Market Abuse Part 2 Flashcards
Examples of person with inside info
- Director of an issuer
- shareholder of an issuer
- access to info through employment, profession
- access through criminal activities
- knowing tippee
Inside info has following elements under MAR
- Info is of a precise nature
- has not been made public
- relates directly or indirectly to one or more financial instruments
- if public would be likely to have significant effect on price of instrument
Definition of Market Manipulation under MAR
- False or misleading behaviour
- Behaviour secures or likely at an abnormal or artificial level
- Deceptive behaviour
- Dissemination through media - e.g. internet
- manipulation of benchmarks
Disclosure of inside information
- Issuers publish inside info as soon as possible
- Must remain on issuer’s website for at least five years
Delaying disclosure of inside Information
Is permissible if
- immediate disclosure would prejudice the legitimate interest
- delayed disclosure not likely to mislead public
- can ensure the confidentiality of the information
FCA must be notified (may ask for written explanation)
Insider Lists
Control over + keeping private inside info
Maintain and up to date list of persons access to inside info
Ensure persons on list acknowledge in writing their duty of confidentiality
Remain fully responsible for the list - Firm has to monitor the list even though maintained by advisor
Keep list for at least 5 years
What are safe harbours
behaviour which might have direct or indirect effect on issuer’s share price, but not subject to sanctions under the market abuse regime.
2 types of MAR
EU Market Abuse Regulation
Code of Market conduct - which is FCA handbook
guidance created
1- what is MA abuse
2- what is not MA abuse
3- distinguish between both
Safe Harbour Examples
- acting in conformity with EU MAR provisions on buy back programmes and stabilisation
- acting in conformity with FCA’s rules on Chinese walls
- Disclosures in accordance UKLA’s Disclosure Guidance and Transparency rules
- Takeover code
- Market soundings ;
between a seller of financial instruments and one or more potential investors, prior to the announcement of a transaction, in order to gauge the interest of potential investors
Accepted Market Practices
Lists created by local regulators, specific to their country
No sanction would apply to any behaviour or transaction that conforms with an accepted market practice
Under EU MAR, these may be identified by competent authorities and are subject to the approval of ESMA
Investment Recommendations
Doesn’t fall under MIFID for investment advice/research
They are proposal or strategy on financial instruments in relation to short-term trading ideas and scenarios
Producing research must;
ensure that info is objectively presented
disclose their interests or indicate any conflicts of interest
PDMR Regime
Person Discharging Managerial Responsibilities
it restricts ability of PDMRs committing market abuse with their own company’s stock
Points relevant to PDMR
Transactions by PDMR
must be notified to the issuer and FCA within 3 business days
Must then publicly announced by the issuer
Transactions totalling up to 5,000 euros per year do not reporting
Closed Period = (no transactions permitted) within 30 days before announcement of any
interim (6 month) or year end financial report
Examples of Market Abusive Behaviour
All comes from FCA’s MAR (Handbook)
- Insider Dealing
- Improper Disclosure
- Manipulating Devices
- Manipulating Transactions
- Dissemination
- Misleading behaviour and distortion
Wash Trades
Example of Manipulating transaction
- Collusive transactions where there is no change in beneficial interest or market risk
anonymous electronic system
stock traded at same price
other firms mislead
Painting the Tape
Example of Manipulating transaction
Entering into a series of transactions
shown on public display
purpose of giving false impression of activity or price movement
buy shares , mislead client then they buy , you then sell
Abusive Squeezes
Example of Manipulating transaction
Transactions or orders intended to
secure dominant position
one supply or demand for investment
Ramping
Example of Manipulating transaction
Collusive acquistion of newly issued shares
to generate market interest before
selling out
group together
Pump and Dump
Example of manipulating devices
Taking long position in investment - talking it up and then reversing position
Trash and Cash
Example of manipulating devices
Taking short position in investment, talking it down and then reversing the position
Dissemination
Knowingly or recklessly
spreading false misleading info about investment through media
Misleading behaviour & distortion
Movement of physical commodity stocks create misleading impression as supply or demand as price of commodity in a contract
Movement of empty cargo ship e.g.
Penalties for engaging in market abuse
Market abuse regime applies to all market users
FCA Powers - (civil)
public censure or statement of misconduct
Unlimited fine
Discipline breach of high level provisions of provisions from FCA handbook
Apply to civil courts for injections or restitution orders
Can appeal to upper tribunal
Example of poor systems in relation to market abuse
WH Ireland in 2016 were fined for poor systems and controls to detect market abuse.
Firm was unable to bring on new clients in broking division for 72 days.
