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G Guidance

C Non market abuse

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MAR 1.1 Application and interpretation

Application and purpose

MAR 1.1.1 G 01/07/2005

2This chapter (which contains the Code of Market Conduct) applies to all persons seeking guidance on the market abuse regime.

MAR 1.1.2 G 01/07/2005

This chapter provides assistance in determining whether or not behaviour amounts to market abuse. It also forms part of the UK's implementation of the Market Abuse Directive (including its EU implementing legislation, that is Directive 2003/124/EC, Directive 2003/125/EC, Regulation 2273/2003 and Directive 2004/72/EC). It is therefore likely to be helpful to persons who:

(1)
want to avoid engaging in market abuseor to avoid requiring or encouraging another to do so; or
(2)
want to determine whether they are required by SUP 15.10 (Reporting suspicious transactions (market abuse)) to report a transaction to the FSA as a suspicious one.

MAR 1.1.3 G 28/08/2007

The FSA's statement of policy about the imposition and amount of penalties in cases of market abuse (required by section 124 of the Act) is in DEPP 63 .

Using MAR 1

MAR 1.1.4 G 01/07/2005

(1)
Assistance in the interpretation of MAR 1 (and the remainder of the Handbook) is given in the Readers' Guide to the Handbook and in GEN 2 (Interpreting the Handbook). This includes an explanation of the status of the types of provision used (see in particular chapter six of the Readers' Guide to the Handbook).
(2)
Provisions designated with "C" indicate behaviour which conclusively, for the purposes of the Act, does not amount to market abuse (see section 122(1) of the Act ).

MAR 1.1.5 G 01/07/2005

Part VIII of the Act, and in particular section 118, specifies seven types of behaviour which can amount to market abuse . This chapter considers the general concepts relevant to market abuse, then each type of behaviour in turn and then describes exceptions to market abuse which are of general application. In doing so, it sets out the relevant provisions of the Code of Market Conduct, that is:

(1)
descriptions of behaviour that, in the opinion of the FSA, do or do not amount to market abuse (see section 119(2)(a) and (b) and section 122 of the Act);
(2)
descriptions of behaviour that are or are not accepted market practices in relation to one or more identified markets (see section 119(2)(d) and (e) and section 122(1) of the Act (subject to the behaviour being for legitimate reasons)); and
(3)
factors that, in the opinion of the FSA, are to be taken into account in determining whether or not behaviour amounts to market abuse (see section 119(2)(c) and section 122(2) of the Act ).

MAR 1.1.6 G 01/07/2005

The Code does not exhaustively describe all types of behaviour or may not amount to market abuse. In particular, the descriptions of behaviour which, in the opinion of the FSA, amount to market abuse should be read in the light of:

(1)
the elements specified by the Act as making up the relevant type of market abuse; and
(2)
any relevant descriptions of behaviour which , in the opinion of the FSA, do not amount to market abuse .

MAR 1.1.7 G 01/07/2005

Likewise, the Code does not exhaustively describe all the factors to be taken into account in determining whether behaviour amounts to market abuse. If factors are described, they are not to be taken as conclusive indications, unless specified as such, and the absence of a factor mentioned does not, of itself, amount to a contrary indication.

MAR 1.1.8 G 01/07/2005

For the avoidance of doubt, it should be noted that any reference in the Code to "profit" refers also to potential profits, avoidance of loss or potential avoidance of loss.

MAR 1.2 Market Abuse: general

MAR 1.2.1 G 01/07/2005

Provisions in this section are relevant to more than one of the types of behaviour which may amount to market abuse.

MAR 1.2.2 UK 01/07/2005

Table: section 118(1) of the Act

"For the purposes of this Act, [market abuse] is [behaviour] (whether by one person alone or by two or more persons jointly or in concert) which -
(a)	occurs in relation to:
	(i)	[qualifying investments] admitted to trading on a [prescribed market], or
	(ii)	[qualifying investments] in respect of which a request for admission to trading on such a market has been made, or
	(iii)	in the case of subsections (2) and (3), investments which are [related investments] in relation to such [qualifying investments], and
(b)	falls within any one or more of the types of [behaviour] set out in subsections (2) to (8).

MAR 1.2.3 G 01/07/2005

Section 118(1)(a) of the Act does not require the person engaging in the behaviour in question to have intended to commit market abuse.

MAR 1.2.4 G 01/07/2005

Statements in this chapter to the effect that behaviour will amount to market abuse assume that the test in section 118(1)(a) of the Act has also been met.

Prescribed markets and qualifying investments: "in relation to": factors to be taken into account

MAR 1.2.5 E 01/07/2005

In the opinion of the FSA , the following factors are to be taken into account in determining whether or not behaviour prior to a request for admission to trading or the admission to or the commencement of trading satisfies section 118(1)(a) of the Act, and are indications that it does:

(1)
if it is in relation to qualifying investments in respect of which a request for admission to trading on a prescribed market is subsequently made; and
(2)
if it continues to have an effect once an application has been made for the qualifying investment to be admitted for trading, or it has been admitted to trading on a prescribed market, respectively.

MAR 1.2.6 E 01/07/2005

In the opinion of the FSA , the following factors are to be taken into account in determining whether or not refraining from action amounts to behaviour which satisfies section 118(1)(a) of the Act and are indications that it does:

(1)
if the person concerned has failed to discharge a legal or regulatory obligation (for example to make a particular disclosure) by refraining from acting; or
(2)
if the person concerned has created a reasonable expectation of him acting in a particular manner, as a result of his representations (by word or conduct), in circumstances which give rise to a duty or obligation to inform those to whom he made the representations that they have ceased to be correct, and he has not done so.

Insiders: factors to be taken into account

MAR 1.2.7 UK 01/07/2005

Table: section 118B of the Act

"For the purposes of [market abuse] an [insider] is any person who has [inside information] -
(a)	as a result of his membership of the administrative, management or supervisory bodies of an [issuer] of [qualifying investments],
(b)	as a result of his holding in the capital of an [issuer] of [qualifying investments],
(c)	as a result of having access to the information through the exercise of his employment, profession or duties,
(d)	as a result of his criminal activities, or
(e)	which he has obtained by other means and which he knows, or could reasonably be expected to know, is [inside information]."

MAR 1.2.8 E 01/07/2005

In the opinion of the FSA , the following factors are to be taken into account in determining whether or not a person could reasonably be expected to know that information in his possession is inside information and therefore whether he is an insider under section 118B(e) of the Act, and indicate that the person is an insider:

(1)
if a normal and reasonable person in the position of the person who has inside information would know or should have known that the person from whom he received it is an insider; and
(2)
if a normal and reasonable person in the position of the person who has inside information would know or should have known that it is inside information.

MAR 1.2.9 G 01/07/2005

For the purposes of the other categories of insider specified by section 118B(a) to (d), the person concerned does not need to know that the information concerned is inside information.

Inside information: factors to be taken into account

MAR 1.2.10 UK 01/07/2005

Table: section 118C(2) and (3) of the Act

"... [inside information] is information of a precise nature which -
(a)	is not generally available; ..."

MAR 1.2.11 G 01/07/2005

The phrase "precise nature" is defined in section 118C(5) of the Act. This phrase is also relevant to section 118C(4) of the Act.

