Financial Markets Standards Board (“FMSB”) has today published a Statement of Good Practice (“SoGP”) on Grey Market Trading (“GMT”), in final to help firms judge whether GMT is appropriate in different contexts.
What is Grey Market Trading?
GMT is the conditional trading of securities before they are declared free to trade (“FTT”) by a syndicate. It may begin from the point a deal is publicly announced to the market. Grey markets help to facilitate price discovery, liquidity and risk management in a security before it is formally issued. However, there are potential risks associated with engaging in GMT activity, particularly around issuer control, pricing, and the management of information asymmetries and conflicts of interest where banks hold a syndicate role.
Purpose of the SoGP
The SoGP is intended to promote a common understanding of the role, benefits and risks of Grey Market Trading across issuers, investors and syndicate banks, and to identify key considerations for syndicate banks to take into account before deciding to conduct GMT in different contexts.
Good Practice Statements
The publication sets out four Good Practice Statements:
- Issuer notification (Active bookrunners): Active bookrunners should make the issuer aware if they intend to engage in GMT, and should consider conflicts of interest, information available to public-side traders and the bank’s control framework.
- Conflicts and information (Passive bookrunners / co-managers): Passive bookrunners and co-managers should similarly consider conflicts of interest, information available to public-side traders and the bank’s control framework prior to engaging in GMT.
- Controls (All syndicate banks): Syndicate banks engaging in GMT should have appropriate controls in place to comply with applicable regulatory and legal requirements, including those relating to conflicts of interest, information handling and market abuse.
- FTT announcement (Active bookrunners): Active bookrunners should publicly announce when a new issuance is FTT, where practicable.
About FMSB:
- Financial Markets Standards Board (FMSB) is an industry-led, member-funded global standards body for the wholesale financial markets.
- Created out of the Fair and Effective Markets Review (FEMR) in 2015, FMSB brings together its Members from banks, investment institutions, infrastructure and information providers, corporates, pension funds and non-bank liquidity providers, to develop Standards, Statements of Good Practice and Spotlight Reviews that raise standards of behaviour, competence and awareness – to promote the fairness and effectiveness of global wholesale financial markets.
- As well as standard setting, subject matter experts from member firms debate issues in working groups and are able to benchmark their approaches against industry peers, thus helping to lift standards of conduct.
- FMSB’s full membership list is here