Market Abuse Flashcards
Background about Market Abuse Regulation (MAR)
- The Market Abuse Regulation (MAR) is an EU law that aims to prevent market abuse (e.g., insider trading, market manipulation) in financial markets.
- It was updated in July 2016 to cover more activities and improve market fairness.
What were the main changes that were introduced in MAR?
- Expanded Scope:
A. Includes financial instruments that are traded on MTFs, other OTFs, and certain over-the-counter (OTC) activities (e.g., derivatives, credit default swaps).
B. Applies to financial instruments inside and outside the EU, if they are admitted to trade on EU markets.
C. Ensures that even foreign trading can be regulated if it affects EU markets.
2 Market Manipulation Prohibition:
A. Illegal not only to engage in market manipulation, but also to attempt it, even if the attempt is unsuccessful.
B. E.g. if someone starts manipulating the market (e.g., trying to spread false information to affect prices) but doesn’t finish due to a technical failure, it’s still considered illegal.
- Modifications to Disclosure and Transparency Rules:
A. This is how and when companies and individuals must disclose important information (disclosure and transparency rules).
B. Ensures transparency in the market, making sure that all participants have access to the same information at the same time, reducing unfair advantages.
With regards to MAR - what are the concepts around notification of delayed disclosure to the national authority?
- MAR introduces a requirement for issuers (companies) to inform national authorities if they delay the disclosure of inside information that could affect price of their securities.
- The issuer must notify the competent national authority immediately after the inside information has been publicly disclosed.
- Explanation for the Delay: Issuers must also provide a written explanation to authorities explaining why the information was delayed and how they met specific conditions for delay.
- In the UK, however, this explanation is only required if the FCA requests it.
This is an example of notification of delay disclosure to the MAR.
Solely for understanding purposes
- Delayed Disclosure: A company can delay the release of this inside information, but only if:
A. The delay does not mislead the market. For example, the delay shouldn’t make it seem like the company is hiding negative information.
B. The company maintains confidentiality during the delay period and prevents the information from leaking out.
- Once Information is Released:
A. After the company eventually makes the information public, they must notify the relevant national authority (like the FCA in the UK) that the information was delayed.
B. The company must also provide a written explanation (this is required only if asked by the authority) explaining why the disclosure was delayed and how they met the conditions for delaying it.
What is inside information?
This is sensitive information that could significantly affect the price of a company’s securities (e.g., a major acquisition, financial performance data).
EU MAR and UK MAR - what are these?
Which one do we follow?
- From 1 January 2021, there are two market abuse regimes:
A. EU MAR (the EU regime)
B. UK MAR (the new UK regime after Brexit) - UK MAR is very similar to EU MAR and is designed to ensure UK markets and financial instruments are still regulated in a manner similar to EU standards.
- Currently, there is little difference between the two regimes, but this could change in the future.
Market abuse can also breach criminal laws.
What are some of the key offences that the FCA can take action on?
- The FCA has the power to prosecute various offences under FSMA 2000 and other laws.
- Some key offences that the FCA can take criminal action for:
A. Breaching FCA listing rules (e.g., offering new securities to the public without a required prospectus).
B. Misleading statements and market manipulation.
C. Insider dealing (under Part V of Criminal Justice Act 1993).
D. Breaches of money laundering regulations.
E. Misleading the FCA.
What are the requirements for a behaviour to be considered as market abuse?
- Market abuse only occurs if the behaviour is related to a qualifying investment that is traded on a prescribed market.
- A prescribed market is a recognised investment exchange in the UK or any other regulated market within the EEA (European Economic Area).
3 A qualifying investment refers to securities, rights, or interests that are traded on a prescribed market.
What are some types of behaviour that are considered as market abuse under the FCA MAR?
- Insider dealing -
When someone with access to “inside information” (i.e., non-public, price-sensitive information) uses that knowledge to trade, or attempts to trade, in the related investments (like shares or bonds).
It’s when anyone trades or attempts to trade based on inside information, not just the insider themselves - Unlawful Disclosure:
When an insider discloses confidential, non-public information to someone who isn’t supposed to have it - outside the scope of their job duties. - Manipulating Transactions:
Making trades or transactions that give a false or misleading impression about the demand or price of a financial asset. - Manipulating Devices:
Using false or deceptive methods to place transactions, such as fictitious orders, in order to manipulate the market. - Dissemination of False Information:
When false or misleading information is spread about a financial asset, often to mislead other traders.
What are the legal implications of market abuse?
I.e. for someone who’s found guilty of market abuse.
- FCA Sanctions:
FCA can ask the courts to impose civil penalties or fines, or even issue a public statement saying that the person engaged in market abuse. - Criminal vs Civil:
While insider dealing and market abuse can be criminal offenses, market abuse in this context is generally considered a civil offense.
This means that civil penalties (like fines) may apply, but it doesn’t replace existing criminal laws, like the Criminal Justice Act 1993 for insider dealing.
