MAR 1.5 False or misleading impressions

In order to fall within the false or misleading impressions test:

1. (1)

   the behaviour must be likely to give the regular user a false or misleading impression. Behaviour will amount to market abuse if the behaviour engaged in is likely to give rise to, or to give an impression of, a price or value or volume of trading which is materially false or misleading; and

2. (2)

   in order to be likely, there must be a real and not fanciful likelihood that the behaviour will have such an effect, although the effect need not be more likely than not. The behaviour may, or may be likely to, give rise to more than one effect, including the effect in question.

Factors that are to be taken into account in determining whether or not behaviour is likely to give the regular user a false or misleading impression as to the supply of, or the demand for, or the price or value of a qualifying investment or relevant product include:

1. (1)

   the experience and knowledge of the users of the market in question;

2. (2)

   the structure of the market, including its reporting, notification and transparency requirements;

3. (3)

   the legal and regulatory requirements of the market concerned and accepted market practices;

4. (4)

   the identity and position of the person responsible for the behaviour which has been observed (if known); and

5. (5)

   the extent and nature of the visibility or disclosure of the person's activity.

MAR 1.5.8 E, MAR 1.5.15 E, MAR 1.5.18 E and MAR 1.5.21 E each set out descriptions of behaviour that amount to market abuse in that the behaviour gives rise, or is likely to give rise, to a false or misleading impression.

A transaction will be executed in a proper way where it is executed in a way which takes into account the need for the market as a whole to operate fairly and efficiently. The way in which a transaction was executed would be unlikely to be regarded as proper by the regular user where a transaction was executed in a particular way with the purpose of creating a false or misleading impression. In most cases the rules of prescribed markets include a requirement that transactions be executed in a proper way (for example, rules on reporting and executing cross-transactions). Transactions would not necessarily be considered to have been executed in an improper way simply because the way in which they were executed did not disclose the firm's intentions or positions to the market.

The following factors are to be taken into account when determining whether a person's behaviour amounts to market abuse as described in MAR 1.5.8 E, although the presence of one or more of these factors does not automatically mean the behaviour in question amounts to market abuse:

1. (1)

   whether the transaction causes or contributes to an increase (or decrease) in the supply of, or the demand for, or the price or value of a qualifying investment or relevant product and the person has an interest in the level of the supply of, or the demand for, or the price or value of the qualifying investment or relevant product;

2. (2)

   whether the transaction involves the placing of buy and sell orders at prices higher or lower than the market price, or the placing of buy and sell orders which increase the volume of trading;

3. (3)

   whether the transaction coincides with a time at or around which the supply of, or the demand for, or the price or value of a qualifying investment or relevant product is relevant (whether for the market as a whole or the person in question) to the calculation of reference prices, settlement prices, and valuations (for example, close of trading, end of quarter);

4. (4)

   whether those involved in the transaction are connected parties;

5. (5)

   whether the transaction causes the market price of the investment in question to increase or decrease, following which the market price immediately returns to its previous level;

6. (6)

   whether a person places a bid (or offer) which is higher (or lower) than the previous bid (or offer) only to remove the bid (or offer) from the market before it is executed.

A further factor to be taken into account in determining whether the behaviour amounts to market abuse as described in MAR 1.5.8 E is the extent to which the transaction generally either opens a new position, so creating an exposure to market risk, or closes out a position and so removes market risk. This factor, if present, will tend to suggest that the transaction is likely to have a legitimate commercial rationale and the behaviour does not amount to market abuse as described in MAR 1.5.8 E, subject to the way in which the transaction is executed. Examples of transactions which typically have a legitimate commercial rationale are given at MAR 1.5.24 C.

A person has an interest in a qualifying investment or relevant product where that person:

1. (1)

   may directly (including by holding a short position) or indirectly benefit from alterations in its market price; or

2. (2)

   may be rewarded by, or is otherwise in collusion with or connected with, persons who may benefit from alterations in the market price of the qualifying investment.

