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Company Law > Market Abuse > Flashcards

Market Abuse Flashcards

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1
Q

What are the 3 offences of insider dealings under s.52 CJA1993?
Who do they apply to?

A
  1. Dealing in price-affected securities on the basis of inside information
  2. Encouraging another person to deal in price-affected securities on the basis of inside information
    (guilty whether or not that other person knows the securities are price-affected)
  3. Disclosing inside information (other than in the proper performance or function)

Apply to natural persons only

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2
Q

Which securities does the offence of insider dealings relate to? When will securities be price affected? When does a person deal in securities?

A

Applies to securities listed in Schedule 2 (s. 54 CJA1993) = shares and debt securities

Price-affected = ONLY if the information would, if made public, likely have a significant effect on the securities price

S.55 CJA1993 = a person deals in securities if any of the following 3 are met:

i. They acquire the securities, whether as principal or agent
ii. They dispose of the securities, whether as principal or agent
iii. They procure, directly or indirectly, an acquisition or disposal of the securities by any other person

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3
Q

When will a person have information as an insider?

A

Section 57 provides that a person has information as an insider if and only if:
• it is, and they know that it is, inside information; and
• they have it, and know that they have it, from an inside source.

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4
Q

What are the 4 defenses for dealing in price-affected securities on the basis of inside information?

A

s. 53 CJA1993 = NOT GUILTY IF CAN SHOW:
i. They did not at the time expect the dealing to result in a profit attributable to the price-sensitive information;
ii. They reasonably believed the information was disclosed widely; or
iii. They would have done what they did even if they didn’t have the information

Schedule 1, para 1 CJA1993 = special defence = they acted in good faith as a market maker

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5
Q

What are the 4 defenses for encouraging another person to deal in price-affected securities on the basis of inside information?

A

53 CJA1993 = NOT GUILTY IF CAN SHOW:
• They did not at the time expect the dealing to result in a profit attributable to the price-sensitive information;
• They reasonably believed the information was disclosed widely; or
• They would have done what they did even if they didn’t have the information

• Schedule 1, para 1 CJA1993 = special defence = they acted in good faith as a market maker

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6
Q

What are the 2 defenses for disclosing inside information?

A

s. 53 CJA1993 = NOT GUILTY IF CAN SHOW:
i. They did not at the time expect any person to deal in securities; or
ii. They did not expect the dealing to result in a profit attributable to the price-sensitive information

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7
Q

What is the means rea for the offences of insider dealing?

A

The prosecution must prove the defendant had the ‘information as an insider’ = the mens rea

S.57(1) CJA1933 = only guilty if they knew the information was inside information and they knew that they obtained it from an inside source

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8
Q

What is inside information?

A

• s.56(1) CJA1933 = ‘inside information’ is information which:

  1. relates to particular securities or issuer(s) of securities;
  2. is specific or precise;
  3. has not been made public; and
  4. if it were made public would be likely to have a significant effect on the price of any securities
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9
Q

When does a person have information as an inside source? (3)

A

• S.57(1) CJA1933 = a person has information from an inside source ONLY if:

  1. They have it through being a director, employee or shareholder of an issuer of securities; or
  2. They have access to the information by virtue of their employment, office or profession; or
  3. The direct or indirect source of the information is a person within (1)
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10
Q

What are the penalties for insider dealings under CJA1993?

A
  • Person is liable:
  • On summary conviction, to a fine and/or imprisonment for up to six months; or
  • On conviction on indictment, to a fine and/or imprisonment for up to seven years

Contracts entered into are valid and enforceable

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11
Q

What are the 3 offences relating to financial services under Financial Services Act 2012?
Are the offences mutually exclusive?
Who can commit them?

A
  1. Misleading Statements
    • s.89 FSA2012 = where a person knowingly or recklessly makes a false statement with the intention to induce another to change their behaviour regarding a relevant investment
  2. Misleading omissions
    • S.90(1) FSA2012 = where a person knowingly or recklessly makes a false statement with the intention to create a misleading impression; With the intention to cause profit or loss to another
    • Defence = if reasonably believed that their conduct would not create an impression that was false or misleading
  3. Misleading statements etc. in relation to benchmarks
  4. s.91(1) FSA2012 = a person who gives a misleading/false statement to create a false bench mark is guilty of an offence.
  5. s.91(2) FSA2012 = a person who does any act or engages in any conduct which creates a false or misleading impression regarding the price or value of investments will commit an offence

Offences are not mutually exclusive
Both natural persons and companies can be convicted

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12
Q

What are the penalties for offences relating to financial services?

