Content Options

View Options

Status: You are viewing the version of the handbook as on 2016-06-30.

MAR 1.3 Market abuse (insider dealing)

MAR 1.3.1UK

Table: section 118(2) of the Act

"The first type of [behaviour] is where

an [insider]

[deals], or attempts to [deal],

in a [qualifying investment] or [related investment]

on the basis of

[inside information]

relating to the investment in question."

Descriptions of behaviour that amount to market abuse (insider dealing)

MAR 1.3.2ERP

The following behaviours are, in the opinion of the FCA , market abuse (insider dealing):

  1. (1)

    dealing on the basis of inside information which is not trading information;

  2. (2)

    front running/pre-positioning - that is, a transaction for a person's own benefit, on the basis of and ahead of an order (including an order relating to a bid)4 which he is to carry out with or for another (in respect of which information concerning the order is inside information), which takes advantage of the anticipated impact of the order on the market or auction clearing41 price;

  3. (3)

    in the context of a takeover, an offeror or potential offeror entering into a transaction in a qualifying investment, on the basis of inside information concerning the proposed bid, that provides merely an economic exposure to movements in the price of the target company's shares (for example, a spread bet on the target company's share price); and

  4. (4)

    in the context of a takeover, a person who acts for the offeror or potential offeror dealing for his own benefit in a qualifying investment or related investments on the basis of information concerning the proposed bid which is inside information.

Factors to be taken into account: "on the basis of"

MAR 1.3.3E

In the opinion of the FCA , the following factors are to be taken into account in determining whether or not a person's behaviour is "on the basis of" inside information, and are each indications that it is not:

  1. (1)

    if the decision to deal or attempt to deal was made before the person possessed the relevant inside information; or

  2. (2)

    if the person concerned is dealing to satisfy a legal or regulatory obligation which came into being before he possessed the relevant inside information; or

  3. (3)

    if a person is an organisation, if none of the individuals in possession of the inside information:

    1. (a)

      had any involvement in the decision to deal; or

    2. (b)

      behaved in such a way as to influence, directly or indirectly, the decision to engage in the dealing; or

    3. (c)

      had any contact with those who were involved in the decision to engage in the dealing whereby the information could have been transmitted.

MAR 1.3.4E

[deleted]3

3
MAR 1.3.5E

In the opinion of the FCA , if the inside information is held behind an effective Chinese wall, or similarly effective arrangements, from the individuals who are involved in or who influence the decision to deal, that indicates that the decision to deal by an organisation is not "on the basis of" inside information.

Descriptions of behaviour that do not amount to market abuse (insider dealing) and relevant factors: legitimate business of market makersetc:

MAR 1.3.6C

A person will form an intention to buy or sell, or submit or withdraw a bid for,41 a qualifying investment or a related investment before doing so. His carrying out of his own intention is not in itself market abuse (insider dealing). [Note: Recital 30 Market Abuse Directive and article 36(1) of the auction regulation] 4

MAR 1.3.7CRP

For market makers and persons that may lawfully deal in qualifying investments or related investments on their own account, pursuing their legitimate business of such dealing (including entering into an agreement for the underwriting of an issue of financial instruments) will not in itself amount to market abuse (insider dealing). [Note: Recital 18 Market Abuse Directive]

MAR 1.3.8G

MAR 1.3.7 C applies even if the person concerned in fact possesses trading information which is inside information.

MAR 1.3.9E

In the opinion of the FCA , if the inside information is not limited to trading information, (except in relation to an agreement for the underwriting of an issue of financial instruments) that indicates that the behaviour is not in pursuit of legitimate business.

MAR 1.3.10ERP

In the opinion of the FCA , the following factors are to be taken into account in determining whether or not a person's behaviour is in pursuit of legitimate business, and are indications that it is:

  1. (1)

    the extent to which the relevant trading by the person is carried out in order to hedge a risk, and in particular the extent to which it neutralises and responds to a risk arising out of the person's legitimate business; or

  2. (2)

    whether, in the case of a transaction on the basis of inside information about a client's transaction which has been executed, the reason for it being inside information is that information about the transaction is not, or is not yet, required to be published under any relevant regulatory or exchange obligations; or

  3. (3)

    whether, if the relevant trading by that person is connected with a transaction entered into or to be entered into with a client (including a potential client), the trading either has no impact on the price or there has been adequate disclosure to that client that trading will take place and he has not objected to it; or

  4. (4)

    the extent to which the person's behaviour was reasonable by the proper standards of conduct of the market concerned, taking into account any relevant regulatory or legal obligations and whether the transaction is executed in a way which takes into account the need for the market as a whole to operate fairly and efficiently.

MAR 1.3.11E

In the opinion of the FCA , if the person acted in contravention of a relevant legal, regulatory or exchange obligation, that is a factor to be taken into account in determining whether or not a person's behaviour is in pursuit of legitimate business, and is an indication that it is not.

Descriptions of behaviour that do not amount to market abuse (insider dealing) and relevantfactors: execution of client orders

MAR 1.3.12C

The dutiful carrying out of, or arranging for the dutiful carrying out of, an order (including an order relating to a bid)41 on behalf of another (including as portfolio manager) will not in itself amount to market abuse (insider dealing) by the person carrying out that order. [Note: Recital 18 Market Abuse Directive and article 36(1) of the auction regulation] 41

MAR 1.3.13G

MAR 1.3.12 C applies whether or not the person carrying out the order (including an order relating to a bid)41 or the person for whom he is acting,4 in fact possesses inside information. Also, a person that carries out an order on behalf of another will not, merely as a result of that action, be considered to have any inside information held by that other person.

