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Chapter 4 - COBS and CASS > Chapter 3 - Market Abuse Regulation and Insider Dealing > Flashcards

Chapter 3 - Market Abuse Regulation and Insider Dealing Flashcards

1
Q

What is the Statutory Offence?

A

Market Abuse

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2
Q

Which two areas of market abuse does the Market Abuse Directive cover?

A
  1. Market manipulation

2. Insider Dealing

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3
Q

Which regulation followed MAD?

A

Market Abuse Regulation

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4
Q

What does MAR cover?

A

Banned market abuse in relation to spot commodity deals and their derivatives.

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5
Q

What did MiFID cover in relation to market abuse?

A

Market abuse in relation to:

  • SME growth markets
  • OTFs
  • Auction Products
  • Emission Allowances
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6
Q

How did the UK interpret MAR?

A

The HM Treasury Statutory Instrument and FCA Handbook were updated. The FCA Handbook is guidance only?

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7
Q

What sections of FSMA did the HM Treasury Statutory Instrument repeal?

A

Section 119 and 122 of the Code of Market Conduct (CoMC)

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8
Q

What two areas of market abuse does the Market Conduct Sourcebook (MAR) cover?

A
  1. Insider Dealing

2. Improper Disclosure of information

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9
Q

What is the criminal legislation that covers market abuse?

A

Criminal Justice Act - sections relating to misleading statements and practices.

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10
Q

What supplementary guides can the FCA use in determining whether to impose sanctions?

A

FCA Enforcement Guide

Code for Crown Prosecutors (when thinking of criminal proceedings)

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11
Q

Who has to report suspicions of market abuse?

A

Firms and trading venues

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12
Q

What is the definition of ‘inside information’?

A
  • Precise info about an instrument or its derivatives
  • Precise info about a commodity of spot commodity contract.
  • Order execution - pending orders
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13
Q

In which document is the format for insider lists stipulated?

A

EC Level 2 text - A permanent list and a list for each transaction is required.

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14
Q

What extra things does MAR cover as opposed to MAD?

A

Unexecuted orders and Requests for Quotes (RFQs)

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15
Q

Which text outlines the format for a STOR?

A

ESMA - Technical Standards on Market Abuse Regulation

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16
Q

How long should a written document outlining systems and controls to prevent market abuse be maintained for?

A

5 years

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17
Q

How often should a market abuse policy be reviewed?

A

At least annually by internal audit

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18
Q

What term is used to describe Inside Information?

A

‘unpublished price sensitive information’

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19
Q

What term is used to describe instrument affected by inside information?

A

‘related securities and price-affected securities’

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20
Q

What are the 3 insider dealing offences?

A
  1. Dealing in price affected securities whilst possessing inside information?
  2. Encouraging other to deal in price affected securities whilst possessing inside information
  3. Disclosure of inside information
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21
Q

When can the insider dealing legislation apply?

A

In relation to deal carried out on a regulated market or via a professional intermediary

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22
Q

Which instruments does the CJA define as securities and subject to insider dealing regulation?

A
  • Shares
  • Debt Securities
  • Warrants
  • Depository Receipts
  • Options
  • Futures
  • CFDs based on securities, interest rates or share indicies
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23
Q

Which instruments are exempt from CJA?

A
  • Commodities
  • Forex
  • CIS (OEIC)
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24
Q

What the defences to insider dealing?

A
  1. Did not expect that dealing would lead to profit (avoid loss).
  2. Believed the information was sufficiently disclosed.
  3. Would have acted in the same way regardless of being in possession of the info.
25
Q

What are the defences for disclosure?

A
  1. Did not expect person to deal

2. Did know person would deal but did not know that they would make a profit (avoid loss).

26
Q

What is the special defences for insider dealing?

A

Market maker - acting in good faith - acting to facilitate a deal under negotiation.

Market Information: Information about the sale of a block of securities or the likely price of the deal - prove that having this knowledge would be reasonable

Price Stabilisation: Acting in line with the Price Stabilisation Rules in Chapter 2 FCA MAR Sourcebook.

27
Q

What do the disclosure rules outline?

A
  1. Prompt and fair release of inside information to the public
  2. When an issuer can delay public disclosure of info.
  3. Requirements to ensure that info is confidential
28
Q

In regards to keeping inside information confidential, what do the Disclosure Rules state?

A

Deny access - restrict access to inside info to those who need it.

