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MAR 2.1 Application

APPLICATION: WHO?

MAR 2.1.1 R
  1. (1)

    This chapter applies to every firm.

  2. (2)

    For the purposes of section 118(8) of the Act, behaviour (whether by a firm or not) conforming with the price stabilising rules does not amount to market abuse.

MAR 2.1.2 G
  1. (1)

    This chapter is available to any person, whether that person is a firm or not, who wishes to show:

    1. (a)

      that he acted in conformity with the price stabilising rules for the purposes of paragraph 5(1) of Schedule 1 to the Criminal Justice Act 1993 (Insider dealing); or

    2. (b)

      that he acted or engaged in conduct in conformity with the price stabilising rules for the purposes of section 397(4) or (5)(b) of the Act (Misleading statements and practices); or

    3. (c)

      that his behaviour conforms with rules in accordance with section 118(8) of the Act (market abuse).

  2. (2)

    Any person concerned with an offer for cash of securities might wish to rely on this chapter; there are no legal restrictions on the appointment of stabilising managers to whom this chapter may apply. However, the main focus of the chapter is on lead managers when they are contemplating or carrying out an offer for cash of securities. Agents appointed by lead managers, on the basis contemplated by this chapter, may also find the chapter especially relevant.

APPLICATION: WHAT?

MAR 2.1.3 R

This chapter applies to an offer for cash, that is, an offer of securities:

  1. (1)

    where the securities are investments falling within paragraphs 76, 77, 78, 79 or 80 of the Regulated Activities Order;

  2. (2)

    where the offer for cash is to be, is, or has been, made at a specified price payable in sterling or another currency;

  3. (3)

    where those securities:

    1. (a)

      have been admitted to trading (or are the subject of an application for admission to trading) on an exchange or other institution included in MAR 2.1.5 G; or

    2. (b)

      are, or may be, traded under the rules of the International Securities Markets Association;

  4. (4)

    where the total cost of the securities subject to the offer at the offer price is at least £15,000,000 (or its equivalent in another currency); and

  5. (5)

    where the offer is public in character and is to be, is, or has been subject of a public announcement.

MAR 2.1.4 G

The effect of MAR 2.1.3 R is to include both initial publicoffers and publicoffers of additional securities to rank alongside securities already in issue. An offer is likely to be regarded as public in character where it is made in a prospectus. Other offers that may be regarded as public are offers to a section of the public, placements that are not essentially private and distributions. But the use of the word "offer" and the fact that there has to be a public announcement of the offer shows that a sale, for example by means of a block trade, of securities already in issue is not included.

MAR 2.1.5 G

Exchanges (see MAR 2.1.3 R (3))

Application : securities to admitted to trading on the following exchanges are within the scope of theprice stabilising rules (seeMAR 2.1.3 R (3)).

A recognised investment exchange

A recognised overseas investment exchange

A regulated market

Other specific exchanges as listed in MAR 2 Annex 1

APPLICATION: WHERE?

MAR 2.1.6 G

This chapter:

  1. (1)

    so far as it provides a defence for any person, has the same territorial application as the provision which is alleged to have been contravened; and

  2. (2)

    in its application to a firm for purposes other than those falling within (1), applies to the firm's business carried on from an establishment in the United Kingdom.

MAR 2.1.7 G

There are specific provisions in MAR 2.8 about action for stabilising purposes in conformity with provisions made by certain overseas authorities. Accordingly action by persons not present in the United Kingdom, but where the action may have an effect in the United Kingdom, may have to be assessed in terms of the general provisions in this chapter, or the specific provisions in MAR 2.8.

MAR 2.1.8 G

The defences to legal or regulatory procedures referred to in MAR 2.1.6 R (1) and listed at MAR 2.1.2 G (1) are conferred by rules made under section 144 of the Act (price stabilising rules); this means that MAR 2.6 (Management of stabilisation) and MAR 2.7 (Recording of action taken), which are made under section 138 of the Act, and apply only to authorised persons, are not relevant for the purposes of such a defence.

RIGHTS OF ACTION FOR DAMAGES

MAR 2.1.9 R

A contravention of the rules in MAR 2 does not give rise to a right of action by a private person under section 150 of the Act (and each of those rules is specified under section 150(2) of the Act as a provision giving rise to no such right of action).

MAR 2.2 Purpose

MAR 2.2.1 R

The purpose of this chapter is to provide rules permitting, but also regulating, price support for offers of equities and bonds, including new issues such as initial public offers and offers of securities of the type and class already traded in the market. It prescribes the circumstances in which the stabilising manager and others acting for him are permitted to support the prices of the relevant securities offered for a limited period after the offer. This is to maintain an orderly initial market in the securities offered, and potentially therefore to facilitate new offers and reduce the costs to enterprises involved in the making of new offers of their securities. The stabilising manager and his agents are allowed to exert upward pressure on the price in the cash market, by all means permitted by the price stabilising rules, including by the purchase of relevant securities previously sold short. Under the rules in this chapter, there can be only one stabilising manager in respect of any particular offer.

GENERAL EFFECT OF THE RULES

MAR 2.2.2 G

The general effect of this chapter is to enable the stabilising manager of an offer of securities to enter into the market personally, or through specially appointed agents, to buy or agree to buy securities in order to support (though not to suppress) the market price of the relevant securities being offered. He will, however, be free to do this only if:

  1. (1)

    the stabilising period is still running;

  2. (2)

    he has taken the necessary preliminary steps envisaged by MAR 2.3 and, if applicable, MAR 2.7 (relating to warning the market of the possibility of stabilising action, and records of action taken);

  3. (3)

    the price is not already false at the start of the stabilising period under MAR 2.3.8 G; and

  4. (4)

    the limits set by MAR 2.5 as to the maximum price at which stabilising action may be taken are not exceeded.

MAR 2.2.3 R

During the stabilising period the stabilising manager may do any or all of the following:

  1. (1)

    purchase, or agree to purchase, any of the relevant securities (or associated securities) with a view to supporting the market price of the relevant securities; and

  2. (2)

    offer or attempt to do anything in (1) with a view to supporting the market price of the relevant securities.