MAR 1.3.14E

In the opinion of the FCA , if the inside information is not limited to trading information, that indicates that the behaviour is not dutiful carrying out of an order on behalf of a client.

MAR 1.3.15ERP

In the opinion of the FCA , the following factors are to be taken into account in determining whether or not a person's behaviour is dutiful execution of an order (including an order relating to a bid)41 on behalf of another, and are indications that it is:

  1. (1)

    whether the person has complied with the applicable provisions of COBS 2 , or their equivalents in the relevant jurisdiction; or

    2
  2. (2)

    whether the person has agreed with its client it will act in a particular way when carrying out, or arranging the carrying out of, the order; or

  3. (3)

    whether the person's behaviour was with a view to facilitating or ensuring the effective carrying out of the order; or

  4. (4)

    the extent to which the person's behaviour was reasonable by the proper standards of conduct of the market or auction platform41 concerned and (if relevant) proportional to the risk undertaken by him; or

  5. (5)

    whether, if the relevant trading or bidding (including the withdrawal of a bid)41 by that person is connected with a transaction entered into or to be entered into with a client (including a potential client), the trading or bidding41 either has no impact on the price or there has been adequate disclosure to that client that trading or bidding41 will take place and he has not objected to it.

MAR 1.3.16G

Some steps which a person takes as a result of carrying out a client transaction may be within the scope of MAR 1.3.6 C to MAR 1.3.11 E rather than being part of dutiful execution.

Descriptions of behaviour that do not amount to market abuse (insider dealing) and relevant factors: takeover and merger activity

MAR 1.3.17CRP

Behaviour, based on inside information relating to another company, in the context of a public takeover bid or merger for the purpose of gaining control of that company or proposing a merger with that company, does not of itself amount to market abuse (insider dealing) [Note: see Recital 29 Market Abuse Directive], including:

  1. (1)

    seeking from holders of securities, issued by the target, irrevocable undertakings or expressions of support to accept an offer to acquire those securities (or not to accept such an offer);

  2. (2)

    making arrangements in connection with an issue of securities that are to be offered as consideration for the takeover or merger offer or to be issued in order to fund the takeover or merger offer, including making arrangements for the underwriting or placing of those securities and any associated hedging arrangements by underwriters or places which are proportionate to the risks assumed; and

  3. (3)

    making arrangements to offer cash as consideration for the takeover or merger offer as an alternative to securities consideration.

MAR 1.3.18GRP

There are two categories of inside information relevant to MAR 1.3.17 C :

  1. (1)

    information that an offeror or potential offeror is going to make, or is considering making, an offer for the target;

  2. (2)

    information that an offeror or potential offeror may obtain through due diligence.

MAR 1.3.19ERP

In the opinion of the FCA , the following factors are to be taken into account in determining whether or not a person's behaviour is for the purpose of him gaining control of the target company or him proposing a merger with that company, and are indications that it is:

  1. (1)

    whether the transactions concerned are in the target company's shares; or

  2. (2)

    whether the transactions concerned are for the sole purpose of gaining that control or effecting that merger.

Examples of market abuse (insider dealing)

MAR 1.3.20GRP

The following examples of market abuse (insider dealing) concern the definition of inside information relating to financial instruments other than commodity derivatives.

  1. (1)

    X, a director at B PLC has lunch with a friend, Y. X tells Y that his company has received a takeover offer that is at a premium to the current share price at which it is trading. Y enters into a spread bet priced or valued by reference to the share price of B PLC based on his expectation that the price in B PLC will increase once the take over offer is announced.

  2. (2)

    An employee at B PLC obtains the information that B PLC has just lost a significant contract with its main customer. Before the information is announced over the regulatory information service the employee, whilst being under no obligation to do so, sells his shares in B PLC based on the information about the loss of the contract.

MAR 1.3.21GRP

The following example of market abuse (insider dealing) concerns the definition of inside information relating to commodity derivatives.

Before the official publication of LME stock levels, a metals trader learns (from an insider) that there has been a significant decrease in the level of LME aluminium stocks. This information is

routinely made available to users of that prescribed market . The trader buys a substantial number of futures in that metal on the LME, based upon his knowledge of the significant decrease in aluminium stock levels.

MAR 1.3.22GRP

The following example of market abuse (insider dealing)concerns the definition of inside information relating to pending client orders.

A dealer on the trading desk of a firm dealing in oil derivatives accepts a very large order from a client to acquire a long position in oil futures deliverable in a particular month. Before executing the order, the dealer trades for the firm and on his personal account by taking a long position in those oil futures, based on the expectation that he will be able to sell them at profit due to the significant price increase that will result from the execution of his client's order. Both trades

will be market abuse (insider dealing)

.

MAR 1.3.23GRP

The following connected examples of market abuse (insider dealing) concerns the differences in the definition of inside information for commodity derivatives and for other financial instruments.

  1. (1)

    A person deals, on a prescribed market , in the equities of XYZ plc, a commodity producer, based on inside information concerning that company.

  2. (2)

    A person deals, in a commodity futures contract traded on a prescribed market , based on the same information, provided that the information is required to be disclosed under the rules of the relevant commodity futures market.