3) Associated Legislation and Regulation Flashcards
Chapter 3
1
Q
What is Market abuse
A
a statutory offence that covers
financial market manipulation and insider dealing
2
Q
What does Market Abuse damage
A
investor confidence and the integrity of financial markets
3
Q
What’s the UK’s market abuse regime
A
the Financial Services and Markets Act
(FSMA)
4
Q
When did the UK’s market abuse regime come into force
A
2001
5
Q
When did The Market Abuse Regulation (MAR) come into effect
A
2016
6
Q
What did Market Abuse Regulation (MAR) update and enhance
A
the then existing EU Market Abuse Directive (MAD)
7
Q
How did MAR improve on MAD
A
extending scope to instruments traded on platforms other than regulated markets and OTC, and adapting rules to accommodate new tech and specific behaviors.
8
Q
How has MAR reduced market abuse occurring across spot commodity and related derivative markets
A
reinforcing cooperation between
financial and commodity regulators
9
Q
Why does the MAR tailor the rules for SME issuers
A
To ensure the costs of legislation do not create a barrier for small/medium-sized issuers (SMEs) to access financial markets
10
Q
What followed implementation of the MAR
A
the FCA updated its Handbook to provide guidance on matters governed by the MAR - does not take the form of binding rules as it did previously
11
Q
retained EU Law example
A
the UK ‘onshored’ the EU MAR into the UK
statute book
12
Q
What steps has the UK taken to reform its
regulations under the EU withdrawal Act 2018
A
embedding the principles under EU Market Abuse Regulation into Market Abuse
(Amendment) (EU Exit) Regulations
12
Q
The changes between UK MAR and EU MAR
A
The provisions within the EU MAR remain largely unaltered
13
Q
the date of the UK’s exit from the EU
A
1st Jan 2020
14
Q
3 amendments the Market Abuse (Amendment) (EU Exit) Regulations 2019 ensured
A
- no obligation to share info with EU authorities without a guarantee of reciprocity.
- FCA takes over regulatory responsibilities from ESMA and the EC.
- supplementary legislation is subject to the UK Treasury instead of the EC.
15
Q
three potential defences to a charge under Sections 89–91
A
- The person reasonably believed their act would not create a falseimpression.
- actions, statements or forecasts that might be made in conformity with
FCA price stabilisation rules. - statements, actions or forecasts being
made on the basis of limited information which may be known to the firm behind information barriers, not known to the relevant individual.
16
Q
two behaviour types which are potentially market abuse
A
insider dealing and improper disclosure
17
Q
what is market abuse
A
behaviours which are likely to give a false or misleading impression of the supply,
demand or value of the investments concerned
18
Q
what regulation covers market abuse
A
Criminal Justice Act (CJA) and the legislation
relating to misleading statements and practices in Sections 89–92 of FSA 2012
18
Q
What three offences relating to the making misleading statements and practices did The Financial Services Act 2012 introduce
A
- making misleading statements (Section 89)
- creating false or misleading impressions (Section 90)
- making misleading statements in relation to benchmarks (Section 91)
19
Q
new maximum sentences for breaching Section 89–95s introduced by the Financial Services Act 2012
A
- On summary conviction, a fine not exceeding the statutory amount or a jail sentence not exceeding 12 months, or both.
- On conviction on inducement, a jail sentence not exceeding ten years or a fine, or both for offences committed after 1 November 2021, 7 years max sentence before this.
20
Q
civil actions available to the FCA in respect of disciplining firms, senior managers and other individuals
A
issuance of financial penalties through to issuing a public censure
21
Q
What’s The FCA’s Market Conduct Sourcebook known as
A
MAR - Conduct Standards, what does and does not count as market abuse
22
Q
How does the FCA decide whether to apply a financial penalty or resort to public censure
A
Deliebrate, Duration, Benefit gained, market impact, consumer loss, speed to notify, cooperation, recurrence chance, provided info accuracy
22
MAR 1
requirements relating to market abuse
23
MAR 2
price stabilising rules
24
benefits of Public censures
promotes high standards of regulatory /market conduct by deterring firms from breaching and serving a warning to others. - helps the FCA meet its statutory objectives
25
What does the FCA not use to decide whether to apply a financial penalty or resort to public censure
the person’s previous disciplinary record
26
How does the FCA decide whether to take any action in regard to market abuse
* sophistication of the market users
* the impact a financial penalty/public censure may have on markets or the interests of consumers.
27
What is the FCA's 'don't have two bites of the cherry' policy
won't impose sanctions for market abuse
where a person is being prosecuted for market misconduct, and will not bring a prosecution where it is looking to bring, or has brought, disciplinary proceedings for substantially the same offence
28
why are insider lists needed
the knowledge of price sensitive info can be traced by the FCA if they undertake an investigation in adverse movement in a company’s share price before a formal
announcement
29
Under the UK MAR, insider dealing is defined as
* inside information used for its own account or a third party.