MAR 2.2.4 G

But the stabilising manager will not be able to rely on the price stabilising rules if, at the time of the relevant act or omission, he knew or should reasonably have known that:

  1. (1)

    the market had not been properly informed in accordance with MAR 2.3.2 G(1) and (2); or

  2. (2)

    proper records are obliged to be but have not been or are not being kept in accordance with MAR 2.3.2 R (3); or

  3. (3)

    the price of any associated securities or of the relevant securities was already false at the time when the offer price was determined in the circumstances described at MAR 2.3.8 G.

MAR 2.3 Preparation before and restrictions upon stabilising action

MAR 2.3.1 EU

Before stabilising action is taken, the stabilising manager is required (under MAR 2.3.2 G) to take, or check that others have taken, proper steps to inform the market (and, so far as relevant, the issuer) that stabilising action may be taken and (under MAR 2.3.8 G) to verify that the price of any relevant securities or associated securities is not already false. He must also:

  1. (1)

    be satisfied (under MAR 2.3.2 G) that proper systems have been set up (where required) for the central recording of any stabilising action; and

  2. (2)

    (under MAR 2.3.9 G) not stabilise shares and certificates associated to bonds, loans, debentures, etc, if one is to be convertible into the other but the terms of conversion have not yet been announced.

MAR 2.3.2 G

The stabilising manager may not take any stabilising action in any relevant securities or associated securities in accordance with this chapter unless he has taken all reasonable steps to satisfy himself that:

  1. (1)

    from the beginning of the introductory period (or where relevant the period mentioned in MAR 2.3.53 (3)(b)) adequate disclosure is made, in relevant communications issued by or on behalf of the issuer or the stabilising manager, of the fact that stabilising action may take place in relation to the offer;

  2. (2)

    any requirement of the relevant exchange (see MAR 2.5.6 R note (2)) or other institution on which the relevant securities or associated securities are or will be traded (see MAR 2.1.3 R (3)) to inform it that stabilising action in those securities may take place during the stabilising period has been complied with;

  3. (3)

    the stabilising manager has established the register required by MAR 2.7.2 R (1) (if that paragraph is binding upon him) for recording each stabilising action effected by him in the relevant securities or associated securities and the matters required to be recorded by MAR 2.7.2 R (2) in relation to it; and

  4. (4)

    where the offer relates to an issue of relevant securities the issuer has been informed of the existence of the FSA informational guidance (MAR 2 Annex 2), either in relation to the offer in question or to a previous one.

MAR 2.3.3 R
  1. (1)

    A stabilising manager who is required to comply with MAR 2.3.2 R (1) should ensure that the communications there referred to, if they fall within items 1 to 5 of MAR 2.3.4 E, contain the words suggested in, or otherwise fairly comply with, any relevant note to that table.

  2. (2)

    Compliance with (1) may be relied on as tending to establish compliance with MAR 2.3.2 R (1).

MAR 2.3.4 EU

Communication referring to the offer (see MAR 2.3.2 R (1))

Item

Communication

Relevant Notes (See MAR 2.3.5 )

1

Any screen-based statement

1, 2, 3, 5 and 6

2

Press announcement (or other public announcement)

2, 3, 5 and 6

3

Invitation telex (or similar)

2, 5 and 6

4

Preliminary offering circular (or draft prospectus)

4, 5 and 6

5

Final offering circular (or prospectus)

4, 5 and 6
MAR 2.3.5 EU

Notes to MAR 2.3.4 E

(1) Item 1 extends to any statement made by the stabilising manager or issuer on screen facilities (whether provided by the stabilising manager or not) conveying prices for a purchase or sale of securities.

(2) For items 1, 2 and 3, adequate disclosure is given if the communication contains some indication of the fact that the offer may be stabilised in accordance with the price stabilising rules. The term "stabilisation / FSA" is sufficient for this purpose. During the introductory period a reference to the future prospectus or to the prospectus can be used instead if preferred.

(3) Items 1 and 2 apply from the beginning of the shorter of two periods, that is:

(a) the introductory period; or

(b) the period beginning 45 days before the day proposed for the issue of the relevant securities and ending with the start of the stabilising period.

(4) For Items 4 and 5 adequate disclosure is given if the communication contains wording substantially similar to the following:

"In connection with this [issue] [offer ], [name of stabilising manager ] [or any person acting for him] may over-allot or effect transactions with a view to supporting the market price of [description of relevant securities and any associated securities] at a level higher than that which might otherwise prevail for a limited period after the issue date. However, there may be no obligation on [name of stabilising manager] [or any agent of his] to do this. Such stabilising, if commenced, may be discontinued at any time, and must be brought to an end after a limited period."

(5) Where any communication referred to in items 1 to 5 is not to be issued to or directed at persons in the United Kingdom , the notice required by those items may be adapted or omitted.

(6) Where any communication referred to in items 1 to 5 is to be issued to or directed at persons in the United Kingdom and persons elsewhere, the notice required by those items may be adapted or omitted so as not to require the stabilising manager or any agent of his to commit any breach of any legal rule or requirement in respect of any communication issued to or directed at persons outside the United Kingdom.
MAR 2.3.6 G

The requirement in MAR 2.3.2 R (1) to make adequate disclosure in communications does not apply to any communication which is not mentioned in table MAR 2.3.4 E.

MAR 2.3.7 G

An FSA consumer factsheet has been prepared which explains to potential investors the significance of the fact that stabilisation may take place in the relevant securities offered. The factsheet is available on the FSA's website and may in addition be obtained from the FSA by post, free of charge. The stabilising manager acting for the issuer should consider drawing attention to the availability of this factsheet in prospectuses which are aimed at private customers.

MAR 2.3.8 G
  1. (1)

    The stabilising manager may not take stabilising action in any case where:

    1. (a)

      there are in existence associated securities;

    2. (b)

      at the time when the offer price of the relevant securities was determined, the market price of the associated securities was falsely higher than the true market price; and

    3. (c)

      the stabilising manager knew or ought reasonably to have known that the falsity in the market price was attributable in whole or in part to any act or course of conduct on the part of any person which was in breach of section 397(2) or (3) of the Act.