MAR 1.2.12 E 01/07/2005

In the opinion of the FSA , the following factors are to be taken into account in determining whether or not information is generally available, and are indications that it is (and therefore not inside information):

(1)
whether the information has been disclosed to a prescribed market through a regulatory information service or RIS or otherwise in accordance with the rules of that market;
(2)
whether the information is contained in records which are open to inspection by the public;
(3)
whether the information is otherwise generally available, including through the Internet, or some other publication (including if it is only available on payment of a fee), or is derived from information which has been made public;
(4)
whether the information can be obtained by observation by members of the public without infringing rights or obligations of privacy, property or confidentiality; and
(5)
the extent to which the information can be obtained by analysing or developing other information which is generally available. [Note: Recital 31 Market Abuse Directive]

MAR 1.2.13 E 01/07/2005

(1)
In relation to the factors in MAR 1.2.12E it is not relevant that the information is only generally available outside the UK.
(2)
In relation to the factors in MAR 1.2.12E (1), (3), (4) and (5) it is not relevant that the observation or analysis is only achievable by a person with above average financial resources, expertise or competence.

MAR 1.2.14 G 01/07/2005

For example, if a passenger on a train passing a burning factory calls his broker and tells him to sell shares in the factory's owner, the passenger will be acting on information which is generally available, since it is information which has been obtained by legitimate means through observation of a public event.

MAR 1.2.15 UK 01/07/2005

Table: section 118C(4) of the Act

"In relation to a person charged with the execution of orders ... [inside information] includes information conveyed by a client and related to the client's pending orders ..."

MAR 1.2.16 E 01/07/2005

In the opinion of the FSA , a factor which indicates that there is a pending order for a client is, if a person is approached by another in relation to a transaction, and:

(1)
the transaction is not immediately executed on an arm's length basis in response to a price quoted by that person; and
(2)
the person concerned has taken on a legal or regulatory obligation relating to the manner or timing of the execution of the transaction.

Inside information: commodity derivatives

MAR 1.2.17 G 01/07/2005

The Act (and the Market Abuse Directive) recognise that there are differences in the nature of information which is important to commodity derivatives markets and that which is important to other markets. In particular, inside information is limited by reference to what the market participants expect to receive information about.

MAR 1.2.18 UK 01/07/2005

Table: section 118C(3) of the Act

"In relation to [qualifying investments] or [related investments] which are commodity derivatives, [inside information] is information of a precise nature which ... (c) users of markets in which the derivatives are traded would expect to receive in accordance with any accepted market practices on those markets."

MAR 1.2.19 UK 01/07/2005

Table: section 118C(7) of the Act

"For the purposes of subsection (3)(c), users of markets on which investments in commodity derivatives are traded are to be treated as expecting to receive information ... which is -

(i) routinely made available to the users of those markets, or

(ii) required to be disclosed in accordance with any statutory provision, market rules, or contracts or customs on the relevant underlying commodity market or commodity derivatives market."

The regular user

MAR 1.2.20 G 01/07/2005

In section 118 of the Act, the regular user decides:

(1)
whether information that is not generally available would or would be likely to be relevant when deciding the terms on which transactions in qualifying investments or related investments should be effected (section 118(4)(a) of the Act); and
(2)
whether behaviour:
1. (a)
  based on information meeting the criteria in section 118(4)(a) is below the expected standard (section 118(4)(b)); or
2. (b)
  creates or is likely to create a false or misleading impression or distorts the market or (section 118(8)); or
3. (c)
  which creates or is likely to create a false or misleading impression or distorts the market is below the expected standard (section 118(8)).

MAR 1.2.21 G 01/07/2005

The regular user is a hypothetical reasonable person who regularly deals on the market and in the investments of the kind in question. The presence of the regular user imports an objective element into the elements listed in MAR 1.2.15 UK while retaining some subjective features of the markets for the investments in question.

Requiring or encouraging

MAR 1.2.22 UK 01/07/2005

Table: section 123(1)(b) of the Act

"If [the FSA ] is satisfied that a person ("A") - ...
(b) by taking or refraining from taking any action has required or encouraged another person or persons to engage in [behaviour], which if engaged in by A, would amount to [market abuse],
it may impose on him a penalty of such amount as it considers appropriate.

MAR 1.2.23 G 01/07/2005

The following are examples of behaviour that might fall within the scope of section 123(1)(b) :

(1)
a director of a company, while in possession of inside information, instructs an employee of that company to deal in qualifying investments or related investments in respect of which the information is inside information;
(2)
a person recommends or advises a friend to engage in behaviour which, if he himself engaged in it, would amount to market abuse.

MAR 1.3 Market abuse (insider dealing)

MAR 1.3.1 UK 01/07/2005

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 1.3.2 E 01/07/2005

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

(1)
dealing on the basis of inside information which is not trading information;
(2)
front running/pre-positioning - that is, a transaction for a person's own benefit, on the basis of and ahead of an order 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 price;
(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)
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 1.3.3 E 01/07/2005

In the opinion of the FSA , 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)
if the decision to deal or attempt to deal was made before the person possessed the relevant inside information; or
(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)
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 1.3.4 E 01/07/2005

In the opinion of the FSA, if the inside information is the reason for, or a material influence on, the decision to deal or attempt to deal, that indicates that the person's behaviour is "on the basis of" inside information.

MAR 1.3.5 E 01/07/2005

In the opinion of the FSA , 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 1.3.6 C 01/07/2005

A person will form an intention to buy or sell 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]

MAR 1.3.7 C 01/07/2005

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 1.3.8 G 01/07/2005

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

MAR 1.3.9 E 01/07/2005

In the opinion of the FSA , 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 1.3.10 E 01/07/2005

In the opinion of the FSA , 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)
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)
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)
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)
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 1.3.11 E 01/07/2005

In the opinion of the FSA , 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 1.3.12 C 01/07/2005

The dutiful carrying out of, or arranging for the dutiful carrying out of, an order 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]

MAR 1.3.13 G 01/07/2005

MAR 1.3.12 C applies whether or not the person carrying out the order or the person for whom he is acting 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 1.3.14 E 01/07/2005

In the opinion of the FSA , 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 1.3.15 E 01/11/2007

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

(1)
whether the person has complied with the applicable provisions of COBS 2 , or their equivalents in the relevant jurisdiction; or
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)
whether the person's behaviour was with a view to facilitating or ensuring the effective carrying out of the order; or
(4)
the extent to which the person's behaviour was reasonable by the proper standards of conduct of the market concerned and (if relevant) proportional to the risk undertaken by him; or
(5)
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.

MAR 1.3.16 G 01/07/2005

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 1.3.17 C 01/07/2005

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

MAR 1.3.18 G 01/07/2005

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

(1)
information that an offeror or potential offeror is going to make, or is considering making, an offer for the target;
(2)
information that an offeror or potential offeror may obtain through due diligence.

MAR 1.3.19 E 01/07/2005

In the opinion of the FSA , 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)
whether the transactions concerned are in the target company's shares; or
(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 1.3.20 G 01/07/2005

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

(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)
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 1.3.21 G 01/07/2005

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 1.3.22 G 01/07/2005

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 1.3.23 G 01/07/2005

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

MAR 1.4 Market abuse (improper disclosure)

MAR 1.4.1 UK 01/07/2005

Table: section 118(3) of the Act

"The second [type of behaviour] is where:

an [insider]

discloses

[inside information]

to another person

otherwise than in the proper course of the exercise of his employment, profession or duties."

