Market Monitoring, Surveillance, and Abuse Detection
What this domain tests
This domain tests surveillance: how to detect, investigate, and evidence market abuse across order books, bilateral trades, and physical nominations without over-flagging normal commercial activity.
Core rules and concepts
- Manipulative patterns: wash trades (no change in beneficial ownership), spoofing/layering (orders placed without intent to execute), marking the close, pre-arranged trading, and cross-product manipulation between spot, forward, and physical markets.
- Physical withholding: making capacity unavailable or unavailable at a price that is not economically rational, to shift price or scarcity.
- Economic withholding: bidding far above marginal cost where market power exists and the bid is not justified by opportunity cost or risk.
- Surveillance metrics: order-to-trade ratio, cancel/replace frequency, order lifetime, opposite-side executions after large cancels, price-impact, and concentration/HHI measures.
- Investigation standard: a pattern is an alert, not a finding. Evidence must include intent indicators, communications, order-book context, and consistent treatment of comparable participants.
Worked example
A trader places five 50 MW sell orders at the best ask, cancels four within 900 ms, and buys 40 MW on the bid as the price falls. The orders were never filled, cancellation was near-total, and the buy followed the induced price move. This matches a layering pattern. A defensible review compares the trader’s historical cancel rates, whether the orders were in the trader’s normal size, and contemporaneous chat. The conclusion should state the pattern, the economic effect, and the evidence of intent or its absence; a high cancel rate alone is not proof.
Traps that cost marks
Treating every cancellation as spoofing; ignoring legitimate market-making and hedging; missing physical-side manipulation; failing to link spot and forward positions; and concluding manipulation without documenting intent, price effect, or comparator behaviour.