3. Insider Dealing & Market Abuse

Question 0

What is classed as an ‘insider’?

Answer 0

A person that has price-sensitive information from an inside source. The person may have:

1. Gained the information through being a director, employee or shareholder of an issuer of securities;
2. Gained access to the information by virtue of his employment, office or profession (e.g. The auditors of the company); or
3. Sourced the information from (1) or (2), either directly or indirectly.

Question 1

What is inside information?

Answer 1

Information that relates to particular securities or a particular issuer of securities and which is:

a) specific or precise; and
b) has not been made public; and
c) if it were made public, would be likely to have a significant effect on the price of securities.

Question 2

When does ‘insider dealing take place?

Answer 2

When an insider acquires or disposes of price-affected securities while in possession of unpublished price-sensitive information. It also occurs if they encourage another person to deal in price-affected securities, or to disclose the information to another person (other than in the proper performance of employment).

Question 3

Name the instruments covered by the insider dealing rules, broadly described as ‘securities’

Answer 3

Shares
Bonds
Warrants
Depository receipts
Options (to acquire or dispose of securities)
Futures (to acquire or dispose of securities)
Contracts for difference (based on securities, interest rates or share indices)

N.B. The definition of securities does not embrace commodities & derivatives on commodities (such as options & futures on agricultural products, metals or energy products), or units/shares in open-ended collective investment schemes (OEICs).

Question 4

What are the three conditions that satisfy the term ‘market abuse’?

Answer 4

1. The behaviour is based on information that is not generally available to those using the market and, if it were available, it would have an impact on the price.
2. The behaviour is likely to give a false or misleading impression of the supply, demand or value of the investments concerned.
3. The behaviour is likely to distort the market in the investments.

Question 5

Describe insider dealing

Answer 5

When an insider deals, or tries to deal, in the basis of inside information.

Question 6

Explain improper disclosure

Answer 6

When an insider improperly discloses inside information to another person.

Question 7

Explain misuse of information

Answer 7

Behaviour based on information that is not generally available but which would affect an investor’s decision about the terms on which to deal.

Question 8

Explain manipulating transactions

Answer 8

Trading, or placing orders to trade, that gives a false or misleading impression of the supply of, or demand for, one or more investments, raising the price of the investment to an abnormal or artificial level.

Question 9

Explain manipulating devices

Answer 9

Trading, or placing orders to trade, which employs fictitious devices or any other form of deception or contrivance.

Question 10

Explain dissemination

Answer 10

Giving out information that conveys a false or misleading impression of either the supply of, or demand of, an investment; or behaviour that otherwise distorts the market in an investment,