Descriptions of behaviour that amount to market abuse (improper disclosure)

MAR 1.4.2 E 01/07/2005

The following behaviours are, in the opinion of the FSA, market abuse (improper disclosure):

(1)
disclosure of inside information by the director of an issuer to another in a social context; and
(2)
selective briefing of analysts by directors of issuers or others who are persons discharging managerial responsibilities.

Descriptions of behaviour that does not amount to market abuse (improper disclosure)

MAR 1.4.3 C 01/07/2005

Disclosure of inside information will not amount to market abuse (improper disclosure), if it is made:

(1)
to a government department, the Bank of England, the Competition Commission, the Takeover Panel or any other regulatory body or authority for the purposes of fulfilling a legal or regulatory obligation; or
(2)
otherwise to such a body in connection with the performance of the functions of that body.

MAR 1.4.4 C 01/07/2005

Disclosure of inside information which is required or permitted by Part 6 rules (or any similar regulatory obligation) will not amount to market abuse (improper disclosure).

Factors to be taken into account in determining whether or not behaviour amounts to market abuse (improper disclosure)

MAR 1.4.5 E 01/07/2007

In the opinion of the FSA whether the disclosure is permitted by the rules of a prescribed market , of the FSA or the Takeover Code; or, the following factors are to be taken into account in determining whether or not the disclosure was made by a person in the proper course of the exercise of his employment, profession or duties, and are indications that it was:

(1)
whether the disclosure is permitted by the rules of a prescribed market, of the FSA or the Takeover Code; or
(2)
whether the disclosure is accompanied by the imposition of confidentiality requirements upon the person to whom the disclosure is made and is:
1. (a)
  reasonable and is to enable a person to perform the proper functions of his employment, profession or duties; or
2. (b)
  reasonable and is (for example, to a professional adviser) for the purposes of facilitating or seeking or giving advice about a transaction or takeover bid; or
3. (c)
  reasonable and is for the purpose of facilitating any commercial, financial or investment transaction (including prospective underwriters or placees of securities); or
4. (d)
  reasonable and is for the purpose of obtaining a commitment or expression of support in relation to an offer which is subject to the Takeover Code; or
5. (e)
  in fulfilment of a legal obligation, including to employee representatives or trade unions acting on their behalf.
(3)
[Deleted]

Examples of market abuse (improper disclosure)

MAR 1.4.6 G 01/07/2005

The following is an exampleof market abuse (improper disclosure):

X, a director at B PLC has lunch with a friend, Y, who has no connection with B PLC or its advisers. 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.

MAR 1.4.7 G 01/07/2005

The following is an example of encouraging another to engage in market abuse (improper disclosure):

X, an analyst employed by an investment bank, telephones the finance director at B PLC and presses for details of the profit and loss account from the latest unpublished management accounts of B PLC.

MAR 1.5 Market abuse (misuse of information)

MAR 1.5.1 UK 01/07/2005

Table: section 118(4) of the Act:

"The third [type of behaviour] is where the [behaviour] (not [amounting to market abuse (insider dealing) or market abuse (improper disclosure)])-
(a)
	which is not generally available to those using the market
	but which, if available to a [regular user] of the market, would be, or would be likely to be, regarded by him as relevant when deciding the terms on which transactions in [qualifying investments] should be effected; and
(b)	is likely to be regarded by a [regular user] of the market as a failure on the part of the person concerned to observe the standard of [behaviour] reasonably expected of a person in his position in relation to the market."

Descriptions of behaviour that amount to market abuse (misuse of information)

MAR 1.5.2 E 01/07/2005

The following behaviours are, in the opinion of the FSA , market abuse (misuse of information):

(1)
dealing or arranging deals in qualifying investments based on relevant information, which is not generally available and relates to matters which a regular user would reasonably expect to be disclosed to users of the particular prescribed market, but which does not amount to market abuse (insider dealing) (whether because the dealing relates to a qualifying investment to which section 118(2) does not apply or because the relevant information is not inside information); and
(2)
a director giving relevant information, which is not generally available and relates to matters which a regular user would reasonably expect to be disclosed to users of the particular prescribed market, to another otherwise than in the proper course of the exercise of his employment or duties, in a way which does not amount to market abuse (improper disclosure) (whether because the relevant information is not inside information or for some other reason).

MAR 1.5.3 G 01/07/2005

The following behaviours are, in the opinion of the FSA , capable of amounting to market abuse (misuse of information):

(1)
dealing in a qualifying investment based on relevant information, which is not generally available and is not inside information;
(2)
behaviour, other than dealing in a qualifying investment or a related investment, that is based on relevant information which is not generally available and is not inside information; and
(3)
entering into a transaction, which is not a qualifying investment or a related investment, based on relevant information which is not generally available and is not inside information.

Factors to be taken into account: "generally available"

MAR 1.5.4 E 01/07/2005

The factors taken into account in deciding whether or not information is generally available for the purposes of the definition of inside information (see MAR 1.2.12 E - MAR 1.2.13 E) will also be relevant when considering whether or not behaviour amounts to market abuse (misuse of information).

Factors to be taken into account: "based on"

MAR 1.5.5 E 01/07/2005

The factors taken into account in deciding whether or not a person's behaviour is "on the basis of" inside information (see MAR 1.3.3 E - MAR 1.3.5 E) will also be relevant when considering whether or not behaviour is "based on" relevant information which is not generally available to those using the market.

Factors to be taken into account: "relevant information"

MAR 1.5.6 E 01/07/2005

In the opinion of the FSA , the following factors are to be taken into account in determining whether or not a regular user would regard information as relevant information, and are indications that he would:

(1)
the extent to which the information is reliable, including how near the person providing the information is, or appears to be, to the original source of that information and the reliability of that source; or
(2)
if the information differs from information which is generally available and can therefore be said to be new or fresh information; or
(3)
in the case of information relating to possible future developments which are not currently required to be disclosed but which, if they occur, will lead to a disclosure or announcement being made whether the information provides, with reasonable certainty, grounds to conclude that the possible future developments will, in fact, occur; or
(4)
if there is no other material information which is already generally available to inform users of the market.

Factors to be taken into account: standards of behaviour

MAR 1.5.7 E 06/02/2007

In the opinion of the FSA , the following factors are to be taken into account when considering whether a regular user would reasonably expect the relevant information to be disclosed to users of the particular prescribed market, or to be announced, and accordingly whether behaviour is likely to be regarded by a regular user as failing to meet the expected standard and are indications that he would:

(1)
if the relevant information has to be disclosed in accordance with any legal or regulatory requirement, such as:
1. (a)
  information which is required to be disseminated under the Takeover Code(or its2equivalent in the relevant jurisdiction) on, or in relation to, qualifying investments; or
  2 2 2
2. (b)
  information which is required to be disseminated under the Part 6 rules (or their equivalents in the relevant jurisdiction); or
3. (c)
  information required to be disclosed by an issuer under the laws, rules or regulations applying to the prescribed market on which its issued qualifying investments are traded or admitted to trading; or
(2)
if the relevant information is routinely the subject of a public announcement although not subject to any formal disclosure requirement, such as:
1. (a)
  information which is to be the subject of official announcement by governments, central monetary or fiscal authorities or a regulatory body (financial or otherwise, including exchanges); or
2. (b)
  changes to published credit ratings of issuers of qualifying investments; or
3. (c)
  changes to the constituents of a securities index, where the securities are qualifying investments; or
(3)
if behaviour is based on information relating to possible future developments, if it is reasonable to believe that the information in question will subsequently become of a type within (1) or (2).