  2. (2)

    The stabilising manager may not take stabilising action in any case where:

    1. (a)

      at the time when the offer price of the relevant securities was determined, the market price of the relevant securities or of rights to them, whether in informal trading or otherwise, was falsely higher than the price which would otherwise have prevailed; and

    2. (b)

      the stabilising manager knew or ought reasonably to have known that the falsity in the market price was attributable in whole or in part to any act or course of conduct on the part of any person which was in breach of section 397(2) or (3) of the Act.

MAR 2.3.9 G

The stabilising manager may not take stabilising action in any case where:

  1. (1)

    the relevant securities fall within article 77 (instruments creating or acknowledging indebtedness), 78 (Government and public securities) or 79 (instruments giving entitlements to investments) of the Regulated Activities Order;

  2. (2)

    there are, in relation to those relevant securities, associated securities falling within article 76 (shares, etc) or 80 (certificates representing certain securities) of the Regulated Activities Order, into which those relevant securities can be converted or to the purchase of which those relevant securities give rights; and

  3. (3)

    the terms of the conversion, purchase or subscription have not yet been publicly announced.

MAR 2.3.10 EU

The general purpose of MAR 2.3.9 G is to place a restriction on stabilising bonds convertible into equities, and warrants for equities, in cases where the terms of the conversion or right to purchase have not yet been settled. Prime examples would be a convertible loan stock of a public limited company, but MAR 2.3.9 G also covers similar cases such as government debt instruments which are convertible into shares, for example a privatisation in the United Kingdom or overseas.

MAR 2.3.11 EU

The stabilising manager may not take stabilising action in any case where:

  1. (1)

    he or an associate of his has, in connection with the offer, an option or other right to purchase relevant securities from the issuer; and

  2. (2)

    that option or right may be exercised or relied on after the start of the introductory period and during or after the remainder of the stabilising period;unless the existence and principal terms of the option or right have been disclosed in the relevant prospectus or offering document or in a public announcement.

MAR 2.4 Ancillary permitted stabilising action

MAR 2.4.1 R

MAR 2.4.2 R and MAR 2.4.3 R enable the stabilising manager to over-allot or go short of securities, so as to facilitate his subsequent purchase of them by stabilising action; and he may buy or sell on the market in order to close out or liquidate positions established by stabilising action or by going short.1

PERMITTED ANCILLARY ACTION

MAR 2.4.2 R

The stabilising manager may, subject to MAR 2.4.3 R:

  1. (1)

    with a view to supporting the price of the relevant securities by action under MAR 2.2.3 R:

    1. (a)

      make allotments of a greater number of the relevant securities than will be offered; or

    2. (b)

      sell or agree to sell relevant securities or associated securities so as to establish a short position in them; or

    3. (c)

      achieve a result equivalent to that in (b) by use of derivatives; or

  2. (2)

    buy or subscribe for or agree to buy or subscribe for relevant securities or associated securities in order to closeout or liquidate any position established under (1); or

  3. (3)

    sell or agree to sell relevant securities or associated securities in order to closeout or liquidate any position that has been established by stabilising action; or

  4. (4)

    achieve a result equivalent to that in (3) by use of derivatives; or

  5. (5)

    offer or attempt to do anything permitted by (1)(b) or (c), (2), (3) or (4).1

MAR 2.4.3 R

MAR 2.4.2 R applies only if the stabilising manager has reasonable grounds for believing, and does believe, that the requirements in MAR 2.3 have been complied with.1

PRICE LIMITS

MAR 2.4.4 R

Ancillary action under MAR 2.4.2 R (2) may be taken without regard to the limits on pricing in MAR 2.5.1

MAR 2.4.5 R

Long or short positions can be established either in the cash market or by the use of derivatives. The extent to which derivatives may be used in stabilising action or in ancillary action is strictly limited. MAR 2 contemplates the use of derivatives only on the 'selling' side, that is as permitted ancillary action, under MAR 2.4.2 R(1)(c) and (4). This is because of the need for market transparency in any purchase transactions and because of the requirements which are applicable to firms in MAR 2.7.2 R for a single record of stabilising action taken.1

MAR 2.4.6 R

MAR 2.4.2 R (2) extends to the purchase from the issuer during the stabilising period, or shortly after, by exercise of an option or other right, of further securities not previously allotted.1

MAR 2.5 Pricing

LIMIT ON PRICING: GENERAL

MAR 2.5.1 R RP

The principal purpose of this section is to put an upper limit on the price at which certain securities may be stabilised.

MAR 2.5.2 R RP

The price limits are broadly similar whether the stabilising action is concerned with relevant securities or associated securities (including call options). However, the price limits do not extend to debt securities in the form of bonds, etc, or investments similar to debt securities such as convertibles or exchangeables. Pricing for them is subject instead to the requirement in MAR 2.2.3 R that the stabilising action is taken to support the market price.1

MAR 2.5.3 G

The initial stabilising price (Price X) cannot exceed the offer price (or starting price) (Price Y), and subsequent stabilising action must equally be at or below the level of Price X. If there are no sales and purchases which are independent of the stabilising manager on both sides on the relevant exchange above Price X, the stabilising manager can operate at a price or at prices below Price X, moving up or down in that area as he wishes. But if an independent buyer and seller do a deal on the relevant exchange, at a price (Price Z) between Price X and Price Y, then the stabilising manager has a new maximum price (Price Z) instead of Price X.

MAXIMUM PRICES

MAR 2.5.4 R
  1. (1)

    No bid may be made or transaction effected in the case of action described in MAR 2.2.3 R at a price higher than any relevant price indicated in accordance with MAR 2.5.5 R (including any relevant note in MAR 2.5.6 R).

