Chapter 5 Flashcards
Insider Dealing (Summary)
Criminal Justice Act 1993
Criminal offence
Intent beyond all reasonable doubt
Max sentence of 10 years and/or unlimited fine
Market Abuse (Summary)
Market Abuse Regulation under FSMA 2000 captures Criminal Justice Act 1993 and FSA 2012
Civil offence
Effect and balance of probability
Unlimited fine
Misleading Statement and Impressions (Summary)
FSA 2012
Criminal offence
Intent beyond all reasonable dount
Max sentence of 10 years and/or unlimited fine
Prosecution / Accusation / Evidence
Brought by the FCA in both civil and criminal offences
The FCA will determine whether their evidence is sufficient to demonstrate intent beyond all reasonable doubt
RIEs monitor markets and share information with FCA
The FCA can theoretically, simultaneously pursue both a criminal and civil offences but doesn’t in practice as it’s a waste of resources
Criminal Justice Act 1993
Covers insider dealing directly, encouraging others to trade OBO, or distributing inside information
Only covers a limited range of prescribed instruments (equities, warrants, debt, derivatives on these instruments) when traded on an exchange or through a professional intermediary
Excludes assets are those with no secondary market, commodities, FX, insurance products
Inside Information
Must meet all 4 conditions:
- Non public information
- Specific or precise
- From an inside source
- Price sensitive
Criminal Justice Act 1993 (Defences)
General:
- Information passed on in proper course of employment and did not expect recipient to deal
- Deal was not made to create profit or avoid loss
- Information publicly available
Special (only usable by certain individuals):
- Stabilisation, lead manager or underwriter to provide support at an IPO
- Market information
- Market makers in ordinary course of business
FSA 2012
Misleading Statement and Impressions are criminal attempts to manipulate the market in their favour
- Section 89 misleading statements, e.g. lying to other market participants
- Section 90 misleading impressions, e.g. abusive squeezes or market rigging
- Section 91 misleadings statements in relation to benchmarks, e.g. LIBOR scandal
FSA 2012 (Defences)
General:
- Reasonably believed that the statement or action was not false or misleading
Special:
- Acted in conformity of stabalisation, share buy-backs, or within control of information rules
Market Abuse Regulation
Civil offences, lighter burden of proof and based on the effect rather than the intent:
- A person shall not engage in or attempt insider dealing
- A person shall not engage in or attempt market manipulation
Easier for the FCA to prosecute under Market Abuse rather than a criminal offence
Market Abuse Regulation (Scope)
Much broader than the criminal offences. Covers UK trader activity from a UK venue for instruments listed anywhere across Europe and UK, the FCA can take action:
- Financial instruments
- Emissions allowance
- Commodities
Code of Market Conduct
Contained in FCA handbook which sets out FCA’s definition of market abuse and what is not:
- Insider dealing
- Improper disclosure
- Manipulating transactions
- Manipulating devices
- Dissemination
Sanctions against individual and firm:
- Withdrawal of regulated status
- Financial penalties
- Public statements
- Applying to courts for injunctions and restitutions
Money Laundering
Proceeds of Crime Act 2002
Criminal offence
Hiding nature and source of funds
Placement
- Deposited in bank or building society
Layering
- Electronic funds are transferred from the bank and used to buy different instruments to cover the audit trail
