Seeing the Whole Story: Cross-Product Manipulation and the New Surveillance Mandate
In today’s global markets, the boundaries between asset classes, venues and products have blurred. This complexity creates fertile ground for cross-product manipulation—a form of market abuse where trading in one instrument is used to influence the price or behavior of another, often related, instrument.
This risk is not theoretical; it is a daily reality for surveillance teams tasked with protecting market integrity.
Why Cross-Product Manipulation Matters
Surveillance teams and processes were built for a simpler era, when manipulation schemes were largely confined to single products or venues. As trading strategies have evolved, so too have the tactics of bad actors. Sophisticated schemes now exploit relationships between futures and underlying equities, dual-listed stocks, ETFs and their baskets and even commodities and related derivatives. The signal is often found not in the trade itself, but in the choreography between instruments.
Ian Hawkins, Head of Nasdaq Trade Surveillance Product Strategy, discusses the complexity of monitoring for cross-product manipulation.
Regulators have responded in kind. Over the past decade, nearly $1 billion in fines have been levied for cross-product market abuse. Enforcement actions have increasingly focused on the interplay between products rather than isolated trades.
The Global Regulatory Landscape of Cross-Product Manipulation: What Really Applies
Regulatory scrutiny of cross-product manipulation is intensifying worldwide. Major jurisdictions are tackling the challenge as follows:
United States
The SEC’s Rule 9j-1 under the Securities Exchange Act of 1934 prohibits fraud and manipulation in security-based swaps, including conduct that affects related instruments. The CFTC’s 17 CFR Part 180 explicitly bans manipulation of swaps and commodities, including cross-product schemes.
European Union (EU)
The EU’s Market Abuse Regulation (MAR) Annex II, Section 2D, defines cross-product manipulation as trading in one venue or instrument to improperly influence the price of a related instrument, spot commodity or auctioned product. This is a direct regulatory focus on cross-product abuse.
United Kingdom (UK)
UK MAR (mirroring EU MAR) prohibits cross-product and cross-market manipulation across regulated markets, MTFs and OTFs. The FCA has emphasized in recent guidance that surveillance must adapt to cover multi-venue and cross-product risks, not just single-instrument alerts.
Over the past decade, nearly $1 billion in fines have been levied for cross-product market abuse. Enforcement actions have increasingly focused on the interplay between products rather than isolated trades.
Singapore
The Monetary Authority of Singapore’s Securities and Futures Act (SFA), Sections 197-200, covers manipulative conduct across products, including cross-product manipulation.
Japan
The Financial Instruments and Exchange Act (FIEA) enforces prohibitions on manipulative behavior that affects related instruments across markets and asset classes.
China
The Futures and Derivatives Law (FDL) prohibits market manipulation in futures and derivatives, including strategies exploiting price relationships between related instruments.
India
SEBI’s Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations (2003) address cross-product manipulation by banning schemes that span asset classes.
Australia
The Corporations Act 2001, enforced by ASIC, broadly covers cross-product manipulation and supports surveillance against multi-asset, multi-venue abuse.
International Collaboration
The International Organization of Securities Commissions’ (IOSCO) Multilateral Memorandum of Understanding (MMoU) promotes data sharing and joint investigations, recognizing that cross-product abuse is often cross-jurisdictional.
These regulations either explicitly mention cross-product manipulation or have been interpreted by regulators and courts to cover it. Enforcement actions and regulatory commentary confirm that cross-product manipulation is a recognized and prosecuted form of market abuse in each jurisdiction.
Enforcement: How Cross-Product Manipulation Is Prosecuted
Several enforcement actions have taken place in recent years, which highlight the mechanics of cross-product manipulation:
Futures vs. Physicals
In energy markets, traders have manipulated futures contracts to benefit positions in the physical commodity. For example, layering orders in the futures market to move the settlement price, then profiting from related physical trades.
Spoofing Across Products
Spoofing in fixed income products has triggered price movements in related benchmarks, allowing traders to profit from positions in those benchmarks or related derivatives.
The International Organization of Securities Commissions’ Multilateral Memorandum of Understanding (MMoU) promotes data sharing and joint investigations, recognizing that cross-product abuse is often cross-jurisdictional.
ETF and Basket Manipulation
Complex schemes have involved manipulating the creation or redemption process of ETFs to influence the price of underlying securities, or vice versa.
Dual-Listed Arbitrage
Manipulators exploit price differences between the same security trading on different exchanges, using coordinated trading to move prices and profit from arbitrage.
Commodity Derivatives
In agricultural markets, cross-product spoofing has involved related but distinct products (e.g. soybean futures and options), with enforcement actions focusing on the relationship between the manipulated and benefiting instruments.
These cases demonstrate that the risk is not confined to one product or venue—it is found in the relationships, the timing and the context. Surveillance teams must be able to map these connections in real time, not just after the fact.
The Surveillance Challenge of Cross-Product Manipulation: Complexity, Context and Connection
The hardest part of detecting cross-product manipulation is the ambiguity of relationships. Some connections, like a futures contract and its underlying equity, are obvious. Others emerge only under certain market conditions or exist solely in the mind of a sophisticated trader exploiting latency, liquidity or regulatory gaps.
Data fragmentation, multiple accounts and the sheer volume of trading activity make it easy for manipulative schemes to slip through the cracks. Single-instrument detection logic can catch elements of cross-product abuse, but it places a heavy burden on analysts to piece together the full story. The risk of missing critical connections is real.
How can financial institutions see the whole story?
To learn more about the growing challenge of detecting cross-product manipulation and how Nasdaq’s surveillance framework addresses this, download: “When One Trade Isn’t the Whole Story: Uncovering Cross-Product Manipulation”
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