  2. (2)

    The prohibition in (1) does not apply to the purchase of, the agreement to purchase, or an offer or attempt to purchase or to agree to purchase, investments that fall within:

    1. (a)

      article 77 or 78 of the Regulated Activities Order (bonds, etc); or

    2. (b)

      article 77 or 78 and also fall within articles 79 (instruments giving entitlements to investments), 80 (certificates representing certain securities) or 83 (options); or

    3. (c)

      article 79 or 80 that confer rights in respect of investments falling within article 77 or 78.1

MAR 2.5.5 R

Limits on pricing (see MAR 2.5.4 R (1))

Time of Action

Column A

Column B

Column C

Relevant securities (including associated securities which are in all respects uniform with them)

Associated securities (other than associated call options) excluding those in column A

Associated call options

(1) Initial stabilising action

The offer price

The market bid price of the associated securities at the beginning of the stabilising period

The market price of an option at the beginning of the stabilising period

(2) Later, but where there has been a deal at a price above the stabilising price on the relevant exchange

The offer price, or the price at which that deal was done, whichever is the lower

The market bid price in B(1), or the price at which that deal in the associated securities was done, whichever is the lower

The market price in C(1), or the price at which that deal in an option was done, whichever is the lower

(3) Later, but where there has been no deal in (2)

The offer price, or the initialstabilising price, whichever is the lower

The market bid price in B(1), or the initial stabilising price for the associated securities, whichever is the lower

The market price in C(1), or the initial stabilising price of the option, whichever is the lower
MAR 2.5.6 R

Pricing notes (see MAR 2.5.5 R)

(1) Deals done. For the purposes of MAR 2.5.5 R (2), a deal done by or on the instructions of the stabilising manager does not count.

(2) Relevant Exchange. For the purposes of MAR 2.3.2 R (2) , MAR 2.5.5 R (2) and MAR 2.5.6 R , the relevant exchange means the investment exchange which the stabilising manager reasonably believes to be the principal investment exchange on which those securities, or as the case may be options, are dealt in at the time of the transaction.

(3) (Deleted). 1

(4) References in column B of MAR 2.5.5 R to associated securities do not include call options.

(5) Currency fluctuations. Where the price of any relevant securities or associated securities on the relevant exchange is in a currency other than the currency of the price of the securities to be stabilised, stabilising bids may be made or transactions effected at a price that reflects any change in the relevant rate of exchange; but this does not permit stabilising action, in column A of MAR 2.5.5 R, at a price above the equivalent, in the other currency, of the offer price in the currency on the relevant exchange.

(6) New securities: Where there is no market bid price for any associated securities (including associated call options) at the beginning of the stabilising period because those securities or options are not in existence or capable of being traded at that time, MAR 2.5.5 R shall be read as if references to the market bid price of theassociated securities or options at the beginning of the stabilising period were a reference to the first market bid price of the associated securities or options during thestabilising period of which the stabilising manager is, or reasonably should be, aware.

MAR 2.6 Management of stabilisation

MAR 2.6.1 G

The purpose of this section and of section 2.7 is to provide an orderly structure for the management of stabilising action even where it is to be carried out on a devolved basis, whether in the United Kingdom or elsewhere. The central management has to be in the hands of one stabilising manager. If authorised in the United Kingdom, the stabilising manager has to set up, operate and be legally responsible for a single stabilisation register MAR 2.7.2 R) which must be kept in the United Kingdom or be capable of being inspected by the relevant regulators. These sections accordingly build on the base requirement for authorised persons at MAR 2.3.2 R (3)

MAR 2.6.2 R
  1. (1)

    This section, and section MAR 2.7, apply only where the stabilising manager is a firm or is employed by a firm.

  2. (2)

    Where the stabilising manager is employed by a firm, this section and MAR 2.7 shall have effect as if the obligations imposed on the stabilising manager were imposed on the firm.

MAR 2.6.3 R

No bid may be made or transaction effected in the course of stabilising action unless the stabilising manager:

  1. (1)

    has established the relevant register in compliance with MAR 2.7.2 R; and

  2. (2)

    is in compliance with the registration requirements in MAR 2.7.2 R in respect of all earlier transactions effected in the course of stabilising action in connection with the offer in question.

MAR 2.6.4 R

No bid may be made or transaction effected in the course of stabilising action except by:

  1. (1)

    the stabilising manager himself; or

  2. (2)

    a person appointed by the stabilising manager to act as his agent on terms which:

    1. (a)

      make the agent responsible to the stabilising manager; and

    2. (b)

      make the stabilising manager as responsible to others for the acts or omissions of the agent as if they had been done or omitted by the stabilising manager.

MAR 2.6.5 R
  1. (1)

    The stabilising manager may not during the stabilising period enter into a transaction as principal in relevant securities or associated securities with any agent of his appointed under MAR 2.6.4 R.

  2. (2)

    Paragraph (1) does not apply if, at the time of the transaction, neither the stabilising manager nor the agent knew or could reasonably have been expected to know the identity of his counterparty.

  3. (3)

    Paragraph (1) does not apply where:

    1. (a)

      the transaction between the stabilising manager and his agent is undertaken solely for the purpose of re-allocating the economic risk of positions that were taken by the stabilising manager and his agent in the course of stabilising action and is priced accordingly; and

    2. (b)

      the relevant securities are, and the transactions are in, investments that:

      1. (i)

        fall within article 77 or 78 of the Regulated Activities Order (bonds, etc), or article 79 (instruments, etc) or 80 (certificates, etc) which confer rights only in respect of investments falling within article 77 or 78 ; and

      2. (ii)

        are not exchangeable for or convertible into, and do not give rights to acquire, dispose or subscribe for, investments falling within article 76 of the Regulated Activities Order (shares, etc), or articles 79 or 80 which confer rights in respect of investments falling within article 76.1

MAR 2.6.6 G

MAR 2.6.5 R prohibits transactions between a stabilising manager and his agent unless it is not reasonable to expect both the principal and agent to know the identity of their counterparty or where MAR 2.6.5 R (3) applies. MAR 2.6.5 R (3) is designed to permit a transaction between a stabilising manager and his agent that takes place in the debt markets, typically at the end of the business day or stabilising period, that "squares up" positions taken in the course of stabilising action. The reference to price in MAR 2.6.5 R (3)(a) reflects the need to be mindful that although the transaction may in practice, for example, be effected at a price that is the average of the constituent transactions, so not the prevailing market price, the purpose behind the transaction is to re-allocate economic risk established in the course of stabilising action and is not to mislead the market. MAR 2.6.5 R (3)(b) has been drafted to ensure that the prohibition in MAR 2.6.5 R (1) remains applicable to the issue of and transactions in any investment that provides a right to acquire or subscribe for, or may eventually be converted or exchanged into, a share.1

MAR 2.7 Recording of action taken

MAR 2.7.1 G

For the application of this section see MAR 2.6.2 R.

