The enforcement action highlights the risks of the UK’s opaque, lightly-regulated market in contracts-for-difference.
Infinox Capital Limited has been charged £99,200 by the regulator, which states that the firm failed to submit 46,053 transaction reports between October 2022 and March 2023 – either by the close of work the following working day or at all. The reports considered single-stock contracts for difference (CFD) trades executed through one of Infinox’s corporate brokerage accounts, which covered 60% of the business line.
CFDs are contracts between a provider and a client to pay one another the change in price of an underlying asset. Upon expiry, the two pay exchange the difference between the opening and closing price of a specified financial instrument without owning it. They are considered a high-risk product in the UK due to the change of market abuse, and have been banned in countries including the US, Brazil and Hong Kong.
Popular CFD trading platforms in the UK include retail brokers IG, City Index and Admirals. The firms’ trading volumes are not reported, furthering opacity around the already risky investment vehicle.
By not submitting reports, the FCA said, Infinox could have allowed market abuse to go on undetected. The company recognised that it had not passed these reports on to the FCA after a third-party review, but did not proactively report the failure to the regulator.
Steve Smart, joins executive director of enforcement and market oversight at the regulator, explained: “As a data-led regulator, it is vital that firms submit accurate and timely transaction reports, and promptly bring any failures to our attention. Infinox failed to do this, which meant market abuse could have flown under the radar and risked the integrity of the market.”
This is the first transaction reporting fine issued under MiFIR came into force in the UK, more than a decade ago.
According to the FCA, these incidents highlighted weaknesses in Infinox’s transaction reporting systems and controls for a high-risk investment product. However, it acknowledged that the breach was not deliberate or reckless, caused little loss or risk of loss to market users, and that Infinox received little or no profit or loss as a result.
Infinox completed its back-dated reports by 15 December 2023. By agreeing to resolve the case at an early stage, Infinox received a 30% discount on the original £141,800 penalty.
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