Associated Legislation & Regulation

Question 1

Insider Dealing - Instruments Caught Under the Legislation

Answer 1

Securities (as defined by CJA), include:
- Shares
- Debt securities (issued by company or public sector body)
- Warrants
- Depositary receipts
- Options & Futures (to acquire or dispose of securities)
- CFDs based on securities, interest rates, share indices
Securities definition doesn’t include:
- (derivatives on) commodities e.g. options/futures on metals or energy products
- (derivatives on) foreign exchange because not price sensitive or affected in same way as individual securities.
- units/shares in open-ended CISs

Question 2

Accepted Market Practice - FCA Considerations

Answer 2

• Level of transparency of relevant market practice in whole market
• Need to safeguard operation of market forces & proper interplay of forces of supply/demand
• Degree to which relevant market practice has impact on market liquidity & efficiency
• Degree which practice takes into account trading mechanism & enables market participants to react properly & in timely manner to new market situation
• Risk inherent in relevant practice in relation to integrity of related market, re the relevant financial instrument within whole EEA
• Outcome of investigation of practice by competent authority, whether practice breached rules or regulations
• Structural characteristics of market, including whether regulated or not, fin instruments traded, type of market participant

Question 3

Moratorium Period

Answer 3

SECTION 335 POCA - If SAR made NCA can refuse/ consent to reporter undertaking any activity involving suspected criminal property.
- Consent refused means reporter loses statutory defence of Sections 327-329 POCA for 31 days - MORATORIUM PERIOD - extensions of up to 31 days allowed and can’t exceed 186 days from end of initial moratorium period.

Question 4

The UK Takeover Code

POTM

Answer 4

Code requires fair play between all interested parties.

1. All holders of the same classed be afforded equivalent treatment.
2. Holders given sufficient time & info to make informed decision on bid, the board must give view on potential effects.
3. Board to act in best interests of company.
4. False markets must not be created in a way that creates artificial rise & fall of securities.
5. Offeror must ensure they can fulfil any cash considerations.
6. Offered must not be hindered in conduct of affairs for longer than is reasonable.

Question 5

Terms used in UK Takeover Code

Answer 5

Acting in Concert - persons actively cooperating in acquisition of shares.
Dealings - acquisition/ disposal of securities, and any other actions that may increase/decrease number of securities a person is interested in.
Interests in Shares - if person owns shares, has right to exercise/direct voting rights, or interest through derivatives.
Relevant Securities

Question 6

Trade & Transaction Reporting

Answer 6

• Mechanism to feed back to the marketplace on market depth & liquidity, assists in price formation.
• Only applies to EEA counterparties.
• No reporting obligation for non-EEA entities, including EEA branches of 3rd country firms.
Trade reports should include: - Identity of reporting member & their counterparty
- Date & time
- Whether trade is purchase or sale
- Dealing capacity e.g. principal or agency
- Security & quantity traded
- Price
- Settlement due date
- Any special conditions e.g. ex-dividend trades

Question 7

Financial Instruments Covered by MiFID

Answer 7

• Transferable securities e.g shares
• Money market instruments e.g. certificates of deposit, commercial paper
• Options, swaps, forwards, futures, any other derivative contracts
• Derivative instruments for transfer of credit risk
• Financial contracts for Differences

Instruments not covered by MiFID: - cash deposits (not structured)
- spot FX

Question 8

MiFID Firms

Answer 8

• Investment banks
• Portfolio managers
• Stockbrokers & broker-dealers
• Many futures & options firms
• Firms operating an MTF or OTF
• Venture capital firms meeting certain criteria
• Energy & oil market participants, commodity firms meeting certain criteria
• Corporate finance firms meeting certain criteria
• Certain advisers
• Credit institutions which carry on MiFID biz
• Exchanges, UCITS firms, some professional firms

Question 9

CRD 3 Pillars

Answer 9

PILLAR 1 - Minimum capital requirements for credit, market, operational risks
PILLAR 2 - Firms & supervisors discussions re whether additional capital should be held
PILLAR 3 - Disclosure of info re risks, capital & risk Mgmt, to improve market discipline

Question 10

Basel 3 Measures

Answer 10

• Enhancing quality & quantity of capital
• Increasing Pillar 1 requirement for counterparty/market risk
• New leverage ratio as a backstop to risk-based capital
• Two new capital buffers - one for capital conservation, one to act as counter-cyclical capital buffer
• Enhanced liquidity regime

Question 11

BIPRU firms

Answer 11

Authorised to carry on one or more of following MiFID investment activities:
• Reception & transmission of orders
• Execution of orders on behalf of clients
• Portfolio management
• Investment advice

Doesn’t carry on the following:
• Dealing on own account
• Underwriting &/or placing financial instruments on firm commitment basis
• Placing of financial instruments without firm commitment basis
• Operating an MTF
• Ancillary svs for safeguarding & administering assets & holding money or securities belonging to their clients.