The Regulatory Framework Relating to Financial Crime (18/80) Flashcards
How does MAR define Market Manipulation?
• a person, or persons, acting in collaboration, to secure a dominant position over the supply of or
demand for a financial instrument
• buying or selling of financial instruments, at the opening or closing of the market, which has or is
likely to have the effect of misleading investors acting on the basis of the prices displayed
• the placing of orders to a trading venue, including the cancellation and/or modification, by any
available means of trading, including by electronic means, such as algorithmic and high-frequency
trading strategies having the effects referred to above or by:
• making it more difficult for other persons to identify genuine orders on a trading system of the
trading venue
• creating or being likely to create a false or misleading signal about the supply of, or demand for,
or price of, a financial instrument
• taking advantage of occasional or regular access to electronic media by voicing an opinion about
a financial instrument (while having a position in that financial instrument) and profiting from the
impact of the price of that instrument without having disclosed the conflict of interest to the public
in a proper and effective way.
Does MAR only apply to executed trades?
No. MAR also applies to unexecuted orders and requests for quotes (RFQs).
What is the Government-Linked Exemption from MAR?
MAR does not apply to transactions, order or behaviours that are carried in the pursuit of monetary, exchange rate or public debt management policy by agencies of EU member states and/or members of the ESCB (ie, Bank of England (BoE), Debt Management Office (DMO)).
What is the Buy-back or Stabilisation Exemption from MAR?
The prohibitions in MAR Article 14 (prohibition of insider dealing and of unlawful disclosure of insider
information) and Article 15 (prohibition of market manipulation) do not apply to trading in own shares
in buy-back programmes where:
a. the full details of the programme are disclosed prior to the start of trading
b. trades are reported as being part of the buy-back programme to the competent authority of the
trading venue in accordance with paragraph 3 and subsequently disclosed to the public
c. adequate limits with regard to price and volume are complied with, and
d. it is carried out in accordance with the objectives referred to below.
What obligations does MAR place on Market Soundings?
• obtain the consent of the person receiving the market sounding to receive the inside information
• inform the person receiving the market sounding that they are prohibited from using that
information, or attempting to use that information, by acquiring or disposing of financial instruments
relating to that information, as well as cancelling or amending an existing order that is in the market
• inform the person receiving the market sounding that by agreeing to receive the information they
are obliged to keep the information confidential
• maintain a record of all information given
• maintain a record of recipients who did not consent to being provided with the sounding
• advise the recipients of the sounding when the information provided ceases to be considered as
‘inside information’.
Where an Investment Recomendation is captured under MAR, what confirmation must be given to clients?
- facts are clearly distinguished from interpretations, estimates, opinions and other types of nonfactual
information - all substantially material sources of information are clearly and prominently indicated
- all projections, forecasts and price targets are clearly and prominently labelled as such, and the
material assumptions made in producing or using them are indicated - the date and time when the production of the recommendation is completed are clearly and
prominently indicated - a summary of any basis of valuation or methodology and the underlying assumptions used to either
evaluate a financial instrument or an issuer, or to set a price target for a financial instrument, as
well as an indication and a summary of any changes in the valuation, methodology or underlying
assumptions - the meaning of any recommendation made, such as the recommendations to ‘buy’, ‘sell’ or ‘hold’ and
the length of time of the investment to which the recommendation relates are adequately explained
and any appropriate risk warning, which shall include a sensitivity analysis of the assumptions, is
indicated - a reference to the planned frequency of updates to the recommendation
- an indication of the relevant date and time for any price of financial instruments mentioned in the
recommendation - where a recommendation differs from any of their previous recommendations concerning the same
financial instrument or issue that has been disseminated during the preceding 12-month period, the
change(s) and the date of that previous recommendation are indicated, and - a list of all recommendations of any financial instrument or issuer that were disseminated during
the preceding 12-month period, containing for each recommendation: the date of dissemination,
the identity of the natural person(s), the price target and the relevant market price at the time of
dissemination, the direction of the recommendation and the validity time period of the price target
or of the recommendation.
What is an Investment Recomendation under MAR?
An ‘investment recommendation’ is a proposal or strategy provided by a firm to individuals or other firms (in particular fund managers, wealth managers) on financial instruments or a range of financial instruments (ie, not distributed) as is in relation to short term trading ideas and scenarios.
What disclosure requirements apply to an Analyst who has a net long/short position?
they own a net long or short position exceeding the threshold of 0.5% of the total issued share capital of the issuer, a statement to that effect specifying whether the net position is long or short
What is the threshold for disclosure if a research issuer holds equity in the subject?
5%
Is Inisder Dealing a criminal offense?
Yes, under the Criminal Justice Act
What are the 3 ways Insider Trading could be committed?
- dealing in the security
- encouraging another to do so, and
- disclosing inside information to another.
How does the Crminal Justicer Act define Inside Information?
Information which:
• relates to financial instruments that are traded on, admitted to trade on or a request to admit to
trading, has been made, on an EEA regulated market, MTF or OTF
• is specific or precise
• has not been made public, and
• is price-sensitive (ie, if it were made public, would be likely to have a significant effect on the price
of any securities).