A

S.92 Financial Services Act 2012:
A person who is guilty is liable:
○ on summary conviction, to a fine and/or imprisonment for up to 12 months; or
○ on conviction on indictment, to a fine and/or imprisonment for a term up to seven years

The Secretary of State or the FCA may apply for a court order for the defendant to pay the FCA a sum based on the profits accrued or loss suffered
• FCA will then distribute the sums to those whom the profit should be attributable or who have suffered a loss

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13
Q

What is the UK’s competent authority responsible for ensuring compliance with Market Abuse Regulations 2014?

What are the 2 activities that constitute market abuse?

A

FCA

(i) insider dealing; and (ii) market manipulation.

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14
Q

What does Article 14 under MAR 2014 prohibit a person from doing in relation is insider dealing? (4)

A

• Article 14 MAR = a person shall not:

  1. engage or attempt to engage in insider dealing;
  2. recommend to someone to engage in insider dealing;
  3. induce another person to engage in insider dealing; or
  4. unlawfully disclose inside information.
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15
Q

Insider dealing under MAR 2014 applies to people who possess information as a result of what? (4)

A

Article 8(4) MAR = prohibition on insider dealing only applies to people who possess inside information as a result of:

  1. being a member of the issuer’s bodies;
  2. having a holding in the issuer’s capital
  3. having access to information through employment, profession or duties; or
  4. being involved in criminal activities
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16
Q

What is insider information under MAR 2014?

A

• Article 7(1) MAR = Non-public, precise information relating to issuers or financial instruments, which if made public would significantly affect the prices of the financial instruments

17
Q

What legitimate behaviour will not amount to insider dealings under MAR2014? (2)

A

Article 9 MAR = ‘safe harbours’ = legitimate behaviour not amounting to insider dealings, where a legal person:

  1. Had established, implemented, and maintained adequate internal procedures to ensure the person was not in possession of inside information
  2. Has not encouraged, recommended, induced, or influenced the person
18
Q

What are 5 types of activities that constitute market manipulation under MAR?

A

• Article 12 MAR = types of activities that constitute market manipulation:

  1. Entering a transaction which gives false or misleading signals or manipulates the price of financial instruments
  2. Spreading information through the media which gives false or misleading signals or manipulates the price of financial instruments
  3. Knowingly transmitting false or misleading information in relation to a benchmark
  4. Creating unfair trading conditions through conduct to dominate the supply or demand for financial instruments
  5. Buying and selling financial instruments at opening or closing of the market to mislead investors acting on the prices displayed
19
Q

What are the disclosure requirements for issuers under MAR2014…
Who must an issuer inform of inside information and when?
What must an issuer draw up?
What 4 things must this contain?
How long must this be kept for and who can view?

A
  • Article 17(1) MAR = an issuer must inform the public of inside information asap
  • Article 18(1) MAR = an issuer must draw up an ‘inside list’ = list of all (i) employees who have access to inside information, or (ii) person who perform tasks through which they have access to inside information (e.g. accountants).
  • Article 18(3) MAR = list must contain at least:
  1. Identify of person
  2. Reason they are on the list
  3. Date and time they obtained access to inside information
  4. Date list was drawn up
  • Must keept up to date and retain for 5 years
  • FCA can request to view, the issuer must provide
20
Q

What are the disclosure requirements for managers under MAR2014…
Who must managers inform and when?
What are the 5 things that must be disclosed?

A
  • Article 19(1) MAR = managers must notify issuers and FCA of every transaction conducted relating to issuer’s shares and debt instruments
  • Issuers must make this information public within 3 days

• Article 18(6) MAR = information that must be disclosed includes:

  1. the name of the person and issuer;
  2. reason for notification;
  3. description of the financial instrument;
  4. nature of the transaction, its date and place; and
  5. price and volume of the transaction
21
Q

What are 5 sanctions the FCA can impose for market abuse under MAR2014?

A

• FCA can impose a range of sanctions including:

  1. Imposing a penalty as FCA considers appropriate
  2. Temporarily or permanently prohibiting the person from holding certain management positions
  3. Temporarily prohibiting them from acquiring or disposing of financial instruments
  4. Suspending permission to carry on a regulated activity up to 12 months
  5. Imposing limitations to carry on a regulated activity up to 12 months

• Sanctions not mutually exclusive

22
Q

Can a person be guilty of insider dealings under MAR2014 and CJA1993?
What are the 2 main differences between CJA1993 and MAR2014?

A

Yes can be guilty of both.

  1. MAR applies to both legal and natural persons. CJA1993 applies to natural persons only
  2. MAR2014 imposes civil consequences only. CJA1993 imposes civil and criminal consequences

Company Law (18 decks)

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