MAR 2.7.2 R
  1. (1)

    The stabilising manager must establish and keep a register in respect of each offer of securities covered by this chapter.

  2. (2)

    He must ensure that it contains, either in real time or updated overnight (from business day to business day):

    1. (a)

      the names of all agents appointed under MAR 2.6.4 R, and details of the terms of the appointment of each;

    2. (b)

      the general parameters (including the initial stabilising price) laid down by the stabilising manager for his agents and the date and time of their communication, variation or revocation;

    3. (c)

      each transaction effected in the course of stabilising action including:

      1. (i)

        the type of security;

      2. (ii)

        the unit price;

      3. (iii)

        the size;

      4. (iv)

        the date and time; and

      5. (v)

        details of the counterparty;

    4. (d)

      details of the allotment of relevant securities (allottee and amount allotted); and

    5. (e)

      details (so far as known to the stabilising manager) of any deal which 'counts' as a deal at a price above the then stabilising price for the purposes of MAR 2.5.5 R(2) (pricing after independent deals).

  3. (3)

    The register must be kept in the United Kingdom, or else be capable of being brought to, or reconstituted in, the United Kingdom within 48 hours of a request for access from anyone entitled to inspect it.

  4. (4)

    If the register is not kept in English, it must be capable of being converted into English within the 48 hour period mentioned in (3).

MAR 2.7.3 R
  1. (1)

    During the three months from the end of the stabilising period, the stabilising manager must permit the issuer of the securities, on any business day, to inspect that part of the register which is kept under MAR 2.7.2 R (2)(c) (i) to (iv).

  2. (2)

    The obligation in (1) arises only if the offer related to an issue of relevant securities.

MAR 2.7.4 R

The register must be retained for a period of at least three years from the date of the end of the stabilising period.

MAR 2.8 Overseas Stabilisation

MAR 2.8.1 G

Under sections 144(3) and (6) of the Act, the FSA may make rules which confer a "safe harbour" in respect of one type of market manipulation (section 397(3)) on persons who act in conformity with specified provisions of foreign laws. Under that power, the FSA "specifies" certain legislative provisions having effect in the United States of America, Japan and Hong Kong. It should be noted that conformity with these provisions may assist in proceedings under section 397(3) but not in proceedings under section 397(2) nor in proceedings under Part V of the Criminal Justice Act 1993 (insider dealing). This is because of the wording of section 144(3).1

MAR 2.8.2 R
  1. (1)

    A person who, in any place outside the United Kingdom, acts or engages in conduct:

    1. (a)

      for the purposes of stabilising the price of investments; and

    2. (b)

      in conformity with the provisions specified in (2), (3) or (3A); and1

    3. (c)

      in relation to an offer which is governed by the law of a country (or a state or territory in a country) so specified;is to be treated for the purposes of section 397(5) of the Act (misleading statements and practices) as acting or engaging in conduct for that purpose and in conformity with the price stabilising rules.

  2. (2)

    In relation to the United States of America, the specified provisions are:Regulation M made by the Securities and Exchange Commission (17 CFR 242, # 100-105).

  3. (3)

    In relation to Japan, the specified provisions are:

    1. (a)

      The Securities and Exchange Law of Japan, (Law No 25, April 13 1948), Article 159, paragraphs 3 and 4;1

    2. (b)

      Cabinet Orders for the Enforcement of the Securities and Exchange Law of Japan (Cabinet Order 321, September 30, 1965), Articles 20 to 26;

    3. (c)

      Ministerial Ordinance concerning the Registration of Stabilisation Trading (Ordinance of the Ministry of Finance No 43, June 14, 1971);

    4. (d)

      Ministerial Ordinance concerning rules and otherwise governing the soundness of securities companies (Ordinance of the Ministry of Finance, No 60, November 5, 1965), Article 2.

  4. (3A)

    In relation to Hong Kong, the specified provisions are:The Securities and Futures (Price Stabilizing) Rules, Cap. 571 W made by the Hong Kong Securities and Futures Commission.

  5. (4)

    A person who is treated under (1) as acting or engaging in conduct in conformity with the price stabilising rules is also to be treated to an equivalent extent as so acting or engaging for the purposes of MAR 2.1.1 (2) above, and of Part XIV (Disciplinary measures) and Part XXV (Injunctions and Restitution) of the Act.

  6. (5)

    The provisions in (2), (3) and (3A) are specified as they have effect from time to time, so long as this paragraph has effect.1

MAR 2.8.3 G
  1. (1)

    The effect of MAR 2.8.2R (4) is to confer a defence in the following classes of cases:

    1. (a)

      proceedings under Part VIII of the Act in cases of market abuse;

    2. (b)

      disciplinary proceedings under Part XIV of the Act in cases of a breach of other price stabilising rules;

    3. (c)

      proceedings under Part XXV of the Act (Injunctions and Restitution) in relation to market abuse or a breach of other price stabilising rules.

  2. (2)

    The FSA and, if necessary, the Financial Services and Markets Tribunal and the court will need, in such cases, to consider whether, and if so how, the overseas stabilising rule has been complied with or broken in relation to conduct of the kind which otherwise would be proscribed under section 397(3) of the Act.

MAR 2.8.4 G

The provisions in this section are separate and distinct from other provisions in these rules which may be relevant to overseas stabilisation whether by persons who are authorised in the United Kingdom or by other persons. In particular, MAR 2.6.4R enables overseas agents appointed by a UK authorised stabilising manager to obtain the benefit of the price stabilising rules.

MAR 2 Annex 1 MAR 2 Ann 1R

MAR 2 Annex 1 R

American Stock Exchange (AMEX)

Australian Stock Exchange

Bolsa Mexicana de Valores

Canadian Venture Exchange

Hong Kong Stock Exchange

Johannesburg Stock Exchange

Korea Stock Exchange

Midwest Stock Exchange

Montreal Stock Exchange

New York Stock Exchange (NYSE)

New Zealand Stock Exchange

Osaka Securities Exchange (OSE)

Pacific Stock Exchange

Philadelphia Stock Exchange

Singapore Exchange Securities Trading Limited

Tokyo Stock Exchange (TSE)

Toronto Stock Exchange

MAR 2 Annex 2 MAR 2 Ann 2G

G

1.

