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CWM Financial Markets > Chapter 8 - Market Abuse Regime > Flashcards

Chapter 8 - Market Abuse Regime Flashcards

1
Q

What is MAR?

A

Market Abuse Regulation

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2
Q

What did MAR replace?

A

The market abuse directive MAD

in 2016, when the UK was still in the EU

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3
Q

What was the point of MAR?

Because it replaced MAD

A

Expand the scope to include:
1) More instruments
2) More venues
3) Applies to the public at large

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4
Q

What did MAR do to benchmarks and market manipulation?

A

1) Created rules regarding benchmark abuse
2) Includes “attempted” market manipulation

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5
Q

Because the UK left the EU, what two types of MAR are there?

A

UK MAR and MAR EU

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6
Q

What was the point of UK MAR?

A

To ensure UK securities remained subject to the same requirements as before

(could continue to trade as normal)

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7
Q

Why will UK and EU mar deviate?

A

EU MAR no longer automatically updates UK mar.

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8
Q

Who monitors market abuse in the UK?

A

The FCA

Given power under the FSMA 2000.

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9
Q

What directive polices market abuse in the EU?

A

CSMAD - Criminal sanctions market abuse directive

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10
Q

Under section 401 and 402 of FSMA 2000

What crimes can the FCA prosecute for?

A

1) Breaching listing requirements (listing without a prospectus)
2) Misleading the FCA
3) Making misleading statements / market manipulation
4) Insider dealing
5) Money laundering breaches

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11
Q

What are the 3 main types of market abuse?

A

1) Insider Dealing
2) Disclosing inside information
3) Engaging in market manipulation

Inducing someone to engage in insider dealing is also an offence

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12
Q

What is insider dealing?

How is it defined?

A

“Using inside information to acquire or dispose of a financial instrument to which that information relates”

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13
Q

What markets does MAR cover?

A

1) Regulated Markets (including AIM)
2) MTFs
3) OTFs

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14
Q

Who is considered an Insider?

A

Someone who has information as a result of:
- Membership of an issuer
- Holding Capital In the issuer
- through employment, duties or criminal activity
- Other means where one is reasonably expected to know it is inside information

Recommending someone engage in insider dealing is also an offence, it includes the amendment and cancellation of orders and bids

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15
Q

What is Unlawfully disclosing inside information?

A

Other than in the exercise of contracted duties it is an offence to disclose inside information where the discloser knows they are based on inside information

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16
Q

What is Engaging or attempting to engage in market manipulation

A
  • Giving a false signal to supply, demand or price
  • Which secures price at an artificial or abnormal level
  • Transmitting false information to manipulate the calculation of a benchmark
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17
Q

What exemptions are there to UK and EU MAR?

A

Safe harbours exist for:
1) Buybacks
2) Market Stabilisation

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18
Q

What are the potential 5 penalties for Market Abuse?

A

1) Unlimited Fine
2) Public Statement that a person has engaged in market abuse
3) Injunction against continued market abuse
4) Disgorge Profits / Losses
5) Payment of compensation to victims

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19
Q

What is POTAM?

A

Panel on Takeovers and Mergers

20
Q

What do POTAM do?

A
  • Carry out the functions of the EU takeover directive
  • Provides a framework of how takeovers should be conducted
21
Q

What three things does the panel ensure?

A

1) Shareholders are treated fairly
2) Shareholders are entitled to the same treatment by an offeror
3) The integrity of financial markets is supported

22
Q

What 2 rights are afforded to shareholders by POTAM?

2 of the 6 principles

A

1) Shareholders will be afforded the same treatment by offerer
2) Shareholders have enough time and information to reach an informed decision

Offeree board must give a view on the outlook for employment, conditions and location

23
Q

What duty do the board of the Offeree company have under POTAM?

A

Act in the best interests of the company as a whole.

Offeree board must give a view on the outlook for employment, conditions and location

24
Q

What are the 6 principles under POTAM?

A

1) False markets should not be created
2) Offeree security holders should be afforded the same right under offeror
3) Offeree board should act in the companies best interest
4) Security holders should have sufficient time and information to reach an informed decision.
5) Offeree company should not be hindered in doing business for longer than necessary
6) Can only announce bid after ensuring cash consideration can be made

25
Q

How does the POTAM fund itself?

A

PTM Levy
£1 on £10,000 trade

on any UK incorporated company who is listed on a U.K. regulated exchange or MTF

26
Q

What is corporate governance?

A
  • The system by which companies are directed and controlled
27
Q

What is the role of a shareholder re: Corporate Governance?

A

Appoint directors and auditors

28
Q

What is the role of the board re: corporate governance?

A

Set strategic aims, controls and supervise management

29
Q

What did the most recent corporate governance code aim to do?

When did it take place?

A
  • Analyse relationship between companies and stakeholders
  • Promote good practice on board renumeration
  • Promote sustainable UK growth and succesful companies

2018

30
Q

What is SM&CR

A

Senior Managers and Certifications Regime

31
Q

What did SM&CR replace?
Who was it initially for?

A

Approved persons regime
Banks

32
Q

What is SM&CR being reviewed under?

A

Edinburgh Reforms

33
Q

What is the primary aim of SM&CR

What else does it aim to tackle?

A

Increase individual accountability

Agency theory

34
Q

What is agency theory?

A

The dilemma that directors will not act in shareholders best interests

35
Q

What are the 8 requirements under the UK stewardship code?

A

1) Every listed company should be headed by an effective board
2) Board should meet regularly
3) Directors should bring independent judgement
4) No single individual should have unfettered powers
5) Strong and independent non-executive on the board
6) Balance of executive and non-executive to stop small groups dominating decisions
7) Transparent formal procedure for appointment of new directors
8) Directors need to submit for re-election at least every 3 years

36
Q

What is the policy regarding Directors’ Renumeration?

A

1) Should be sufficient to attract and retain directors who can succesfully run the company
2) Should be linked to performance

37
Q

Who should be responsible for setting Directors’ Renumeration?

A

Renumeration committees consiting of non-executive directors only

38
Q

What should be in the contracts of directors?

A

Aim to have notice periods with a maximum of 1 year

39
Q

What are the four headings for the Edinburgh reforms and FSMA bill?

A

1) Tech and Innovation
2) Green Finance
3) Delivering for Consumers and Businesses
4) Maintaining and building a competitive marketplace and promoting the effective use of capital

40
Q

What does Maintaining and building a competitive marketplace and promoting the effective use of capital entail

A

1) Review retail / investment bank ringfence
2) Better tax rules for REITs
3) SMCR reforms

41
Q

What does sustainable finance entail?

A

1) More focus on low carbon future
2) Decide if we should incorporate ESG ratings into regulation

42
Q

Technology and Innovation entails?

A

1) Innovation in emerging areas e.g. AI and CBDC

43
Q

Delivering for consumers and businesses entails?

A

1) Review of CCA (consumer credit act)

44
Q

What does the Investment research review examine?

A

The attractiveness of the UK as a location for companies to raise capital

focus on small and large cap companies

45
Q
A
46
Q

What securities are included in the PTM levy?

A
  1. Equity Share capital
  2. Securities convertible into share capital (warrants)
  3. ADRs
47
Q

What securities is the PTM levy not payable on?

A
  1. covered warrants;
  2. debentures and other debt securities;
  3. preference shares;
  4. Permanent Interest Bearing Securities;
  5. contracts for differences and total return swaps;
  6. spread bets; or
    option contracts;

CWM Financial Markets (58 decks)

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