MAR 1.2 The regular user test
A regular user is defined in section 118(10) of the Act as 'in relation to a particular market, a reasonable person who regularly deals on that market in investments of the kind in question.' Behaviour will amount to market abuse only where it would be likely to be regarded by a regular user as a failure on the part of the person or persons concerned to observe the standard of behaviour reasonably expected of a person in his or their position in relation to the market.
In determining whether behaviour amounts to market abuse, it is necessary to consider objectively whether a hypothetical reasonable person, familiar with the market in question, would regard the behaviour as acceptable in the light of all the relevant circumstances.
In determining whether behaviour falls below the standards expected, the regular user is likely to consider all the circumstances of the behaviour, including:
- (1)
the characteristics of the market in question, the investments traded on that market, and the users of the market;
- (2)
the rules and regulations of the market in question and any applicable laws. For example, it is likely that it will be relevant to consider the extent to which the behaviour is in compliance with the rules of the particular market and if the person is based overseas it may be relevant to consider the extent to which the behaviour is in compliance with the standards prevailing in that overseas jurisdiction;
- (3)
prevailing market mechanisms, practices and codes of conduct applicable to the market in question;
- (4)
the position of the person in question and the standards reasonably to be expected of that person at the time of the behaviour in the light of that person's experience, level of skill and standard of knowledge. For example, the standards which it would be reasonable to expect of a retail investor are likely to differ from those to be expected of an industry professional; and
- (5)
the need for market users to conduct their affairs in a manner that does not compromise the fair and efficient operation of the market as a whole or unfairly damage the interests of investors.
The regular user is likely to consider it relevant, although not determinative, that the behaviour conforms with standards that are generally accepted by users of the market. Detailed guidance is given at MAR 1.4MAR 1.6 as to the different types of behaviour that would not be regarded as acceptable.
The statutory definition of market abuse does not require the person engaging in the behaviour to have intended to abuse the market. Accordingly it is not essential for such an intention or purpose to be present in order for behaviour to fall below the objective standards expected. However, in some circumstances the determination of whether behaviour falls short of those standards will depend on the purpose of the person in question (for example, MAR 1.6.4 E). In those circumstances, the regular user is likely to consider the purpose of the person in question in addition to the other relevant considerations listed at MAR 1.2.3 G. This need not be the sole purpose but should be an actuating purpose.
The objective standard of behaviour expected by the regular user is likely to vary to some degree across markets according to the characteristics of the market in question and the investments concerned. For example, the disclosure standards currently expected in equities markets differ from those expected in commodities markets. Consequently, different standards currently apply to the use of non-public information in different markets. Further, the standard expected of a person will vary with the experience, level of skill and standard of knowledge that the regular user is likely to expect from a person in that position. For example, when assessing the standards to be expected of public sector bodies, it is likely that it will be relevant to take into account their statutory and other official functions.
It may often be appropriate to take into account the extent to which the behaviour is in compliance with other applicable rules including the rules of a prescribed market, the Takeover Code or FSArules. Compliance with such rules may not be sufficient for the behaviour not to amount to market abuse, since those rules may not be specifically directed at the types of behaviour prohibited by the Act or because compliance with those rules is only one consideration among others. Greater weight is likely to be given to compliance with a rule that expressly requires or permits particular behaviour. However, this will not in itself be determinative. Similarly, failure to comply with a rule will not of itself create a presumption that there has been market abuse. If the prescribed market or the Takeover Panel has granted a dispensation from, or given guidance in advance on, its rules, this is likely also to be a relevant factor in considering whether the behaviour amounts to market abuse. As mentioned at ENF 14.9.3 G the FSA will attach considerable weight to the views of the Takeover Panel in interpreting and applying the Takeover Code and the SARs. (See MAR 1 Annex 4 (Frequently asked questions))1
Where a person's behaviour occurs on an overseas market, but has an impact on a prescribed market, the regular user is likely to consider that it will be relevant to have regard to the local rules, practices and conventions prevailing in the relevant market, and whether or not the person is in the United Kingdom. However, compliance with such rules will not of itself be determinative.
As stated in MAR 1.2.4 G, it is likely to be relevant to consider whether to take into account the extent to which the behaviour conforms with standards that are generally accepted by users of the market, but again this will not in itself be determinative. Such standards will be acceptable where they promote the fair and efficient operation of the market as a whole and do not unfairly damage the interests of investors. In circumstances where there is a range of practices which are generally accepted by users of the market, each practice is to be judged objectively on its own merits.
The FSA does not anticipate that divergences between standards that are generally accepted by users of the market and the standards expected by the regular user will be frequent. In future, the FSA may identify a practice which is accepted in the market, but which, in the FSA's opinion, is likely to fall short of the standards expected by the regular user. In such cases the FSA will consider whether to signal its views on the practice in the form of guidance (making use of its power to do so under section 157 of the Act), or through some other statement, or by revising the Code, or to take enforcement action. The FSA recognises that the former approach will often be more appropriate, and where this is the case the FSA will work with relevant market participants and regulatory bodies (including the RIEs) to address the causes of concern. However, for those occasions where the appropriate response will be to take enforcement action, the FSA's enforcement policies in relation to market abuse as set out at ENF 14 will be relevant. (See MAR 1 Annex 4 (Frequently asked questions))1
The FSA is satisfied that the rulebooks of the prescribed markets do not permit or require behaviour which amounts to market abuse.2
The Code is not exhaustive in its descriptions of behaviour that does or does not amount to market abuse. In circumstances where a person is proposing to undertake an innovative transaction, he should consider it in the light of the guidance provided in sections MAR 1.4 - MAR 1.6. It is also open to a person to consider seeking guidance from the FSA in respect of the proposed behaviour. Similarly, members of an RIE may wish to seek guidance from the relevant exchange on the consistency of the behaviour with exchange rules.