Descriptions of behaviour that does not amount to market abuse (misuse of information)

MAR 1.5.8 G 01/07/2005

Behaviour falling within the description of behaviour which amounts to market abuse (insider dealing) or market abuse (improper disclosure) is not market abuse (misuse of information).

MAR 1.5.9 C 01/07/2005

Behaviour falling within the descriptions of behaviour that do not amount to market abuse (insider dealing) (MAR 1.3.6 C, MAR 1.3.7 C, MAR 1.3.12 C and MAR 1.3.17 C), or that would fall within those descriptions, if the references in those descriptions to inside information included a reference to relevant information, also do not amount to market abuse (misuse of information).

Examples of market abuse (misuse of information)

MAR 1.5.10 E 01/07/2005

The following behaviour may amount to market abuse (misuse of information):

(1)
X, a director at B PLC, has lunch with a friend, Y. X tells Y that his company has received a takeover offer. Y places a fixed odds bet with a bookmaker that B PLC will be the subject of a bid within a week, based on his expectation that the take over offer will be announced over the next few days.
(2)
Informal, non-contractual icing of qualifying investments by the manager of a proposed issue of convertible or exchangeable bonds, which are to be the subject of a public marketing effort, with a view to subsequent borrowing by it of those qualifying investments based on relevant information about the forthcoming issue:
1. (a)
  which is not generally available; and
2. (b)
  which a regular user would reasonably expect to be disclosed to users of the relevant prescribed market;
where this has the effect of withdrawing those qualifying investments from the lending market in order to lend it to the issue manager in such a way that other market participants are disadvantaged.
(3)
An employee of B PLC is aware of contractual negotiations between B PLC and a customer. Transactions with that customer have generated over 10% of B PLC's turnover in each of the last five financial years. The employee knows that the customer has threatened to take its business elsewhere, and that the negotiations, while ongoing, are not proceeding well. The employee, whilst being under no obligation to do so, sells his shares in B PLC based on his assessment that it is reasonably likely that the customer will take his business elsewhere.

MAR 1.6 Market abuse (manipulating transactions)

MAR 1.6.1 UK 01/07/2005

Table: section 118(5) of the Act

"The fourth [type of behaviour] ... consists of effecting transactions or orders to trade
(otherwise than for legitimate reasons and in conformity with [accepted market practices] on the relevant market)
which -
	(a)	give, or are likely to give a false or misleading impression as to the supply of, or demand for, or as to the price of one or more [qualifying investments] or
	(b)	secure the price of one or more such investments at an abnormal or artificial level."

Descriptions of behaviour that amount to market abuse (manipulating transactions): false or misleading impressions

MAR 1.6.2 E 01/07/2005

The following behaviours are, in the opinion of the FSA , market abuse (manipulating transactions) of a type involving false or misleading impressions:

(1)
buying or selling qualifying investments at the close of the market with the effect of misleading investors who act on the basis of closing prices, other than for legitimate reasons;
[Note: Article 1.2(c) Market Abuse Directive]
(2)
wash trades - that is, a sale or purchase of a qualifying investment where there is no change in beneficial interest or market risk, or where the transfer of beneficial interest or market risk is only between parties acting in concert or collusion, other than for legitimate reasons;
(3)
painting the tape - that is, entering into a series of transactions that are shown on a public display for the purpose of giving the impression of activity or price movement in a qualifying investment; and
(4)
entering orders into an electronic trading system, at prices which are higher than the previous bid or lower than the previous offer, and withdrawing them before they are executed, in order to give a misleading impression that there is demand for or supply of the qualifying investment at that price.

MAR 1.6.3 G 01/07/2005

For the avoidance of doubt a stock lending/borrowing or repo/reverse repo transaction, or another transaction involving the provision of collateral,do not constitute a wash trade under MAR 1.6.2E (2).

Descriptions of behaviour that amount to market abuse (manipulating transactions): price positioning

MAR 1.6.4 E 01/07/2005

The following behaviours are, in the opinion of the FSA , market abuse (manipulating transactions) involving securing the price of a qualifying investment:

(1)
transactions or orders to trade by a person, or persons acting in collusion, that secure a dominant position over the supply of or demand for a qualifying investment and which have the effect of fixing, directly or indirectly, purchase or sale prices or creating other unfair trading conditions, other than for legitimate reasons;
[Note: Article 1.2(c) Market Abuse Directive]
(2)
transactions where both buy and sell orders are entered at, or nearly at, the same time, with the same price and quantity by the same party, or different but colluding parties, other than for legitimate reasons, unless the transactions are legitimate trades carried out in accordance with the rules of the relevant trading platform (such as crossing trades);
(3)
entering small orders into an electronic trading system, at prices which are higher than the previous bid or lower than the previous offer, in order to move the price of the qualifying investment, other than for legitimate reasons;
(4)
an abusive squeeze - that is, a situation in which a person:
1. (a)
  has a significant influence over the supply of, or demand for, or delivery mechanisms for a qualifying investment or related investment or the underlying product of a derivative contract;
2. (b)
  has a position (directly or indirectly) in an investment under which quantities of the qualifying investment, related investment, or product in question are deliverable; and
3. (c)
  engages in behaviour with the purpose of positioning at a distorted level the price at which others have to deliver, take delivery or defer delivery to satisfy their obligations in relation to a qualifying investment (the purpose need not be the sole purpose of entering into the transaction or transactions, but must be an actuating purpose);
(5)
parties, who have been allocated qualifying investments in a primary offering, colluding to purchase further tranches of those qualifying investments when trading begins, in order to force the price of the qualifying investments to an artificial level and generate interest from other investors, and then sell the qualifying investments;
(6)
transactions or orders to trade employed so as to create obstacles to the price falling below a certain level, in order to avoid negative consequences for the issuer, for example a downgrading of its credit rating; and
(7)
trading on one market or trading platform with a view to improperly influencing the price of the same or a related qualifying investment that is traded on another prescribed market.

Factors to be taken into account: "legitimate reasons"

MAR 1.6.5 E 01/07/2005

In the opinion of the FSA the following factors are to be taken into account when considering whether behaviour is for "legitimate reasons", and are indications that it is not:

(1)
if the person has an actuating purpose behind the transaction to induce others to trade in, or to position or move the price of, a qualifying investment;
(2)
if the person has another, illegitimate, reason behind the transactions or order to trade;
[Note: Recital 20 Market Abuse Directive]
(3)
if the transaction was executed in a particular way with the purpose of creating a false or misleading impression.

MAR 1.6.6 E 01/07/2005

In the opinion of the FSA the following factors are to be taken into account when considering whether behaviour is for "legitimate reasons", and are indications that it is:

(1)
if the transaction is pursuant to a prior legal or regulatory obligation owed to a third party;
(2)
if the transaction is executed in a way which takes into account the need for the market as a whole to operate fairly and efficiently;
(3)
the extent to which the transaction generally opens a new position, so creating an exposure to market risk, rather than closes out a position and so removes market risk; and
(4)
if the transaction complied with the rules of the relevant prescribed markets about how transactions are to be executed in a proper way (for example, rules on reporting and executing cross-transactions).

