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MAR 1 Annex 4 Frequently asked questions on the Code of Market Conduct

G

Structure of the Code

Q1

Is behaviour in relation to share options and contracts for differences within the scope of the regime?

Behaviour in relation to share options falls within the scope of the regime if the subject matter of the shareoptions is shares which trade on a prescribed market (see MAR 1.11.2 G). Behaviour in relation to contracts for differences will also fall within the scope of the regime where that behaviour is in relation to a qualifying investment. (See MAR 1.11.6 E to MAR 1.11.11 E.)

Q2

How are the safe harbours (the 'C' provisions) in the Code applied? What status does the guidance in the Code have?

The safe harbour provisions denoted as 'C' are conclusive and are descriptions of behaviour that does not amount to market abuse (section 118(8), section 119(2)(b) and section 122(1) of the Act ). If a person behaves in a way that is described in the Code as behaviour that does not amount to market abuse, his behaviour will not amount to market abuse. The descriptions in the Code of behaviour which amounts to market abuse carry evidential weight and are denoted as 'E' (section 119(2)(c) and section 122(2) of the Act ), that is they may be relied on in so far as they indicate whether or not that behaviour should be taken to amount to market abuse.

The guidance provisions in the Code denoted as 'G' are issued under section 157 of the Act . Wherever guidance is used, it is not binding on those to whom the Act (and in this case the Code) applies, nor does it have evidential effect. It need not be followed to comply with a particular requirement. (See paragraphs 28 to 31 of the Reader's Guide to the Handbook for a fuller discussion.)

Q3

If the FSA is not the regular user, who is, and how will you establish what the regular user expects?

The regular user is neither a real person nor a group of real people. One does not establish the expectation of the regular user by taking a survey of actual market users. The test operates as an objective standard: just because 'everyone does it' does not necessarily make a particular practice acceptable. In practice, we may well speak to people from a market background to gauge what they as market participants consider the regular user's expected standards would be, in a particular context. Initially we will have to form our own view about whether particular behaviour is acceptable. We are not the regular user but we do have to give guidance on the standards the regular user is likely to expect. Ultimately, the Tribunal will decide the standards the regular user expects.

Q4

Why are so many Listing rules and Takeover Panel rules 'safe harboured' in the Code when only one exchange rule receives the same treatment?

Our overall philosophy for granting safe harbours has been to identify those rules that require or expressly permit certain behaviour or embody certain standards of care which, absent the safe harbour, could amount to market abuse. MAR 1.2.8 E explains how the regular user would be likely to take into account compliance with the rules of prescribed markets , the FSA and the Takeover Panel in deciding whether a person observed the standard of behaviour expected in his or her position in relation to the market. MAR 1.5.25 C is a safe harbour covering required reporting or disclosure to prescribed markets.

Behaviour under the Code

Q5

What examples are there where accepted practice is unacceptable? What will the FSA do when it identifies an accepted practice that falls below expected standards?

Please refer to MAR 1.2.11 G.

Q6

What is the position of an intermediary who executes an abusive transaction? When applying the market abuse regime to electronic broking and order-routing mechanisms, including voice brokers, are the standards expected of each type of intermediary equivalent?

Our main focus will be on the client who originated the transaction. The regular user is likely to consider a client who submits an abusive trade to an intermediary for execution as engaging in market abuse . But, in addition, the client may have required or encouraged the intermediary to engage in market abuse or the intermediary may have participated in the abuse (see MAR 1.8.2 G (1)). The intermediary's behaviour in executing the transaction for the client will not amount to either required or encouraged or market abuse (see MAR 1.8.8 G) unless the intermediary knew or ought reasonably to have known that the originator of the transaction was engaging in market abuse (see MAR 1.1.3 G (3) and MAR 1.8.8 G).

The market abuse regime does not impose any new positive obligations on intermediaries. They are already expected to comply with the applicable rules (such as the Principles and the RIE rules). The regular user's assessment of behaviour by an intermediary would likely take into account compliance with applicable rules. So, the regular user would recognise differences in the standards of behaviour expected of different kinds of intermediaries.

Operational issues

Q7

When will the FSA investigate market abuse on a prescribed market and when will the operator of a prescribed market do it?

We expect that the operator of a prescribed market will investigate and take enforcement action where:

? the misconduct is limited to the prescribed market;

? they have jurisdiction over all the persons concerned; and

? the operator's enforcement powers are sufficient to deal with the misconduct.

The operators of prescribed markets clearly have a continuing essential role as front-line regulators. We are not seeking to take over their role. It is likely that we will work together with the operators on some cases. In other cases, we will conduct the investigation and any subsequent enforcement action. We have a close working relationship with the operators and will discuss matters on a case-by-case basis, to decide which body is best placed to take each case forward. As we made clear in the Enforcement manual, we will co-ordinate action with the operators to ensure cases are dealt with effectively and fairly. The FSA and the operators published operating arrangement guidelines on 20 November 2001 which are available at www.fsa.gov.uk/pubs/other/market_conduct/index.html#mc (see also ENF 14.9 (Action involving other UK regulatory authorities)).

Q8

When will the FSA investigate market misconduct during a takeover bid?

We recognise the importance of minimising disruption to the takeover bid process and expect parties to use all of the procedures for complaint to the Takeover Panel ("Panel"). We also expect that the Panel will investigate and take action, save in exceptional circumstances, during the course of a takeover bid (for full details see the Operating Guidelines document on

www.fsa.gov.uk/pubs/other/market_conduct/index.html#mc). The exceptional circumstances in which we will consider action during the course of a takeover bid are:

? where the Panel asks us to use our powers to impose penalties, or our powers of injunction or restitution;

? where the suspected misconduct falls within the misuse of information prohibition under the market abuse regime (section 118(2)(a) of the Act) or Part V of the Criminal Justice Act 1993 (insider dealing);

? where the Panel is unable to investigate properly due to a lack of co-operation by the relevant person;

? where a person has deliberately or recklessly failed to comply with a Panel ruling;

? where the suspected misconduct extends to securities or a class of securities which may be outside the Panel's jurisdiction;

? where the suspected misconduct threatens or has threatened the stability of the financial system.

There is general guidance on the interaction between the FSA and other UK regulatory authorities, including the Panel, in the Handbook at ENF 14.9 (Action involving other UK regulatory authorities).

Q9

Will market participants have to wait for an enforcement action to find out if a behaviour is unacceptable?

Please refer to MAR 1.2.11 G.1