Introduction

1.1

This guidance has been produced by the FSA to help issuers identify the information they might seek when engaging underwriters and stabilising managers to manage their new offers for them. stabilising managers are encouraged by the price stabilising rules to alert issuers to the existence of this guidance.

2

When stabilisation can be used

2.1

It is a common market practice in the United Kingdom for stabilising managers of both debt and equity issues to reserve the right to stabilise offers by including in the offer documentation wording which gives notice that the issue may be stabilised. FSArules allow the stabilising manager/underwriter to stabilise a new offer, which means that it may purchase securities to support the price:

1

where the offer is for cash;

2

where the offer is public and is subject to the rules of an exchange specified under the price stabilising rules; and

3

only for a limited period, (the stabilising period).

3

Common market practice when undertaking stabilisation

3.1

Stabilising action involves supporting the price of securities made in public offers. The stabilising manager undertakes this action by purchasing or agreeing to purchase the relevant securities. Supporting a price may potentially lead to distortions of price signals. For the stabilising manager to obtain the 'safe harbour' (effectively a defence against a charge of market manipulation, insider dealing or market abuse) provided by the price stabilising rules, a number of disclosures must be made to the market (see 5 below).

3.2

It is common practice for the stabilising manager to over-allot a new offer as an ancillary action to stabilisation. This leaves the stabilising manager with a net short position in the securities, having pre-sold more than 100% of the issue. When the offer begins to trade in the after-market, if the price does not go above the offer price, the stabilising manager can make purchases of securities in order to close out this short position. The purchases that the stabilising manager makes to close out the position will be part of the price stabilising activity. It is common for the stabilising manager to take out an over-allotment (or Green Shoe) option, so that further securities can be obtained from the issuer at the offer price. Thus, if the price has risen, the stabilising manager can still close out the short position.

4

Use of the Green Shoe unconnected with stabilisation

4.1

It is possible for the stabilising manager to obtain a Green Shoe option that is not intended for the purpose of filling any short position arising from over-allotment. The reason for the option should be explicitly disclosed to the issuer. The issuer may wish to ensure that it understands why the stabilising manager wants a Green Shoe option, and may wish to secure that its agreement specifies the circumstances in which it can be exercised

5

FSA rules and disclosure

5.1

The price stabilising rules require the stabilising manager to make certain disclosures:

1

to the market, providing notification that stabilising action may be taken; and

2

in the prospectus, or offering circular, concerning the existence of an over-allotment or Green shoe option, and the terms on which it has been agreed.

5.2

In addition, where the stabilising manager is an authorised person in the United Kingdom, MAR 2.7.3 R gives the issuer certain rights to inspect parts of the register of stabilising action which such a stabilising manager must maintain.

6

Information that issuers may wish to request from the stabilising manager

6.1

When negotiating the terms of agreement for the offer , the parties will no doubt wish to consider how the offer will be managed and what information the issuer might wish to seek from the stabilising manager. In considering what information might be requested, the issuer may wish to arrange for the following:

1

information on how the issue is proceeding during the stabilising period (nature of demand, types of investors, etc.); and

2

information on the level of stabilising activity which is being undertaken (though it may not be desirable, for reasons of confidentiality, for this to be disclosed in any detail until the stabilising period has ended).

6.2

The issuer may also request information on the reasons for the exercise of the right to additional allotment by the stabilising manager. In particular, the issuer may wish to know how far the additional allotment is attributable to:

1

a need to deliver relevant securities to persons who are unconnected with the stabilising manager; and

2

a need to make good any failures to deliver by other counterparties.

The issuer may also wish to consider whether the additional allotment might have led to a profit for the stabilising manager.

6.3

The stabilising manager is not under any obligation to identify the names of individual clients to the issuer.

MAR 2 Annex 3 Frequently asked questions on the price stabilising rules

G

Application

Q1

What does the sentence in MAR 2.1.4 G "Other offers that may be regarded as public are offers to a section of the public, placements that are not essentially private and distributions" mean? If, for example, a public offer of shares is made in another jurisdiction and a private placement of GDRs is made in the United Kingdom, how could that placement of GDRs be "...not essentially private"?

The policy intends to exclude block trades of securities already in issue, not to limit genuine offers for the purposes of capital raising. The guidance given in the MAR 2 sets this out. There is no universally accepted definition of "public offer", nor is it possible or desirable to give exact guidance on how many investors would be required to make an offer "public". It is clear from MAR 2.1.3 R (5) that the public announcement element is critical; stabilisation of placements is only allowed after they are announced. If firms have concerns about a particular issue structure, they may wish to approach us for individual guidance.

Q2

The rules state that the stabilisation safe harbour is available for offers of £15 million or more. Are there circumstances when the safe harbour would be available for offers smaller than £15 million? First, if the overallotment option raised the value above £15 million, would stabilisation be permitted? Secondly, if there are two offers of relevant securities, one of which is below £15 million, can they be combined for stabilisation purposes?

MAR 2.1.3 R (4) sets the limit at £15 million, and this replicates the limit under the Financial Services Act 1986. This refers to the amount to be raised and available for offer. MAR 2.1.3 R and MAR 2.4.2 R (1) state that an overallotment relates to securities that are not among those offered and so are not included in the £15 million limit. So the offer itself, distinct from the overallotment option, should indicate the value and the overallotment is clearly not included in this amount.

If there is more than one offer of the same relevant or associated securities they will only be able to be combined for stabilisation purposes (that is, treated as a single offer) if one of the offers is for more than £15 million and if they are issued simultaneously or almost simultaneously. In these circumstances, all of the securities will be able to be supported by price stabilising action , provided that this is undertaken pursuant to the price stabilising rules in the case of all the securities subject to the offer (including all required disclosures). Firms should seek individual guidance on the ability to combine offers that are made almost simultaneously and the applicable stabilising period for each of the offers.

Record keeping: Territorial application

Q3

The territorial application at MAR 2.1.6 R (2) is for a firm's business when "carried on from an establishment in the United Kingdom". Under MAR 2.2.4 G the safe harbour is available only if proper records are kept. The record-keeping requirement is a general rule, applicable only to authorised firms. Where does this leave passported firms operating out of, for example, Paris? Do they have to follow the record-keeping rules in MAR 2.7 ?

