Chapter 8 - Market Abuse Regime

Question 1

What is MAR?

Answer 1

Market Abuse Regulation

Question 2

What did MAR replace?

Answer 2

The market abuse directive MAD

in 2016, when the UK was still in the EU

Question 3

What was the point of MAR?

Because it replaced MAD

Answer 3

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

Question 4

What did MAR do to benchmarks and market manipulation?

Answer 4

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

Question 5

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

Answer 5

UK MAR and MAR EU

Question 6

What was the point of UK MAR?

Answer 6

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

(could continue to trade as normal)

Question 7

Why will UK and EU mar deviate?

Answer 7

EU MAR no longer automatically updates UK mar.

Question 8

Who monitors market abuse in the UK?

Answer 8

The FCA

Given power under the FSMA 2000.

Question 9

What directive polices market abuse in the EU?

Answer 9

CSMAD - Criminal sanctions market abuse directive

Question 10

Under section 401 and 402 of FSMA 2000

What crimes can the FCA prosecute for?

Answer 10

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

Question 11

What are the 3 main types of market abuse?

Answer 11

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

Inducing someone to engage in insider dealing is also an offence

Question 12

What is insider dealing?

How is it defined?

Answer 12

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

Question 13

What markets does MAR cover?

Answer 13

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

Question 14

Who is considered an Insider?

Answer 14

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

Question 15

What is Unlawfully disclosing inside information?

Answer 15

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

Question 16

What is Engaging or attempting to engage in market manipulation

Answer 16

• 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

Question 17

What exemptions are there to UK and EU MAR?

Answer 17

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

Question 18

What are the potential 5 penalties for Market Abuse?

Answer 18

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

Question 19

What is POTAM?

Answer 19

Panel on Takeovers and Mergers

Question 20

What do POTAM do?

Answer 20

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

Question 21

What three things does the panel ensure?

Answer 21

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

Question 22

What 2 rights are afforded to shareholders by POTAM?

2 of the 6 principles

Answer 22

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

Question 23

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

Answer 23

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

Question 24

What are the 6 principles under POTAM?

Answer 24

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

Question 25

How does the POTAM fund itself?

Answer 25

PTM Levy £1 on £10,000 trade ## Footnote on any UK incorporated company who is listed on a U.K. regulated exchange or MTF

Question 26

What is corporate governance?

Answer 26

- The system by which companies are directed and controlled

Question 27

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

Answer 27

Appoint directors and auditors

Question 28

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

Answer 28

Set strategic aims, controls and supervise management

Question 29

What did the most recent corporate governance code aim to do? ## Footnote When did it take place?

Answer 29

- Analyse relationship between companies and stakeholders - Promote good practice on board renumeration - **Promote sustainable UK growth and succesful companies** ## Footnote 2018

Question 30

What is SM&CR

Answer 30

Senior Managers and Certifications Regime

Question 31

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

Answer 31

Approved persons regime Banks

Question 32

What is SM&CR being reviewed under?

Answer 32

Edinburgh Reforms

Question 33

What is the primary aim of SM&CR ## Footnote What else does it aim to tackle?

Answer 33

Increase individual accountability ## Footnote Agency theory

Question 34

What is agency theory?

Answer 34

The dilemma that directors will not act in shareholders best interests

Question 35

What are the 8 requirements under the UK stewardship code?

Answer 35

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

Question 36

What is the policy regarding Directors' Renumeration?

Answer 36

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

Question 37

Who should be responsible for setting Directors' Renumeration?

Answer 37

Renumeration committees consiting of non-executive directors only

Question 38

What should be in the contracts of directors?

Answer 38

Aim to have notice periods with a maximum of 1 year

Question 39

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

Answer 39

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

Question 40

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

Answer 40

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

Question 41

What does sustainable finance entail?

Answer 41

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

Question 42

Technology and Innovation entails?

Answer 42

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

Question 43

Delivering for consumers and businesses entails?

Answer 43

1) Review of CCA (consumer credit act)

Question 44

What does the Investment research review examine?

Answer 44

The attractiveness of the UK as a location for companies to raise capital ## Footnote focus on small and large cap companies

Question 46

What securities are included in the PTM levy?

Answer 46

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

Question 47

What securities is the PTM levy not payable on?

Answer 47

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;