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GFC Chapter 4: Ethics, Integrity and Fairness > Market Integrity > Flashcards

Market Integrity Flashcards

1
Q

What are the benefits of fair and orderly markets?

A
  • Investor confidence
  • Economic growth + wealth creation
  • Transfer of capital with minimum costs
  • Liquidity - speed of capital transfer + easy identification of counterparties.
  • Settlement reassurance
  • Transparency
  • Rules limiting price volatility
  • ID + prevent market abuse
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2
Q

What can misleading statements do to the market?

A

Spread false information and result in the under/over valuing of assets which could impact the share price of listed firms.

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3
Q

What is insider dealing?

A

Specific or precise information which is not public and price sensitive and relates to a specific security or issuers or sectors where specific issuers operate.

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4
Q

What is public information?

A
  • Info published within the rules for the market - RIS announcement
  • Public record - company register of shareholders.
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5
Q

What are the predicates for the offence of insider dealing?

A
  1. Deal on inside info
  2. Encourage others to deal on inside info
  3. Disclose inside info not in the course of proper job.
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6
Q

Where must insider dealing occur for it to be a crime?

A

On a regulated market or through a professional intermediary.

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7
Q

Can a company commit insider dealing?

A

No

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8
Q

When is it legal to possess price sensitive information?

A
  1. Market makers acting in good faith
  2. Info can be proved to be market information
  3. Price stabilisation - using PSR.
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9
Q

What are controls that can be implemented within a firm to ensure price sensitive information is kept confidential?

A

Chinese walls

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10
Q

Is it compulsory to have Chinese walls?

A

No

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11
Q

How can a firm manage conflicts of interest and treat customers fairly? What measures can they take?

A
  • Prevent/control information exchange including a conflict of interest.
  • Separate supervision of client facing staff
  • Remove direct link between remuneration of one group and another where there may be a conflict of interest.
  • Limit anyone from exercising inappropriate influence over the way things are run.
  • Measures to prevent the simultaneous or sequential involvement of a relevant person in separate services o or activities when it may impair the proper management of conflicts of interest.
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12
Q

What types of insider lists need to be maintained?

A

Permanent and ad-hoc.

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13
Q

Which EU legislation provides templates for insider lists?

A

Market Abuse Regulation (MAR)

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14
Q

What is a grey list?

A

A list containing securities which can be traded during the sensitive period subject to compliance approval.

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15
Q

What is a restricted list?

A

A list of securities that cannot be traded during the sensitive period.

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16
Q

What is the regulator concerned about regarding the secrecy of price sensitive information?

A
  • Distribution of restricted lists to unnecessary people.
  • Failure of the management/compliance to be aware of what info is subject to NDAs.
  • Proper desk policies
  • IT controls even for external contractors
17
Q

Who comes under the MiFID definition of relevant persons?

A

Anyone in a firm and their relatives or cohabitees or outsourced service providers.

18
Q

What should a Personal Account Dealing policy restrict?

A
  1. Personal transaction contrary to MAD - improper disclosure of price sensitive info, conflicts with a firm’s customers.
  2. Improper advising or procuring someone to inside deal.
  3. Improperly disclosing inside info if the person is likely to inside deal.
19
Q

Should PA deals that are not accepted by compliance, by recorded?

A

Yes

20
Q

Who don’t the PA rules apply to?

A
  • Discretionary management transactions where the deal has not been discussed between the manager and client.
  • Certain funds where the client is not involved in the management of the fund.
21
Q

When is market integrity most at risk?

A

During the production and dissemination of research on listed companies and their securities.

22
Q

Who cannot PA deal?

A

Financial analysts who know the timing and likely price of an investment or content of research which is not yet published to the client.

23
Q

What are the exceptions to the PA dealing rules for financial analysts?

A
  • Market maker acting in good faith

- Execution only clients

24
Q

What are financial analyst prohibited from receiving and doing?

A
  • Inducements

- Promising favourable research

25
Q

Are there restrictions on the viewing of draft investment research?

A

Yes, research containing a recommendation on the target price of a security cannot be viewed other than to get compliance sign off.

26
Q

What percentage shareholding would an investment firm have to have in a issuer for it to make a disclosure of the shareholding?

A

5%

27
Q

Would a firm have to disclose any investment banking services provided by them?

A

Yes

28
Q

What is a general disclosure firms have to make?

A

The organisational and administrative arrangement within a firm that prevent conflicts of interest in relation to research recommendations including any information barriers.

29
Q

Which pieces of US legislation provide safeguards for whistle-blowers?

A
  1. Dodd Frank Wall Street Reform

2. Consumer Protection Act (2010)

30
Q

Which piece of UK legislation provides safeguards for whistle-blowers?

A

Public Interest Disclosure Act (1998)

31
Q

If someone traded on inside information that included the likely timing of a sale of securities and the price at which the securities were going to be traded, can that person be guilty of insider trading?

A

No - if they can prove that this information was market information and that they would have traded in that way anyway regardless of whether they had the inside info or not.

GFC Chapter 4: Ethics, Integrity and Fairness (7 decks)

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