MAR 2.2.4 G only imposes the record-keeping requirement in MAR 2.3.2 G on those stabilising managers that are obliged to keep those records. MAR 2.3.2 R (3) makes it clear that only those persons to which MAR 2.7 applies have to meet the register requirements in MAR 2.7. The rules in MAR 2.7 (and the rules in MAR 2.6) are general rules made under section 138 of the Act. So, only a firm carrying on business from an establishment in the United Kingdom has to meet the requirements in the rules in MAR 2.6 and MAR 2.7 (see MAR 2.1.6 R (2)). An incoming EEA firm must comply with these rules where this activity is undertaken in the United Kingdom, but if the activity is undertaken in its Home State, local record keeping rules apply. An incoming EEA firm that is carrying on stabilising activity, but only from an establishment abroad, does not have to meet the requirements in MAR 2.7 to get the safe harbour defences referred to in MAR 2.1.2 G (see MAR 2.1.8 G). So MAR 2.2.4 R (2) and MAR 2.3.2 R (3) are not only about whether the person concerned is authorised, but also whether, in the circumstances, the person is obliged to comply with the rule.

Please note that, in this FAQ, when we refer to general rules we are referring to those rules made under section 138 of the Act. The rules in MAR 2.1 to MAR 2.5 are price stabilising rules made under section 144 of the Act (Price stabilising rules).

Stabilising managers and agents

Q4

The rules allow a single stabilising manager. How does this approach relate to agents?

There must be one person that has the sole responsibility for ensuring compliance with the United Kingdomprice stabilising rules ("the rules"). This person is referred to as the stabilising manager. The stabilising manager can delegate activities to an agent or agents, including agents in other jurisdictions. However, the stabilising manager must still maintain overall responsibility for managing and co-ordinating the stabilisation.

This requirement stems from:

(a) the definition of stabilising manager as "the single person responsible for stabilising action under MAR 2"; and

(b) MAR 2.6.4 R, which requires each bid to be made or transaction effected by the stabilising manager himself or a person appointed on specified terms to act as an agent for the stabilising manager.

However, the rules do not prohibit different managers for different jurisdictions. We are aware, for example, that local stabilising rules in some overseas jurisdictions may require a local manager or that local expertise may be required in meeting those local rules. For an offer in an overseas jurisdiction, there is no requirement for an overseas manager to follow the rules unless he wants to obtain the benefit of the safe harbour defences referred to in MAR 2.1.2 G. In such a case, there must be compliance with MAR 2.1 to MAR 2.5, or with MAR 2.8. Further, if the overseas manager wants to use an agent in the United Kingdom , he should ensure that one person is identified as the stabilising manager for the purposes of the rules. That stabilising manager will take responsibility for compliance with MAR 2.6.4 R, and so will take responsibility for the actions of any agents also undertaking stabilisation in the United Kingdom . If the stabilising manager is a firm (that is, an authorised person ) the agent in the United Kingdom will not be able to benefit from the safe harbour if he makes a bid or effects a transaction during stabilising action unless he is appointed on terms complying with MAR 2.6.4 R. (Note that in this scenario we envisage that the stabilising manager will be a firm or employed by a firm (see MAR 2.6.2 R), but if he is not, we suggest that individual guidance is sought.)

Q5

The rules appear to impose a greater responsibility on the stabilising manager for agents' actions than those known to the normal laws of agency. If institutions cover themselves by introducing indemnity statements into contracts, would this mean the policy would be ineffective?

We intend to ensure that responsibilities are clear but avoid setting specific rules in this area. In setting this policy, we envisaged that a contractual arrangement would govern the relationship between principal and agent (explicitly stating the limits of the agent). The contractual relationship between the stabilising manager and his agent could specify that the authority of the agent was limited to actions complying with the rules. However, the contract would also include the term outlined in MAR 2.6.4 R (2)(b). This would make the stabilising manager as responsible to others for the acts or omissions of the agent as if they had been done by the stabilising manager . If the agent were to breach the rules then, even if it is acting outside the authority of the stabilising manager, the stabilising manager would be responsible to others for those actions. However, applying MAR 2.6.4 R means that if the agent does, for example, breach the price limits, the stabilising manager will not automatically lose the safe harbour and be guilty of an offence to which the rules relate. The questions of whether the safe harbour has been lost and whether there has been such an offence, raise different issues. We would need to consider, for example, the steps taken by the stabilising manager in seeking to ensure that the agent did comply with the rules. Our policy here is not defeated by contractual arrangements resulting in the agent indemnifying the stabilising manager.

It is also relevant that MAR 2.6.4 R applies only to a stabilising manager which is a firm (that is, an authorised person ) operating from an establishment in the United Kingdom . If the contract fails to include the required term, there could be disciplinary consequences for the firm, though breach of MAR 2.6.4 R (2)(b) does not result in civil liability in its own right (see MAR 2.1.9 R).

Q6

MAR 2.6.5 R prohibits stabilising managers from entering into principal trades in the relevant securities with their agent. Does the FSA mean to prohibit, for example, cases where the manager and the agent act together to short sell as part of ancillary stabilising action, but where the agent is more successful in the selling, and where the stabilising manager then covers the agent's short position? The rule suggests that this cannot now be done. Is this the intention?

There are a number of issues to consider here.

Any stabilising or ancillary action taken by the stabilising manager or his agent must be taken with a view to supporting the market price of the relevant securities (MAR 2.2.3 R and MAR 2.4.2 R). By their nature, pre-arranged transactions between a principal and agent will not usually be taken with this view in mind. When drafting the rule, we wanted to prohibit the situation where, for example, an agent opened a short position to enable his principal to offload a net long position at less of a loss than would otherwise be the case.

In the specific example referred to in the question above, we would not consider the pre-agreed covering of a short position as prohibited behaviour where:

(a) it comes within the permitted range of stabilising action and is taken with a view to supporting the market price of the relevant securities; and

(b) it involves the agent effectively conducting transactions for the principal's book.