How is “Public” defined for Inside Information?
• published in accordance with the rules of a Regulated Market, MTF or OTF to inform investors (eg,
a UK-listed company making an announcement through a regulated information service (RIS)), or
• contained within records open to the public (eg, a new shareholding that is reflected in the
company’s Register of Shareholders), or
• can be readily acquired by those likely to deal in securities to which the information relates, or
• about securities of an issuer to which it relates.
Can a company commit Insider Trading?
No - only individuals. However, by arranging for
a company to deal, an individual could commit the offence of encouraging it to do so.
What are the 3 offense relating to Misleading statements?
- making misleading statements
- creating false or misleading impressions
- making misleading statements in relation to benchmarks
What are the possible defenses to a charge of misleading the market?
• The first is that the person reasonably believed that their act or conduct would not create an
impression that was false or misleading.
• The second relates to actions, statements or forecasts that might be made in conformity with the
price stabilisation rules of the FCA. These allow market participants, such as investment banks,
to support the price of a new issue of securities for their clients, with the aim of preventing the
market from being excessively volatile. The rules themselves require certain disclosures to investors
considering investing in the stabilised securities, and restrict the support operation to a particular
period.
• The third defence is that the actions, statements or forecasts were made in conformity with the
control of information rules of the FCA. These rules relate to statements, actions or forecasts being
made on the basis of limited information. The remainder of the information may be known to the
firm, but it rests behind so-called Chinese walls, and is not known to the relevant individual.
What must be included in a Suspicious Transactions and Order Report (STOR)?
• identification of the person submitting the STOR, the capacity of the person submitting the STOR, in
particular when dealing on own account or executing orders on behalf of third parties’ description
of the order or transaction, including:
• the type of order and the type of trading, in particular block trades, and where the activity
occurred
• price and volume
• reasons for which the order or transaction is suspected to constitute insider dealing, market
manipulation or attempted insider dealing or market manipulation
• means of identifying any person involved in the order or transaction that could constitute insider
dealing, market manipulation or attempted insider dealing or market manipulation, including the
person who placed or executed the order and the person on whose behalf the order has been
placed or executed
• any other information and supporting documents which may be deemed relevant for the
competent authority for the purposes of detecting, investigating and enforcing insider dealing,
market manipulation and attempted insider dealing and market manipulation.
If an individual commits Market Abuse within a firm, is the firm liable?
If firms can demonstrate that they have good systems and controls and are complying with them, and an individual within the firm commits market abuse, the FCA will not pursue the firm in an enforcement action, just the individual.
What is the FCA’s penalty for Market Abuse?
The potential fine will be the greater of:
• a multiple of the profit made or loss avoided for their own benefit, or the benefit of other individuals
where they have been instrumental in achieving that benefit
• where the FCA assess the seriousness level 4 or 5, a fine of £100,000.
What requirement does MAR impose on Insider Lists?
Issuers and persons acting on their behalf are required to draw up a list of all persons who have access
to inside information, including where they are working for them under a contract of employment, or
otherwise performing tasks through which they have access to inside information, such as advisers,
accountants or credit rating agencies (insider list).
What securities are caught by Inisder Dealing Rules?
- shares
- debt securities (issued by a company or a public sector body)
- warrants
- depositary receipts
- options (to acquire or dispose of securities)
- futures (to acquire or dispose of securities), and
- CFDs based on securities, interest rates or share indices.
What are the 4 defenses to a charge of Insider Dealing?
• No advantage was expected – ie, the defendant did not expect the dealing to result in a profit (or
the avoidance of a loss) due to information they possessed.
• The defendant believed the information had been widely disclosed – and they must have
believed this on reasonable grounds.
• They would have dealt anyway – regardless of the information (for example, because they were in
financial difficulties and would have had to sell their shares to meet their obligations).
• They did not expect any person to deal because of the disclosure – for the offence of disclosing
only.
Does the FCA have the ability to prosecute criminal offenses?
The FCA has powers under Sections 401 and 402 of FSMA to prosecute a range of criminal offences in
England, Wales and Northern Ireland. The FCA’s general policy is to pursue through the criminal justice
system all cases where criminal prosecution is appropriate.
What are examples of unlawful disclosure?
• disclosure of inside information by the director of an issuer to another person in a social context
• selective briefing of analysts by directors of issuers or others who are persons discharging
managerial responsibilities
What might indicate if trading behaviour is for legitimate reasons?
• if the person has a purpose behind the transaction to induce others to trade in, bid for or to position
or move the price of, a financial instrument
• if the person has another, illegitimate, reason behind the transactions, bid or order to trade, and
• if the transaction was executed in a particular way with the purpose of creating a false or misleading
impression.
Is Price Stabilisation allowed?
Price stabilisation may be carried out by relevant firms (market makers) if the relevant securities have
been admitted to trading on a regulated market, or a request for their admission to trading on such a
market has been made. Price stabilisation is normally only carried out for short periods of time.
