The Market Abuse Directive is a result of European central organizations seeking to create a safe economic climate. It is targeted at creating a fair trading environment within the securities trading markets of member countries. This is being done by creating a set of fair trade guidelines that members must implement in order to prevent market abuse. Market abuse mainly comes in three forms; insider dealing, publication of intentionally misleading information, and distortion of the price determination mechanism for security prices.
The European parliament saw it necessary that they create a set of guidelines that would create stability within the markets. This would increase the confidence investors have placed in the European stock market, leading to increased investment and market participation. All this is being done with the intention of furthering the common goal of uniting the euro zone markets into a single economic powerhouse. The central European parliament and council passed the Market Abuse Directive which contains these regulations in 2003. The introduction of the directive creates an onus on governments and regulatory authorities of all the member countries to ensure implementation and enforcement. This has proved quite challenging for the regulatory authorities.
For the regulatory authorities to be able to monitor for unfair market practices, they must monitor trading activity for irregularities. This can be quite challenging in the European security markets which have exceptionally high volumes of trading activity occurring on a daily basis. The regulators, therefore, turned to software programmers to address this challenge. The result was the development of trade monitoring software solutions. These are custom developed software solutions that are implemented in the electronic trading platforms of the markets and monitor all the activity that is undertaken.
Trade monitoring solutions must have several key functions; first, they must be programmable by the user. This allows the market regulatory authority to customize the software to incorporate the legal framework that guides the monitoring process. Fortunately, since the legal framework was developed at the European level, programmers only need to use this as a base for the legal framework. Secondly, they must be capable of recording market activity for evidential purposes. The trades it monitors and flags as being suspicious must be recorded if this information is ever to be used in a litigation process. Software solutions for monitoring trading activity simplifies a task that would be too time consuming and inaccurate if done any other way.