Breaches of confidentiality - Arrangements for making disclosures of inside info through a RIS and also holding announcements on why full disclosure cannot be made.

29
Q

What are the 6 principles of the Takeover Code?

A
  1. The same class of shareholders are to be given equal treatment and be protected.
  2. Shareholders to be given sufficient time to consider a bid. The Board should inform shareholders on employment, conditions of employment and location of company offices.
  3. Board to act in best interests of company.
  4. No false markets
  5. Bid to only be made if cash consideration can be met.
  6. Offeree to not be hindered in conduct for unreasonable period of time due to bids.
30
Q

What are the notification requirements for shareholders in the UK?

A

Notification if shareholding exceeds or moves below 3% or interest in shares (with voting rights) exceeds/falls below 3%.

31
Q

Under what circumstances are voting rights not considered for notification requirements?

A
  1. Acquired for clearing and settlement and and settled by 3rd trading day from execution.
  2. Shares held by a custodian or nominee.
  3. Shares held by a market makers (less than 10%)
  4. Shares held by a investment firm or bank (less than 5%)
  5. Shares held as collateral
  6. Shares acquired for price stabilisation purposes as long as voting rights are not exercised.
32
Q

How long after acquisition or disposal of voting rights are shareholders considered to have knowledge?

A

2 trading days

33
Q

If a shareholding rises from 4.5% to 4.9%, does this have to be disclosed?

A

No, must cross a percentage point.

34
Q

How long do firms have to till they have to disclose the notification of shareholding?

A

Following business day.

35
Q

What is the notification threshold for OEIC and AUT (regulated CIS) and Fund Managers?

A

5% and then 10% (not in between) and every percentage point after 10%

36
Q

What is the notification threshold for market makers?

A

10% as long as they don’t exercise voting rights

37
Q

What is the notification threshold for custodians?

A

None, they are exempt from notification requirements

38
Q

How far back can a company enquire about a person’s shareholdings in the company using the Section 793 letter?

A

3 years

39
Q

What is not covered by FCA reporting requirements?

A

Stock lending and borrowing - already covered under SFTR.

40
Q

What does SFTR do?

A

Introduced reporting for stock lending and borrowing activities and limits the reuse of collateral.

41
Q

What is the regulation relating to the reporting of derivative trades?

A

EMIR

42
Q

Where do EMIR reports go?

A

Trade Repository - there are 6 in Europe e.g. ICE Trade Vault, DTCC, CME.

43
Q

Who is exempt from EMIR reports?

A

Non EEA third countries including their EEA branches. e.g. Canadian bank operating in London.

44
Q

What reporting requirements did MiFID 2 introduce?

A

Pre and post trade reporting on equities and non-equities.

45
Q

Which FCA department carries out transaction monitoring?

A

Transaction Monitoring Unit

46
Q

What is an Approved Reporting Mechanism?

A

A means approved by the FCA through which investment firms and market operators can report their transactions - e.g. CREST, TRAX, UnaVista

47
Q

What is SSR?

A

EU Short Selling Regulation - it gave the FCA the power to:

  1. restrict short selling
  2. limit CDSs
  3. Add more instruments to the disclosure regime
  4. Get lenders to inform of their fee changes.
48
Q

What are two channels for reporting and systems at the LSE?

A

Stock Exchange Trading Service (SETS) - UK equities

International Order Book - Depository Receipts

49
Q

What are the hours of trading on the LSE?

A

7.15 am to 5.15pm

50
Q

If a trade is executed at 7.30am, when must it be reported by?

A

8.00am

51
Q

If a trade is executed at 8.05am, when must it be reported by?

A

8.08am - 3 minutes

52
Q

If a trade is executed at 5.12pm, when must it be reported by?

A

5.15pm

53
Q

If a trade is executed at 6.30pm, when must it be reported by?

A

Before the start of the next trading day - 7.15am

54
Q

Who is responsible for reporting the trade?

A

The most senior party - market maker or seller if parties are of equal seniority

55
Q

Do EEA firms trading in 3rd countries have to report transactions?

A

No

56
Q

Do non-EEA firms trading in the UK have to report to the FCA?

A

Yes

57
Q

What is the publication issued by the LSE that is used to value portfolios?

A

Daily Official List (DOL)

58
Q

When do domestic UK transactions for settlement on the LSE have to be reported by?

A

8pm if via CREST

59
Q

When do international transaction for settlement on the LSE have to be reported by?

A

9pm via Omgeo

Chapter 4 - COBS and CASS (8 decks)

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