Market Abuse Part 2

Question 1

Examples of person with inside info

Answer 1

• Director of an issuer
• shareholder of an issuer
• access to info through employment, profession
• access through criminal activities
• knowing tippee

Question 2

Inside info has following elements under MAR

Answer 2

• 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

Question 3

Definition of Market Manipulation under MAR

Answer 3

• 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

Question 4

Disclosure of inside information

Answer 4

• Issuers publish inside info as soon as possible

- Must remain on issuer’s website for at least five years

Question 5

Delaying disclosure of inside Information

Answer 5

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)

Question 6

Insider Lists

Answer 6

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

Question 7

What are safe harbours

Answer 7

behaviour which might have direct or indirect effect on issuer’s share price, but not subject to sanctions under the market abuse regime.

Question 8

2 types of MAR

Answer 8

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

Question 9

Safe Harbour Examples

Answer 9

• 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

Question 10

Accepted Market Practices

Answer 10

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

Question 11

Investment Recommendations

Answer 11

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

Question 12

PDMR Regime

Answer 12

Person Discharging Managerial Responsibilities

it restricts ability of PDMRs committing market abuse with their own company’s stock

Question 13

Points relevant to PDMR

Answer 13

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

Question 14

Examples of Market Abusive Behaviour

All comes from FCA’s MAR (Handbook)

Answer 14

• Insider Dealing
• Improper Disclosure
• Manipulating Devices
• Manipulating Transactions
• Dissemination
• Misleading behaviour and distortion

Question 15

Wash Trades

Answer 15

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

Question 16

Painting the Tape

Answer 16

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

Question 17

Abusive Squeezes

Answer 17

Example of Manipulating transaction

Transactions or orders intended to
secure dominant position
one supply or demand for investment

Question 18

Ramping

Answer 18

Example of Manipulating transaction

Collusive acquistion of newly issued shares
to generate market interest before
selling out

group together

Question 19

Pump and Dump

Answer 19

Example of manipulating devices

Taking long position in investment - talking it up and then reversing position

Question 20

Trash and Cash

Answer 20

Example of manipulating devices

Taking short position in investment, talking it down and then reversing the position

Question 21

Dissemination

Answer 21

Knowingly or recklessly

spreading false misleading info about investment through media

Question 22

Misleading behaviour & distortion

Answer 22

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.

Question 23

Penalties for engaging in market abuse

Answer 23

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

Question 24

Example of poor systems in relation to market abuse

Answer 24

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.