Associated Legislation and Regulation Flashcards
18/75 Qs
Implementation of the market abuse regulation (MAR)
- implemented in 2016 to enhance the EU mkt abuse directive (MAD).
- Encourages cooperation betweeen fin and commodity regulators and bans mkt abuse in commod and OTC deriv. mkts.
- Ensures reporting to regulators to ensure they can detect and act upon mkt abuse.
- to remove barriers to entry for small/medium issuers, MAR tailors the rules to accomodate for these firms
- The FCA handbook was updated to make MAR principles based regulation.
- during Brexit, the UK onshored EU MAR and made UK MAR
*
3 main amendments to MAR after BREXIT in teh mkt abuse amendment 2019
- No obligation to share info with the EU authorities without guarantee of reciprocity
- FCA becomes responsible from the regulation
- any new regulation oos subject to the UK Treasury
MAR 1 = mkt abuse
MAR 2 = price stabilising rules
FCA market conduct handbook guidance
- insider dealing and improper info disclosure are pre-exisiting mkt abuse actions under the Criminal justice ACT
The fin. svs. act 2012 introduced the 3 offences for mkt abuse:
* making misleading statements (section 89)
* creating flase/misleading impressions. (sec 90)
* creating misleading statements in relation to benchmarks. (sec 91)
3 defences to the mkt abuse offences
- THe person reasonably believed their act/conduct would not create a false/misleading impression.
- Actions, statements or forecasts made that comly with the price stabilisation rules to prevent extreme mkt volatility at IPO - require some investor disclosures
- actions, statements or forecasts comply with the FCA control of information rules - relate to information that is limited and confdential info is exposed to individuals on a need to know basis.
Penalties for breaching mkt abuse rules under FSA
- On summary conviction - a fine not exceeding the statutory amount or a jail sentence not exceeding 12 monts or both.
- on conviction on inducement max 10 years in jail and/or a fine. Both will be issued for offences commited after 1/11/21
- offences committed up to 31/10/21 max jail sentence of 7 years in prison.
The sourcebook guidance on consequences for mkt abuse
- Defines behaviours that are mkt abuse and specifies how the FCA can deal with it
Potential actions - They can take action against senior managers/other individuals
- financial penalties
- public censures - helps deter other firms from doing it as it acts like a public telling off
Fators the FCA will use to determine if a fine or public censure was needed
- if the breach was deliberate or reckless
- duration/frequency of the breach
- benefit gained/loss avoided
- if the breach was due to failures of internal processses
- impact on mkts
- risk of loss to the customerr
- extent of fin. crimes involved/faciliated by the breach
- how wuickly the issue was escalated to teh FCA
- cooperation with the FCA in the investigation
- liklihood of a recurrance if left unpunished
- previous regulatory history
- nature/extent of inaccurate/false info.
Additional considerations:
* sophistication of investors in the market being abused
* impact a fine//public censure may have on consumers
The enforcement guide from the crown prosectors helps the FCA decide if they should press criminal charges instead of imposing sanctions sanctions
The FCA will not double prosecute (2 bites of the cherry) for cases of mkt absue and mkt misconduct if they are both related to 1 offence.
Insider dealing - inside information
- info of a precise nature that isn’t public and relates directly/indirectly to a fin. instrument that if made public, would have a direct impact on the price of the instrument
- commod derivs - info of a precise nature that isn’t public and relates directly/indirectly to a deriv that if made public, would have a direct impact on the price of the instrument.
- for people executing orders - info about pending client orders that is precise that isn’t public and relates directly/indirectly to a fin. instrument that if made public, would have a direct impact on the price of the instrument
Basically info that is precise, non public, relates directly/indirectly to an instrument and will have an impact on it’s price
Precise information definition
= indicates a set of circumstances that exists/may come into existance that can lead to a conclusion that the price of a financial instrument may change in a certain way
UK MAR definitions of insider dealing
- person uses inside info to buy/sell fin instruments for themselves/third parties
- using inside info to amend/cancel an order concerning a fin instrument where the order was placed before the person concerned had access to the inside info
- recommending/inducing anotehr person to engage in insider dealing by recommending that anotehr person buys/sells a fin instrument
- Recommeding another person amends/cancells an order based onn inside info
Public disclosure of inside info
Issuers are obliged to inform the public ASAP of information directly affecting the issuer. This must be done in a way that enable fast access to teh info as well as complete, corrrect and timely assessment of it.
Ensures all investors have the opportunity to base theirr investments on info available in the public domain = fair mkts.
insider lists
- Insider lists are lists of everyone who has had access to the inside info (employees of the firm, third parties, etc)
- Must be kept up to date as new individuals get access to info
- Firms should have seperate insider lists for each transaction and one list for permanent insiders
- Obligation under MAR for issuers and their advisers to maintain insider lists so thi info can be sent to the FCA if they need to investigate market abuse.
Market manipulation - definitions
A person cannot engage or attempt to engage in mkt manipulation
* entering into/placing a trade/any other behaviour which gives false signals of supply demand, price, etc or secures an artificial price that otherwise wouldn’t have occured (unless it is approved to have been carried out for legit reasons by the necessary body)
* entering into/placing a trade/any other behaviour which uses deception/ficticious info to change the price of an instrument
* Disseminating (where the person knows the info is false) false info by any means that gives false/misleading signals on price, supply, demand, etc that is likely to secure an artifical price for the instrument that otherrwise wouldn’t occur.
* transmitting false/misleading info that has inputs into a benchmark where the person know/should have know the info was false or manipuates teh benchmark calculation.