Examples of behaviour which might give rise to a false or misleading impression and in respect of which the principal rationale may not be a legitimate commercial rationale include:

1. (1)

   arrangements for the sale or purchase of a qualifying investment or relevant product (other than on repo or on stock lending or borrowing terms) whereby there is no change in beneficial interests or market risk, or the transfer of beneficial interest or market risk is only between persons who are acting in concert or collusion;

2. (2)

   a transaction or series of transactions that are designed to conceal the ownership of a qualifying investment or relevant product, so that disclosure requirements are circumvented by the holding of the qualifying investment in the name of a colluding party, such that disclosures are misleading in respect of the true underlying holding of the security. These transactions are often structured so that market risk remains with the seller. This does not include nominee holdings;

3. (3)

   a fictitious transaction.

Behaviour will constitute market abuse where:

1. (1)

   a person disseminates information which is, or if true would be, relevant information;

2. (2)

   the person knows, or could reasonably be expected to know, that the information disseminated is false or misleading; and

3. (3)

   the person disseminates the information in order to create a false or misleading impression (this need not be the sole purpose for disseminating the information, but must be an actuating purpose).

A factor to be taken into account in determining the purpose of the person in question is whether that person has an interest in a qualifying investment or relevant product (see MAR 1.5.13 E) to which the information is relevant. This factor, if present, will tend to suggest that the person had disseminated the information in order to create a false or misleading impression. That said, the absence of any such interest does not conclusively demonstrate that the behaviour does not amount to market abuse.

The following is an example of disseminating false or misleading information. A person posts information on an Internet bulletin board or chat room which contains false or misleading statements about the takeover of a company whose shares are qualifying investments. The person knows that the information is false or misleading and he has posted the information in order to create a false or misleading impression.

Behaviour will constitute market abuse where:

1. (1)

   a person responsible for the submission of the information to an accepted channel for the dissemination of information submits information which is, or if true would be, relevant information which is likely to give the regular user a false or misleading impression as to the supply of, or the demand for, or the price or value of a qualifying investment or relevant product; and

2. (2)

   the person who submits the information has not taken reasonable care to ensure it is not false or misleading.

The FSA recognises the importance of information disseminated through accepted channels for the dissemination of information. Users of such information should be able to rely on the accuracy and integrity of information carried through these channels. It is, therefore, appropriate that those who disseminate information through them, for example, the company itself, its financial advisers or its public relations advisers, take reasonable care to ensure the information is not inaccurate or misleading. Where they do not, and the information is likely to give rise to a false or misleading impression, they will be regarded as engaging in behaviour which amounts to market abuse.

Behaviour will constitute market abuse where:

1. (1)

   a person engages in a course of conduct, the principal effect of which will be, or is likely to be, to give a false or misleading impression to the regular user as to the supply of, or the demand for, or the price or value of a qualifying investment or relevant product; and

2. (2)

   the person knows, or could reasonably be expected to know, that the principal effect of the conduct on the market will be, or is likely to be as set out in MAR 1.5.21 E (1);

unless the regular user would regard:

1. (3)

   the principal rationale for the conduct in question as a legitimate commercial rationale (see MAR 1.5.9 E) and

2. (4)

   the way in which the conduct is engaged in as proper (see MAR 1.5.10 E)

The exact nature of conduct that might give a false or misleading impression will vary according to the characteristics of the market. The following are examples of behaviour which might give a false or misleading impression to the regular user:

1. (1)

   the movement of physical commodity stocks, which might create a misleading impression as to the supply of, or demand for, or price or value of, a commodity or the deliverable into a commodity futures contract; and

2. (2)

   the movement of an empty cargo ship, which might create a false or misleading impression as to the supply of, or the demand for, or the price or value of a commodity or the deliverable into a commodity futures contract.

MAR 1.5.24C, MAR 1.5.25C, MAR 1.5.27C and MAR 1.5.28C each set out descriptions of behaviour that does not amount to market abuse in that the behaviour does not give rise to a false or misleading impression (see MAR 1.5.4E).

The circumstances described in MAR 1.4.23 E (1) to MAR 1.4.23 E (3) are capable of giving rise to a presumption that the other information in question is held behind an effective Chinese wall or is restricted using other similarly effective arrangements.