* cancelling or amending an order concerning a financial instrument the information relates to where the order was placed before the person had information.
* Recommending that another person engages in insider dealing
* Recommending, on the basis of that information, that another person cancels or amends an order
30
Issuers obligations for disseminating info
inform the public asap of inside info which directly concerns the issuer with fast access allowing correct and timely assessment. ensures all investors can base their investments on public information to keep clean markets
31
Under UK MAR what does inside information comprise
-precise private price info
- spot commodity deriv info
- precise information from clients relating to pending orders
32
“insider list”
all who access inside info, where they are working, and externally performing tasks through which have access to inside info
33
What Information shall be deemed to be of a precise nature
if it indicates circumstances which exist
or may be expected to exist, or an event has occurred or be expected to, specific enough to conclude the prices of the financial instruments or derivative, the related spot commodity contracts, or the auctioned
products based on the emission allowances.
34
externals who have access to inside information
advisers, accountants or credit rating agencies
35
when does the insider list need to be updated
adding / removing / changing the reason for someone already on the list
36
who draws up insider lists
Issuers and persons acting on their behalf
37
Different types of insider lists maintained by firms
separate insider lists for each transaction and one for permanent ‘insiders’.
38
big difference between the previous regime (MAD) and UK MAR
it no longer just applies to executed trades. UK MAR, also applies to unexecuted orders and requests for quotes (RFQs).
39
What are Market operators and investment firms that operate a trading venue required to establish
procedures preventing and detecting insider dealing, market manipulation - report orders, cancellations or modifications to the authority of the trading venue without delay
40
What are Firms arranging or executing transactions required to establish
procedures to detect and report suspicious orders. proportionate to the scale and complexity of the business activity, large for IBs small or AMs
41
What if firms have suspicion an order could constitute insider dealing, market manipulation
report this to their regulator without delay
42
Who is required under UK MAR to have procedures both to detect and report suspicious orders
firms, operators of trading venues, investment firms and their staff who
arrange or execute transactions
43
How long should insider dealing system documentation be held for
five years
44
Who should be notified if there is reasonable suspicion regarding an order
the FCA without delay
44
attempted market abuse
attempts to commit offences, no execution has taken place but there was intent to distort the market
45
Where is the content of a ‘STOR’ report set out
Legislation
46
what should a STOR Report contain
-Who is submitting it
-Type, Price, volume of trade
- Reason for suspision
-Who ordered the trade
- Suporting docs
47
How should a STOR Report be submitted
directly to the FCA via ‘connect’, the FCA’s online reporting portal.
48
What is a market observation
Alt. to STOR, suspicious activity not under the defined requirements of a STOR
48
A ‘sounding' / market sounding
investment bank discusses with clients
to determine their appetite for a new issuance, on behalf of an issuer
49
Purpose of sounding
assess the expected return that investors would require (coupon) and the potential size of the new issue
50
What can soundings include
‘non-public’ information which is sensitive and considered to be insider information
51
Requirements for a market sounding to occur
* get their consent to receive inside information.
* Inform receiver they are prohibited from using that information
* Inform the person receiver they
must keep the information confidential.
* Record of all info given to receiver.
* record of recipients who did not consent to being provided inside information.
* Advise recipients when infor ceases to be considered inside info
52
What obligation is placed on the recipient of a market sounding
assess whether the info is ‘inside
info’ – they may have additional info meaning this is not inside info
53
When is insider dealing a risk
director of, or someone linked to, a listed company trades shares in that
company
54
Under the Criminal Justice Act (CJA) 1993, how is insider dealing punishable
by a fine and/or a jail term
55
three ways of committing insider trading as outlined in section 52 CJA
* Dealing in the security.
* Encouraging another to.
* Disclosing inside information to another.
56
How can Insider dealing be defined
deliberate exploitation of information by dealing in financial instruments, having obtained this information by virtue of some privileged relationship or position
57
Part V of CJA 1993
legislation setting out the current criminal law of insider dealing - May 1994
58
Inside information, as defined in Section 56 of CJA
a. securities traded on a UK/EEA or Gibraltar Regulated Market, MTF or OTF
b. on Nasdaq, SIX Swiss Exchange and the New York Stock Exchange (NYSE)
c. securities not covered by point (a) or (b), has effect on, the price or value of a security referred to in a or b
d. is specific or precise
e. has not been made public, and
f. is price-sensitive
59
price-sensitive
if it were made public, would be likely to have a significant effect on the price
of any security
60
‘security’ is used rather than financial instrument in the CJA. What does this cover
Transferable, MM, CIS units, Derivatives, CFD, Emissions allowances
61
When does CJA consider information to be public
* published to investors in accordance with the rules of a regulated market, eg, a UK-company publishingthrough LSE’s RNS
* contained within records open to public scrutiny
* available to those likely to deal in securities to which the information relates, or the securities of an issuer to which the information relates
62
How is Inside information often referred to as
‘unpublished price-sensitive information'
63
How are the securities which may be affected by inside info referred to as
‘price-affected securities'
64
Who is considered an insider
-if they are the inside source
-if they access info via internal or related employment
-they had access via someone who was employed
65
how could someone commit the offence of insider dealing
* deal price-affected securities with inside information
* encourage someone else to deal iwhen in possession of inside info
* disclose inside information
66
What must be true for a deal to be caught under insider dealing legislation
must take place on a regulated market, or through a professional intermediary
67
Who can't commit insider dealing
a company cannot commit the offence, only an individual
68
What are the defences for insider dealing, or for encouraging another to deal
* diidnt expect the deal to result in profit (or avoid loss)
* believed the information was sufficiently widely disclosed
* would have acted in the same way regardless of being in having the info.