The FSA is aware that the application of MAR 2.6.5 R (1) may raise issues for participants in the debt markets. The FSA is currently considering the issue and we anticipate amending this rule in the near future. In the meantime, we suggest that firms approach the FSA for individual guidance or a waiver.

It is also worth remembering that MAR 2.6.5 R is a general rule (see MAR 2.1.8 G). As such, MAR 2.6.5 R is not relevant for the defences outlined in MAR 2.1.2 G, so the transaction itself will not cause a firm to lose the safe harbour.

Q7

The price stabilising rules prohibit entering into transactions with agents during the stabilising period ( MAR 2.6.5 R (1) ). For a large firm, it would be difficult to suspend all dealings with agents as they operate on several different levels and have numerous relationships. This would severely limit market activity. Can this be avoided by using Chinese walls?

We introduced this policy to avoid a person manipulating the price through dealings between the principal and its agent. This could arise, for example, if the agent were to sell at a price higher than the price at which another holder of the stock would be able to sell. The thrust of the policy behind the rules is to prevent activities inconsistent with one of the underlying concepts, which is support for the market price. This policy could be defeated if non-arms-length dealing between principal and agent were part of the process.

However, we do not intend that the policy should limit normal market making activities. To separate actions that are collusive from these normal market making activities, it is acceptable to the FSA for a person to use Chinese walls to maintain a separation of its activities as stabilising manager and its activities as market maker. MAR 2.6.5 R (2) states that the prohibition in MAR 2.6.5 R (1) does not apply where the stabilising manager could not have reasonably been expected to know the identity of the counterparty. The use of Chinese walls, to the extent that they will help keep the identity of one party from the other, will in our view enable the market maker to conduct its normal activities with its counterparties. It must be clear, however, that the Chinese wall is operated in line with the normal procedures in COB 2.4.4 R. (This must also be the case for the agent if the agent is an authorised person. This may be more problematic if the agent is a small entity and if there is limited clarity of role in the relationship between the stabilising manager and market maker.)

The firm should ensure that it reviews its actions case by case to ensure that it is not engaging in market abuse and, where necessary, approach the FSA for individual guidance. Where the stabilising manager is limited to using agents that are affiliates of the stabilising manager, it should apply to us for individual guidance on a case by case basis.

Please note that this rule would usually only affect a limited number of transactions. The rules only apply for a limited set of conditions, that is, for dealings in relevant and associated securities during the stabilising period.

Depositary receipts

Q8

What is the policy reason for 'uniformity' of depositary receipts ("DRs") as set out in the definitions, especially concerning numerical uniformity?

We introduced the principle of uniformity to prevent stabilising of DRs that are complex products or which are in the form of an index, that is, those that are non-equivalent instruments. The definition of DR in article 80 of the Regulated Activities Order (which is one of the group of securities specified in MAR 2.1.3 R), excludes receipts conferring rights for two or more investments issued by different persons. (There is a further definition in Schedule 2 to the Criminal Justice Act 1993, for the insider dealing provisions, which defines a DR as a certificate or record issued by or on behalf of someone who holds any relevant securities of a particular issue.) Given these definitions, the standard operation of MAR 2.2.3 R is that a DR can, where it is a relevant security (that is, it is issued as part of the offer), be treated as in the definition of the Regulated Activities Order. The rules do not prohibit stabilising DRs of a different size or denomination to the securities they represent. These are still mutually interchangeable and uniform with the underlying security, and fall within the scope of the rules.

However, where a DR is not issued as part of the offer the definition in the Glossary of an associated security (that it is "...in all material respects uniform with the relevant security in terms of value, size and duration") applies. So, where an associated security is to be stabilised, it should not differ from the relevant security to any material extent. In our view, a DR that is a multiple of a relevant security is an associated security because it is still the same size in all material respects, as it is based on a security that is the same size. However, a DR that is a multiple of a security that is not the same size as a relevant security is not an associated security.

Price limits

Q9

The pricing limits have a ceiling at the issue price, but MAR 2.4.4 R allows ancillary action (under MAR 2.4.2 R ) which is not subject to the price limits. MAR 2.4.2 R (2) allows for the closing out or liquidation of any position established under MAR 2.4.2 R (1) by buying relevant or associated securities outside of the pricing rules. However, most of this ancillary action is likely in practice to take place in the grey market and most stabilising managers would be expected to obtain a greenshoe. In effect, any further action would be to close out the short, so circumventing the price limits. Is this correct? The only cases where the limits would apply would be in cases where (i) a short has not been established (that is, no overallotment) or (ii) where the short is closed out, but there is a need to stabilise further.

A reminder of this issue was outlined in our Market Watch Newsletter No. 1 (September 2001) on our website at www.fsa.gov.uk/marketconduct. Any short positions opened by a stabilising manager with the purpose of "circumventing" the price limits in MAR 2.5 would take the stabilising manager out of the stabilising action safe harbour. A short position established by short sales or an overallotment must be established "with a view to supporting the price of the relevant securities by action under MAR 2.2.3 R". Action can only be taken under MAR 2.2.3 R if certain conditions are met, including the price limits in MAR 2.5 (see MAR 2.2.2 G (4)). A stabilising manager can only open a short position if it does so with a view to buying relevant securities in line with the price limits in MAR 2.5. In other words, at the time the short position or overallotment position is taken, it must be taken by the stabilising manager with a view to taking action under MAR 2.2.3 R (that is, purchasing securities) in line with the price limit rules.

If, at the time the short position is set up, the real intention is to circumvent the price limits, then that position is not being set up "with a view to supporting the price" of the relevant securities. Instead, the position is being taken with a view to avoiding the price limits.

With shorts created for price support, if it then transpires that it is not possible to cover the position in line with the price limit rules, the stabilising manager is able, without breaching the rules, to cover the position outside the price limits. There will also be economic pressures here given the costs of covering a short. Not applying the price limits to the covering purchases brings the covering of short positions within the safe harbour. So, the issue is: when does buying by a stabilising manager contrary to the price limit rules indicate that the stabilising manager did not take the position with a view to buying in line with the price limits? This would be a question of fact, to be decided in the circumstances of each case. However, an indication might be where the overallotment was so large in relation to the greenshoe facility available that it would make it probable that there might have to be closing out above the price limits.1