MAR 1.6.7 G 01/07/2005

It is unlikely that the behaviour of market users when trading at times and in sizes most beneficial to them (whether for the purpose of long term investment objectives, risk management or short term speculation) and seeking the maximum profit from their dealings will of itself amount to distortion. Such behaviour, generally speaking, improves the liquidity and efficiency of markets.

MAR 1.6.8 G 01/07/2005

It is unlikely that prices in the market which are trading outside their normal range will necessarily be indicative that someone has engaged in behaviour with the purpose of positioning prices at a distorted level. High or low prices relative to a trading range can be the result of the proper interplay of supply and demand.

Factors to be taken into account: behaviour giving a false or misleading impression

MAR 1.6.9 E 01/07/2005

In the opinion of the FSA, the following factors are to be taken into account in determining whether or not a person's behaviour amounts to market abuse (manipulating transactions): [Note: Article 4 2003/124/EC]

(1)
the extent to which orders to trade given or transactions undertaken represent a significant proportion of the daily volume of transactions in the relevant qualifying investment on the regulated market concerned, in particular when these activities lead to a significant change in the price of the qualifying investment;
(2)
the extent to which orders to trade given or transactions undertaken by persons with a significant buying or selling position in a qualifying investment lead to significant changes in the price of the qualifying investment or related derivative or underlying asset admitted to trading on a regulated market;
(3)
whether transactions undertaken lead to no change in beneficial ownership of a qualifying investment admitted to trading on a regulated market;
(4)
the extent to which orders to trade given or transactions undertaken include position reversals in a short period and represent a significant proportion of the daily volume of transactions in the relevant qualifying investment on the regulated market concerned, and might be associated with significant changes in the price of a qualifying investment admitted to trading on a regulated market;
(5)
the extent to which orders to trade given or transactions undertaken are concentrated within a short time span in the trading session and lead to a price change which is subsequently reversed;
(6)
the extent to which orders to trade given change the representation of the best bid or offer prices in a financial instrument admitted to trading on a regulated market, or more generally the representation of the order book available to market participants, and are removed before they are executed; and
(7)
the extent to which orders to trade are given or transactions are undertaken at or around a specific time when reference prices, settlement prices and valuations are calculated and lead to price changes which have an effect on such prices and valuations.

Factors to be taken into account: behaviour securing an abnormal or artificial price level

MAR 1.6.10 E 01/07/2005

In the opinion of the FSA , the following factors are to be taken into account in determining whether or not a person's behaviour amounts to market abuse (manipulating transactions):

(1)
the extent to which the person had a direct or indirect interest in the price or value of the qualifying investment or related investment;
(2)
the extent to which price, rate or option volatility movements, and the volatility of these factors for the investment in question, are outside their normal intra-day, daily, weekly or monthly range; and
(3)
whether a person has successively and consistently increased or decreased his bid, offer or the price he has paid for a qualifying investment or related investment.

Factors to be taken into account: abusive squeezes

MAR 1.6.11 E 01/07/2005

In the opinion of the FSA , the following factors are to be taken into account when determining whether a person has engaged in an abusive squeeze:

(1)
the extent to which a person is willing to relax his control or other influence in order to help maintain an orderly market, and the price at which he is willing to do so; for example, behaviour is less likely to amount to an abusive squeeze if a person is willing to lend the investment in question;
(2)
the extent to which the person's activity causes, or risks causing, settlement default by other market users on a multilateral basis and not just a bilateral basis. The more widespread the risk of multilateral settlement default, the more likely that an abusive squeeze has been effected;
(3)
the extent to which prices under the delivery mechanisms of the market diverge from the prices for delivery of the investment or its equivalent outside those mechanisms. The greater the divergence beyond that to be reasonably expected, the more likely that an abusive squeeze has been effected; and
(4)
the extent to which the spot or immediate market compared to the forward market is unusually expensive or inexpensive or the extent to which borrowing rates are unusually expensive or inexpensive.

MAR 1.6.12 G 01/07/2005

Squeezes occur relatively frequently when the proper interaction of supply and demand leads to market tightness, but this is not of itself abusive. In addition, having a significant influence over the supply of, or demand for, or delivery mechanisms for an investment, for example, through ownership, borrowing or reserving the investment in question, is not of itself abusive.

MAR 1.6.13 G 01/07/2005

The effects of an abusive squeeze are likely to be influenced by the extent to which other market users have failed to protect their own interests or fulfil their obligations in a manner consistent with the standards of behaviour to be expected of them in that market. Market users can be expected to settle their obligations and not to put themselves in a position where, to do so, they have to rely on holders of long positions lending when they may not be inclined to do so and may be under no obligation to do so.

Descriptions of behaviour that do not amount to market abuse (manipulating transactions): accepted market practices

MAR 1.6.14 E 06/04/2006

The following are accepted by the FSA as accepted market practices for the purposes of market abuse (manipulating transactions):

(1)
The metal market aberrations regime 3 (see MAR 1 Annex 2 G).
3

Examples of market abuse (manipulating transactions)

MAR 1.6.15 E 01/07/2005

The following are examples of behaviour that may amount to market abuse (manipulating transactions):

(1)
a trader simultaneously buys and sells the same qualifying investment (that is, trades with himself) to give the appearance of a legitimate transfer of title or risk (or both) at a price outside the normal trading range for the qualifying investment . The price of the qualifying investment is relevant to the calculation of the settlement value of an option. He does this while holding a position in the option . His purpose is to position the price of the qualifying investment at a false, misleading, abnormal or artificial level, making him a profit or avoiding a loss from the option ;
(2)
a trader buys a large volume of commodity futures, which are qualifying investments, (whose price will be relevant to the calculation of the settlement value of a derivatives position he holds) just before the close of trading. His purpose is to position the price of the commodity futures at a false, misleading, abnormal or artificial level so as to make a profit from his derivatives position;
(3)
a trader holds a short position that will show a profit if a particular qualifying investment, which is currently a component of an index, falls out of that index. The question of whether the qualifying investment will fall out of the index depends on the closing price of the qualifying investment. He places a large sell order in this qualifying investment just before the close of trading. His purpose is to position the price of the qualifying investment at a false, misleading, abnormal or artificial level so that the qualifying investment will drop out of the index so as to make a profit; and
(4)
a fund manager's quarterly performance will improve if the valuation of his portfolio at the end of the quarter in question is higher rather than lower. He places a large order to buy relatively illiquid shares, which are also components of his portfolio, to be executed at or just before the close. His purpose is to position the price of the shares at a false, misleading, abnormal or artificial level.

MAR 1.6.16 E 01/07/2005

The following is an example of an abusive squeeze:

A trader with a long position in bond futures buys or borrows a large amount of the cheapest to deliver bonds and either refuses to re-lend these bonds or will only lend them to parties he believes will not re-lend to the market. His purpose is to position the price at which those with short positions have to deliver to satisfy their obligations at a materially higher level, making him a profit from his original position.

MAR 1.7 Market abuse (manipulating devices)

MAR 1.7.1 UK 01/07/2005

Table: section 118(6) of the Act

"The fifth [type of behaviour] ... consists of effecting transactions or orders to trade

which employ fictitious devices or any other form of deception or contrivance."

