Market Manipulation: FCA MAR Signals and Layering Explained

Market manipulation is easier to spot when you know the patterns regulators have written down. The FCA Handbook sets out, in its Market Conduct sourcebook (MAR), factors for deciding whether trading gives a false or misleading impression, and a list of signals that may point to abusive behaviour. This guide walks through those sources and one FCA enforcement case on layering. It supports our Market Manipulation and Trading Red Flags course overview, and builds on market abuse foundations.

MAR 1.6: manipulating transactions

MAR 1.6 deals with transactions that give false or misleading impressions, citing article 12(1)(b) of the Market Abuse Regulation as it applies in the UK. The guidance gives factors that point towards behaviour not being legitimate, including an actuating purpose to induce others to trade or to move the price, an illegitimate reason for the trade, or execution designed to create a false or misleading impression (MAR 1.6.5). It also lists factors pointing the other way, such as a prior legal obligation to a third party, execution that supports fair and efficient market operation, and compliance with a venue's execution rules (MAR 1.6.6).

The rules are careful about what is not enough on its own. Trading at the times and sizes most beneficial to the user is unlikely to be manipulation by itself (MAR 1.6.7), and prices moving outside their normal range is unlikely to show manipulation by itself (MAR 1.6.8). The chapter also says its factors are not an exhaustive list, and the absence of a factor is not by itself a contrary indication (MAR 1.1.7).

The Handbook's own examples

MAR 1.6.15 includes two examples that are useful in training. In one, a trader places a large sell order just before the close to push a holding out of an index. In the other, a fund manager places a large order in illiquid portfolio shares at or near the close to lift the period-end valuation. MAR 1.6.16 describes a trader with a long position in bond futures who buys or borrows the cheapest-to-deliver bonds and refuses to re-lend them, to raise the delivery price for short sellers.

MAR 1 Annex 3R: signals of possible manipulation

MAR 1 Annex 3R lists signals that may indicate abusive behaviour. Those named in the text we read include:

• Marking the close: buying or selling at the reference time to move or maintain the reference price.
• Painting the tape: transactions shown on a public display to create an impression of activity or price movement.
• Improper matched orders: buy and sell orders entered at nearly the same time, with similar size and price, by the same or colluding participants.
• Momentum ignition: activity that starts or intensifies a trend to lure others into trading.
• Layering and spoofing: multiple or large orders placed away from the touch to trade on the other side, then removed.
• Ping orders, quote stuffing, smoking and phishing: order patterns used to detect hidden orders, slow or confuse other participants, attract slow traders, or uncover others' orders.

The Annex also lists signals that orders are entered and removed before execution, large orders shortly before an auction price is set and then cancelled, and activity around the expiry of a related derivative. Under MAR 5.6.4, the signals are described as neither exhaustive nor determinative of market abuse, and they may reflect legitimate conduct. The same provision says an "order to trade" includes modifications and cancellations, whether or not executed. Trading venue operators must consider these signals when deciding whether to inform the FCA.

A layering case: the Coscia final notice

In a final notice dated 3 July 2013, the FCA fined Michael Coscia USD 903,176 (approximately £597,993) for algorithmic layering, which it treated as market manipulation under section 118(5) of the Financial Services and Markets Act 2000. The conduct was in commodities futures on ICE Futures Europe, including Brent Crude, Gas Oil and WTI Crude, between 6 September 2011 and 18 October 2011.

According to the notice, his algorithm placed a small order on one side of the book and large orders, over 50 lots, on the other side. Large orders that did not execute were cancelled within about 300 milliseconds. In Brent, 0.1% of large orders were fully executed compared with 44.5% of small orders. The FCA said the large orders created a false impression of buy or sell interest that induced others to trade against the small order. The penalty included disgorgement of USD 315,376 and a 30% settlement discount on the remaining element.

The case is from 2013, so it is best read as an illustration of the pattern in Annex 3R, not as a statement of current penalty methodology.

Using this in a surveillance role: our suggestions

These points are our suggestions, not requirements in the sources.

• Build alert logic around the signals, but record why a signal was judged legitimate, since the Handbook says signals can reflect legitimate conduct.
• Look at cancellations and modifications, not only executed trades.
• Pay particular attention to activity around closing prices, auctions and derivative expiry.
• Train staff to escalate patterns, such as repeated order-and-cancel sequences, even when each single order looks ordinary.

For structured learning, browse our CPD courses.

What we could not confirm

We could not read MAR 1.7 and MAR 1.9 in full, because the text we accessed gave only headings for those sections. We read the Handbook through an FCA PDF that stated it was last updated in September 2026, though another listing of the same file showed a different month, so check the current version. We did not review the Central Bank of Ireland's approach under the EU Market Abuse Regulation, so this post covers the UK only. This post is general information, not legal advice.