69
What are the defences for the offence of disclosing only
* the defendant did not expect any person to deal
* the defendant may have expected a person to deal, but did not expect a profit (or avoid a loss)
70
What are special defenses
further defences available to defendants in particular circumstances
71
who are special defences available to
market makers, in relation to market information and to price stabilisation activities
72
How can a market maker not be deemed guilty of insider dealing
If the market maker can show they acted in good faith
73
What does Market information include
information in relation to the sale of a block of securities under consideration, or the price at which a transaction is likely to be completed
74
What do price stabilising rules allow stabilising managers and their agents to do
support the price of new issues
of securities by buying the securities in the secondary market for a limited time after their issue
75
What do price stabilising rules provide a defence to
possible allegations of market abuse, such as insider dealing or
price manipulation.
76
Where are price stabilising rules found
Chapter 2 of the FCA’s Market Conduct Sourcebook
77
four main forms of market manipulation
manipulating transactions, manipulating devices, dissemination and benchmark manipulation
78
Dissemination
spreading of false or misleading information
79
Manipulating transactions
effecting transactions that are not for legitimate reasons which give a false or impression as to the supply, demand or price, or secure an abnormal or atificial price
80
Manipulating devices
effecting transactions which employ fictitious devices, deception or contrivance
81
Dissemination
dissemination of information which gives a false or misleading impression as to a by a
person who knew that the information was false
82
Benchmark manipulation
transmitting false or misleading inputs in relation to a benchmark where it was known to be false or misleading, or any behaviour manipulating the calculation of a benchmark
83
How can a firm demonstrate they established appropriate systems and
controls handling insider information
- ‘information barriers’
- acting as a market maker
- executing orders on behalf of third parties
- transaction concluded before that person had inside information
-order needed to satisfy a legal obligation before having inside information
- inapplicable to stake building activity
-during m&a if info = public at approval of m&a
84
What must managers and their associates notify the issuer or emission allowance market/FCA of
*to issuers: every transaction for their own account, shares, debt and derivatives
* to emission allowance market:, emission allowance trades, auction products/ derivatives on them.
85
What must manager trade notifications include
*Name
* Reason .
* issuer name/emission allowance participant.
* Description/identifier of instrument .
* Buy or sell and whether resulting of share options.
* Date and place.
* The price and volume
86
Where may managerial notification terms allow a flexibility in price
in the case of a pledge
87
closed period
30 calendar days before
the announcement of the company’s interim or annual financial report
88
what is restricted during a closed period
managers trading their company’s shares or related instruments
89
when are managerial trades allowed during a closed period
severe financial difficulty requiring the immediate realisation of funds// employee share schemes/ similar where there is no change in beneficial ownership
90
What exemption did MAR remove from MAD
for short-term sales and trading ideas (ie, investment recommendations) being captured, rather than just research publications requiring disclosures
91
investment recommendation
a proposal by a firm on financial
instruments in relation to short-term trading ideas and scenarios
92
who normally receives investment recommendations
fund managers and wealth managers
93
What does not fall under the MiFID definition of investment advice or a
personal recommendation
investment recommendations
94
When do investment recommendations provisions apply
where the investment recommendation or is provided to more than one person this excludes recommendations made to individuals/ firms based on an individual profile
95
Money laundering (ML)
turning money from criminal activities to money that appears legitimate
96
Why is money laundered
Dirty money is difficult to invest in its original illicit form, and carries the risk of being used by the legal authorities in order to evidence the initial crime
97
what are anti-money laundering (AML) provisions being seen as the frontline against
drug dealing, organized crime including human trafficking, wildlife trafficking, precious arts dealing, as well
terrorist financing
98
current rules and regulations in relation to ML
POCA, SOCPA, MLR 2017, SYSC, JMLSG, The Criminal Finances Act 2017
98
who is working to increase resources against Money Laundering
National Crime Agency (NCA).
99
The broad requirement of POCA
for firms to report suspicions of ML to the appropriate authorities
99
what parts of POCA did SOCPA amend
granting a defence for alleged offenders if
they can provide evidence that the conduct was legal in the country where it happened - bullfighter issue, POCA governed everyone by UK law
100
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