we also monitor additional indicators.

Abnormal Trading Volume (ATV)

Last year we introduced the Abnormal Trading Volume (ATV) Metric which looks for abnormal increases in trading volumes ahead of potentially price sensitive announcements, covering equity instruments and some equity derivatives.

While the measure has fluctuated more across the four quarters of 2019 than it did in 2018 (with a peak of 7.7% and a low of 5.1%), overall, the ratio has remained at 6.4%. This is based on observing abnormal increases in trading volumes in 112 out of 1,750 announcements tested.

The existence of announcements where we have found statistically significant increases in volumes, does not mean that market abuse occurred before each of those announcements, as volumes can fluctuate for a variety of reasons, but it is an indicator that market abuse may have occurred.

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Period

Announcementstested

Announcements that have a statistically significant increase in volume

ATV 

Q1 2018

273

17

6.2%

Q2 2018

401

27

6.7%

Q3 2018

195

13

6.7%

Q4 2018

201

11

5.5%

2018

1070

68

6.4%

Q1 2019

394

20

5.1%

Q2 2019

246

19

7.7%

Q3 2019

265

12

4.5%

Q4 2019

845

61

7.2%

2019

1750

112

6.4%

The new Potentially Anomalous Trading Ratio (PATR)

As indicated last year, we are developing additional indicators to help assess market cleanliness more broadly. This year we are introducing a new measure – the Potentially Anomalous Trading Ratio or PATR. See full details of the methodology.

The new measure looks at potentially anomalous trading that occurs ahead of a price sensitive news announcement. By potentially anomalous trading we mean:

  • the participant does not typically trade in this instrument
  • the participant traded significantly more in the direction of the announcement
  • the participant made a significant profit from trading positions established in the period immediately prior to the announcement

The new measure covers the same range of market activity as the ATV metric and has been run for both 2018 and 2019 with the following results:

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2019 summary pie chart - measuring market cleanliness 2020

Period (Yr-Quar)

Volume Ratio (%)

2018-1

4.5

 

2018-2

7.3

 

2018-3

5.1

 

2018-4

6.2

 

2018

 

6.1

2019-1

9.8

 

2019-2

8.3

 

2019-3

4.4

 

2019-4

5.8

 

2019

 

6.7

It is important to understand this ratio in the context of the overall level of trading considered for this measure. Our analysis revealed 99.2% of trading activity did not occur during a sensitive time period (eg not preceding a potentially price sensitive news announcement where the price did move significantly). For the 0.8% of trading activity that justified further review, only 6.7% of that trading was considered potentially anomalous – a very small percentage of overall UK trading activity.