misleading clients by implying they are getting the best rate, when in fact the rate they received may have included a significant 'hard mark-up'
Misleading hard mark-up may involve the following deceptive practice: a client calls sales who put forward the call to trading. The client is told that trading will provide a best market price without any mark-up. In reality, trading knows the client is calling directly and they quote a price including a mark-up on top of the risk clearing price.
Deception my involve deliberate manipulation such as telling the client on the open line that trading is providing best market price without a mark-up while sales and trading exchange hand signals or chat messages to coordinate application of an undisclosed mark-up.
Effective implementation of surveillance alerts for misleading mark-up requires capturing the following trade data:
client executions
market prices
accurate timestamps
It is challenging to detect inappropriate mark-ups for 'voice' flows since traders and sales can use an argument of delayed trade booking to justify worse client prices. The inherent risk of inappropriate mark-ups is lower in all-electronic flow where timestamps are accurate and there is no delay or scope for sales and trading to enter into collusive behaviour against the client.