Descriptions of behaviour that amount to market abuse (manipulating devices)

MAR 1.7.2 E 01/07/2005

The following behaviours are, in the opinion of the FSA , market abuse (manipulating devices):

(1)
taking advantage of occasional or regular access to the traditional or electronic media by voicing an opinion about a qualifying investment (or indirectly about its issuer ) while having previously taken positions on that qualifying investment and profiting subsequently from the impact of the opinions voiced on the price of that instrument, without having simultaneously disclosed that conflict of interest to the public in a proper and effective way;
[Note: Article 1.2 Market Abuse Directive]
(2)
a transaction or series of transactions that are designed to conceal the ownership of a qualifying investment, 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. These transactions are often structured so that market risk remains with the seller. This does not include nominee holdings;
(3)
pump and dump - that is, taking a long position in a qualifying investment and then disseminating misleading positive information about the qualifying investment with a view to increasing its price;
(4)
trash and cash - that is, taking a short position in a qualifying investment and then disseminating misleading negative information about the qualifying investment, with a view to driving down its price.

Factors to be taken into account in determining whether or not behaviour amounts to market abuse (manipulating devices)

MAR 1.7.3 E 01/07/2005

In the opinion of the FSA , the following factors are to be taken into account in determining whether or not a fictitious device or other form of deception or contrivance has been used, and are indications that it has:

(1)
if orders to trade given or transactions undertaken in qualifying investments by persons are preceded or followed by dissemination of false or misleading information by the same persons or persons linked to them;
(2)
if orders to trade are given or transactions are undertaken in qualifying investments by persons before or after the same persons or persons linked to them produce or disseminate research or investment recommendations which are erroneous or biased or demonstrably influenced by material interest.
[Note: Article 5 2003/124/EC]

MAR 1.8 Market abuse (dissemination)

MAR 1.8.1 UK 01/07/2005

Table: section 118(7) of the Act

" The sixth [type of behaviour] ... consists of the dissemination of information by any means

which gives, or is likely to give, a false or misleading impression as to a [qualifying investment]

by a person who knew or could reasonably be expected to have known that the information was false or misleading."

MAR 1.8.2 UK 01/07/2005

Table: section 118A(4) of the Act

"For the purposes of section 118(7), the dissemination of information by a person acting in the capacity of a journalist

is to be assessed taking into account the codes governing their profession

unless he derives, directly or indirectly, any advantage or profits from the dissemination of the information."

Descriptions of behaviour that amount to market abuse (dissemination)

MAR 1.8.3 G 01/07/2005

The following behaviours are, in the opinion of the FSA , market abuse (dissemination):

(1)
knowingly or recklessly spreading false or misleading information about a qualifying investment through the media, including in particular through an RIS or similar information channel;
(2)
undertaking a course of conduct in order to give a false or misleading impression about a qualifying investment.

Factors to be taken into account in determining whether or not behaviour amounts to market abuse (dissemination)

MAR 1.8.4 E 01/07/2005

In the opinion of the FSA , if a normal and reasonable person would know or should have known in all the circumstances that the information was false or misleading, that indicates that the person disseminating the information knew or could reasonably be expected to have known that it was false or misleading.

MAR 1.8.5 E 01/07/2005

In the opinion of the FSA , if the individuals responsible for dissemination of information within an organisation could only know that the information was false or misleading if they had access to other information that was being held behind a Chinese wall or similarly effective arrangements, that indicates that the person disseminating did not know and could not reasonably be expected to have known that the information was false or misleading.

Examples of market abuse (dissemination)

MAR 1.8.6 G 01/07/2005

The following are examples of behaviour which may amount to market abuse (dissemination):

(1)
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 and the person knows that the information is false or misleading;
(2)
a person responsible for the content of information submitted to a regulatory information service submits information which is false or misleading as to qualifying investments and that person is reckless as to whether the information is false or misleading.

MAR 1.9 Market abuse (misleading behaviour) & market abuse (distortion)

MAR 1.9.1 E 01/07/2005

Table: section 118(8) of the Act:

"The seventh [type of behaviour] is where the [behaviour] (not [amounting to market abuse (manipulating transactions), market abuse (manipulating devices), or market abuse (dissemination)])
	(a)	is likely to give, a [regular user] of the market a false or misleading impression as to the supply of, demand for or price or value of, [qualifying investments] [market abuse (misleading behaviour)]; or
	(b)	would be, or would be to likely to be, regarded by a [regular user] of the market as [behaviour] that would distort, or would be likely to distort, the market in such an investment [market abuse (distortion)]
	and ... is likely to be regarded by a [regular user] of the market as a failure on the part of the person concerned to observe the standard of [behaviour] reasonably expected of a person in his position in relation to the market

Descriptions of behaviour that amount to market abuse (misleading behaviour) under section 118(8)(a) or market abuse (distortion) under section 118(8)(b)

MAR 1.9.2 G 01/07/2005

The following behaviours are, in the opinion of the FSA , market abuse (misleading behaviour) if they give, or are likely to give, a regular user of the market a false or misleading impression:

(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)
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.

Descriptions of behaviour that does not amount to market abuse (distortion)

MAR 1.9.3 C 06/04/2006

Behaviour that complies with the requirements imposed on long position holders in the metal market aberrations regime 2 will not amount to market abuse (distortion).

Factors to be taken into account: false or misleading impressions

MAR 1.9.4 E 01/07/2005

In the opinion of the FSA , the following factors are to be taken into account in determining whether or not behaviour is likely to give a regular user a false or misleading impression as to the supply of or the demand for or as to the price or value of one or more qualifying investments or related investments:

(1)
the experience and knowledge of the users of the market in question;
(2)
the structure of the market, including its reporting, notification and transparency requirements;
(3)
the legal and regulatory requirements of the market concerned;
(4)
the identity and position of the person responsible for the behaviour which has been observed (if known); and
(5)
the extent and nature of the visibility or disclosure of the person's activity.

Factors to be taken into account: standards of behaviour

MAR 1.9.5 E 06/10/2007

In the opinion of the FSA , the following factors are to be taken into account in determining whether or not behaviour that creates a false or misleading impression as to, or distorts the market for, a qualifying investment , has also failed to meet the standard expected by a regular user:

(1)
if the transaction is pursuant to a prior legal or regulatory obligation owed to a third party;
(2)
if the transaction is executed in a way which takes into account the need for the market as a whole to operate fairly and efficiently; or
(3)
the characteristics of the market in question, including the users and applicable rules and codes of conduct (including, if relevant, any statutory or regulatory obligation to disclose a holding or position, such as under DTR 5 ;
3
(4)
the position of the person in question and the standards reasonably to be expected of him in light of his experience, skill and knowledge;
(5)
if the transaction complied with the rules of the relevant prescribed markets about how transactions are to be executed in a proper way (for example, rules on reporting and executing cross-transactions); and
(6)
if an organisation has created a false or misleading impression, whether the individuals responsible could only know they were likely to create a false or misleading impression if they had access to other information that was being held behind a Chinese wall or similarly effective arrangements.

MAR 1.10 Statutory exceptions

Behaviour that does not amount to market abuse (general): buy-back programmes and stabilisation

MAR 1.10.1 G 01/07/2005

(1)
Behaviour which conforms with articles 3 to 6 of the Buy-back and Stabilisation Regulation (see MAR 1 Annex 1) will not amount to market abuse.
(2)
See MAR 2 in relation to stabilisation.
(3)
Buy-back programmes which are not within the scope of the Buy-back and Stabilisation Regulation are not, in themselves, market abuse.

