LONDON (Reuters) - Financial institutions should not be able to use “wash trades” to compensate customers for erroneous market transactions as they are misleading, a British industry standard setting body proposed on Tuesday.
The FICC Markets Standards Board, created to help clean up markets after attempts to rig currency benchmarks, published a draft standard on how compensation should be paid for a trading error.
A “wash trade” is one where a purchase and sale of the same financial instrument takes place with different financial terms to pay compensation.
The board said compensation should be paid by a direct payment to the customer; by reducing or increasing net brokerage; or by other means that don’t create false markets or give a misleading impression as to the value of a stock or bond.
“The standard makes clear that methods of compensation such as wash trades should not be used,” the board said in a statement.
The proposals, issued in a public consultation, would come into effect in the second half of this year if they meet industry approval.
Reporting by Huw Jones; Editing by Susan Fenton