FSA rules

MAR 1.10.2 G 01/11/2007

There are no rules which permit or require a person to behave in a way which amounts to market abuse.Some rules contain a provision to the effect that behaviour conforming with that rule does not amount to market abuse:

(1)
COB 2.4.4 R (1) (Chinese walls) (see COB 2.4.4 R (4));2the control of information rule (SYSC 10.2.2 R (1) (see SYSC 10.2.2 R (4)));2 and
(2)
those parts of the Part 6 rules which relate to the timing, dissemination or availability, content and standard of care applicable to a disclosure, announcement, communication or release of information (see in particular the Disclosure Rules and Transparency Rules).

Takeover Code1

MAR 1.10.3 G 06/02/2007

There are no rules in the Takeover Code, which permit or require a person to behave in a way which amounts to market abuse.

MAR 1.10.4 C 06/02/2007

Behaviour conforming with any of the rules of the Takeover Codeabout the timing, dissemination or availability, content and standard of care applicable to a disclosure, announcement, communication or release of information, does not, of itself, amount to market abuse, if:

(1)
the rule is one of those specified in the table in MAR 1.10.5 C;
(2)
the behaviour is expressly required or expressly permitted by the rule in question (the notes for the time being associated with the rules identified in the Takeover Code are treated as part of the relevant rule for these purposes); and
(3)
it conforms to any General Principle set out at Section B of the Takeover Code relevant to that rule.

MAR 1.10.5 C 06/02/2007

1Table: Provisions of the Takeover Code conformity with which will not, of itself, amount to market abuse (This table belongs to MAR 1.10.4C):1

Takeover Code provisions:
Disclosure of information which is not generally available	1(a) 2.1 plus notes, 2.5, 2.6, 2.9 plus notes 8 19.7 20.1, 20.2, 20.3 28.4 37.3(b) and 37.4(a)
Standards of care	2.8 first sentence and note 4 19.1, 19.5 second sentence and note 2, 19.8 23 plus notes 28.1
Timing of announcements, documentation and dealings	2.2, 2.4(b) 5.4 6.2(b) 7.1 11.1 note 6 only 17.1 21.2 30 31.6(c), 31.9 33 (in so far as it refers 31.6(c) and 31.9 only) 38.5
Content of announcements	2.4 (a) and (b) 19.31

MAR 1.10.6 C 01/07/2005

Behaviour conforming with Rule 4.2 of the Takeover Code (in relation to restrictions on dealings by offerors and concert parties) does not, of itself, amount to market abuse, if:

(1)
the behaviour is expressly required or expressly permitted by that rule (the notes for the time being associated with the rules identified in the Takeover Code are treated as part of the rule for these purposes); and
(2)
it conforms to any General Principle set out at Section B of the Takeover Code relevant to the rule.

MAR 1 Annex 1 Provisions of the Buy-back and Stabilisation Regulation relating to buy-back programmes

MAR 1 Annex 1.1 01/07/2005

1.1.1

The effect of article 8 of the Market Abuse Directive and section 118A(5)(b) of the Act is that behaviour which conforms with the buy-back provisions in the Buy-back and Stabilisation Regulation will not amount to market abuse.

1.1.2

As the Buy-back and Stabilisation Regulation is not directed at the protection of shareholder interests, issuers will also need to consult both the Companies Act 1985and the Part 6 rules for the shareholder protection requirements applying to a proposed buy-back.

1.1.3	EU	Table: Article 3 of the Buy-back and Stabilisation Regulation
		Article 3
		Objectives of buy-back programmes
		In order to benefit from the exemption provided for in Article 8 of [the Market Abuse Directive], a [buy-back programme] must comply with Articles 4, 5 and 6 of this Regulation and the sole purpose of that [buy-back programme] must be to reduce the capital of an issuer (in value or in number of shares) or to meet obligations arising from any of the following:
		(a)	debt financial instruments exchangeable into equity instruments;
		(b)	employee share option programmes or other allocations of shares to employees of the issuer or of an associate company.

1.1.4	EU	Table: Relevant Recitals (Article 3) from the Buy-back and Stabilisation Regulation
		Recital 3
		... the exemptions created by this Regulation only cover behaviour directly related to the purpose of the buy-back and stabilisation activities. Behaviour which is not directly related to the purpose of the buy-back and stabilisation activities shall therefore be considered as any other action covered by [the Market Abuse Directive] and may be the object of administrative measures or sanctions, if the competent authority establishes that the action in question constitutes market abuse.

1.1.5	EU	Table: Article 4 of the Buy-back and Stabilisation Regulation
		Article 4
		Conditions for buy-back programmes and disclosure
		1.	The [buy-back programme] must comply with the conditions laid down by Article 19(1) of [the PLC Safeguards Directive].
		2.	Prior to the start of trading, full details of the programme approved in accordance with Article 19(1) of [the PLC Safeguards Directive] must be [adequately disclosed to the public] in Member States in which an issuer has requested admission of its shares to trading on a [regulated market].
			Those details must include the objective of the programme as referred to in Article 3, the maximum consideration, the maximum number of shares to be acquired and the duration of the period for which authorisation for the programme has been given.
			Subsequent changes to the programme must be subject to [adequate public disclosure] in Member States.
		3.	The issuer must have in place the mechanisms ensuring that it fulfils trade reporting obligations to the competent authority of the [regulated market] on which the shares have been admitted to trading. These mechanisms must record each transaction related to [buy-back programmes], including the information specified in Article 20(1) of the [ISD].
		4.	The issuer must publicly disclose details of all transactions as referred to in paragraph 3 no later than the end of the seventh daily market session following the date of execution of such transactions.

1.1.6

The information specified in article 20(1) of the ISD is the names and numbers of the instruments bought or sold, the dates and times of the transactions, the transaction prices and means of identifying the investment firms concerned.

1.1.7

Article 19(1) of the PLC Safeguards Directive is implemented in Great Britain by section 166of the Companies Act 1985.

1.1.8

The FSA accepts disclosure through a regulatory information service as adequate public disclosure.

1.1.9	EU	Table: Article 5 of the Buy-back and Stabilisation Regulation
		Article 5
		Conditions for trading
		1.	In so far as prices are concerned, the issuer must not, when executing trades under a [buy-back programme], purchase shares at a price higher than the higher of the price of the last independent trade and the highest current independent bid on the trading venues where the purchase is carried out.
			If the trading venue is not a [regulated market], the price of the last independent trade or the highest current independent bid taken in reference shall be the one of the [regulated market] of the Member State in which the purchase is carried out.
			Where the issuer carries out the purchase of own shares through derivative financial instruments, the exercise price of those derivative financial instruments shall not be above the higher of the price of the last independent trade and the highest current independent bid.
		2.	In so far as volume is concerned, the issuer must not purchase more than 25% of the average daily volume of the shares in any one day on the [regulated market] on which the purchase is carried out.
			The average daily volume figure must be based on the average daily volume traded in the month preceding the month of public disclosure of that programme and fixed on that basis for the authorised period of the programme.
			Where the programme makes no reference to that volume, the average daily volume figure must be based on the average daily volume traded in the 20 trading days preceding the date of purchase.
		3.	For the purposes of paragraph 2, in cases of extreme low liquidity on the relevant market, the issuer may exceed the 25 % limit, provided that the following conditions are met:
			(a)	the issuer informs the competent authority of the relevant market, in advance, of its intention to deviate from the 25 % limit;
			(b)	the issuer [makes an adequate public disclosure of] the fact that it may deviate from the 25 % limit;
			(c)	the issuer does not exceed 50 % of the average daily volume.

1.1.10	EU	Table: Relevant recitals (Article 5) from the Buy-back and Stabilisation Regulation
		Recital 9
		In order to prevent market abuse the daily volume of trading in own shares in buy-back programmes shall be limited. However, some flexibility is necessary in order to respond to given market conditions such as a low level of transactions.
		Recital 10
		Particular attention has to be paid to the selling of own shares during the life of a [buy-back programme] to the possible existence of closed periods within issuers during which transactions are prohibited and to the fact that an issuer may have legitimate reasons to delay public disclosure of inside information.

1.1.11

Whether a case of extreme low liquidity exists for the purposes of article 5(3) will depend on the circumstance of each case. Issuers and their advisers may wish to approach the FSA and seek further individual guidance on cases that come within article 5(3).

1.1.12	EU	Table: Article 6 of the Buy-back and Stabilisation Regulation
		Article 6
		Restrictions
		1.	In order to benefit from the exemption provided by Article 8 of [the Market Abuse Directive], the issuer shall not, during its participation in a [buy-back programme], engage in the following trading:
			(a)	selling of own shares during the life of the programme;
			(b)	trading during a period which, under the law of the Member State in which trading takes place, is a closed period;
			(c)	trading where the issuer has decided to delay the public disclosure of inside information in accordance with Article 6(2) of [the Market Abuse Directive].
		2.	Paragraph 1(a) shall not apply if the issuer is an [investment firm] or [credit institution] and has established effective information barriers (Chinese Walls) subject to supervision by the competent authority, between those responsible for the handling of [inside information] related directly or indirectly to the issuer and those responsible for any decision relating to the trading of own shares (including the trading of own shares on behalf of clients), when trading in own shares on the basis of such any decision.
			Paragraphs 1(b) and (c) shall not apply if the issuer is an [investment firm] or [credit institution] and has established effective information barriers (Chinese Walls) subject to supervision by the competent authority, between those responsible for the handling of inside information related directly or indirectly to the issuer (including trading decisions under the "buy-back" programme) and those responsible for the trading of own shares on behalf of clients, when trading in own shares on behalf of those clients.
		3.	Paragraph 1 shall not apply if:
			(a)	the issuer has in place a [time-scheduled buy-back programme]; or
			(b)	the buy-back programme is lead-managed by an [investment firm] or a [credit institution] which makes its trading decisions in relation to the issuer's shares independently of, and without influence by, the issuer with regard to the timing of the purchases.

1.1.13

For the purposes of article 6(1)(b) of the Buy back and Stabilisation Regulation, a close period in the United Kingdom is the period during which purchases or early redemptions by a company of its own securities may not be made under the Part 6 Rules.

1.1.14

Article 6(2) of the Market Abuse Directive, referred to in article 6(1)(c) of the Buy-Back and Stabilisation Regulation, is implemented in the United Kingdom by the Disclosure Rules and Transparency Rules.

MAR 1 Annex 2 Accepted Market Practices

G 06/04/2006

Table: Part 1 - General
1.	G	An accepted market practice features in section 118 in the following ways:
		(1)	it is an element in deciding what is inside information in the commodity markets (and see MAR 1.2.17 G to MAR 1.2.19 UK);
		(2)	it provides a defence for market abuse (manipulating transactions).
2.	G	The FSA will take the following non-exhaustive factors into account when assessing whether to accept a particular market practice:
		(1)	the level of transparency of the relevant market practice to the whole market;
		(2)	the need to safeguard the operation of market forces and the proper interplay of the forces of supply and demand (taking into account the impact of the relevant market practice against the main market parameters, such as the specific market conditions before carrying out the relevant market practice, the weighted average price of a single session or the daily closing price);
		(3)	the degree to which the relevant market practice has an impact on market liquidity and efficiency;
		(4)	the degree to which the relevant practice takes into account the trading mechanism of the relevant market and enables market participants to react properly and in a timely manner to the new market situation created by that practice;
		(5)	the risk inherent in the relevant practice for the integrity of, directly or indirectly, related markets, whether regulated or not, in the relevant financial instrument within the whole Community;
		(6)	the outcome of any investigation of the relevant market practice by any competent authority or other authority mentioned in Article 12(1) of the Market Abuse Directive, in particular whether the relevant market practice breached rules or regulations designed to prevent market abuse, or codes of conduct, be it on the market in question or on directly or indirectly related markets within the Community; and
		(7)	the structural characteristics of the relevant market including whether it is regulated or not, the types of financial instruments traded and the type of market participants, including the extent of retail investors participation in the relevant market.

Table: Part 2 - Accepted Market Practices: Market aberrations on the London Metal Exchange
Description of the AMP:
Behaviour conforming with the metal market aberrations regime 1 . 1
Rationale for why the practice would constitute manipulation
Behaviour which gives rise to the application of the metal market aberrations regime 1 may involve transactions or orders to trade which: 1
(i)	give or are likely to give, false or misleading signals as to the supply of or demand for or price of financial instruments;1
(ii)	secure, by a person or persons acting in collaboration, the price of one or several financial instruments at an abnormal or artificial level.
List of Factors
The following factors were taken into account by the FSA when assessing behaviour conforming with the metal market aberrations regime 1 as an accepted market practice: 1
The level of transparency (to the rest of the market) of the practice in question
The metal market aberrations regime 1 has been published to the market by the Exchange on which it applies. The transparency criterion is therefore met. Those who have long positions at or above the thresholds specified in the metal market aberrations regime 1 are required to advertise to the market that they will be prepared to lend stock. 1 1
The need to safeguard the operation of market forces and the proper interplay of the forces of supply and demand
The metal market aberrations regime 1 is designed to facilitate the operation of supply and demand on the market by avoiding abusive squeezes or other circumstances which could result in or involve distortion of the market for the investment in question. 1
The impact on market liquidity and efficiency
The practice has a positive effect on market liquidity and efficiency as it facilitates the orderly operation of a market in which a participant has a dominant long position.
The degree to which the practice takes into account the trading mechanism of the relevant market and enables market participants to react properly and in a timely manner to the new market situation created by the practice
The metal market aberrations regime 1 was developed taking into account the trading mechanism of the LME. The behaviour required of long position holders under the metal market aberrations regime 1 is monitored by the LME compliance department on a daily basis using public and confidential regulatory information available to it. The LME compliance department takes into account the trading mechanism of the LME when performing this task. Procedures exist for escalating any concerns about market circumstances to a Special Committee that is able to intervene in order to enable market participants to react properly and in a timely manner to any new market situations created by the practices. 1 1
The risk inherent in the practice for the integrity of directly or indirectly related markets in the financial instrument, including any market in the financial instrument which exists on an exchange (or other trading venue) and related markets in directly related financial instruments 1
The metal market aberrations regime was1 developed to maintain the integrity of the markets in financial instruments traded in the LME. The regime has1 been shown to be an aid in maintaining the integrity of those markets. 1 1
The outcome of any investigation of the practice by any regulatory body, including the extent to which a practice breaches existing rules or regulations designed to prevent market manipulation on the market in question or on directly or indirectly related markets in the EU 1
The FSA 1 supports the metal market aberrations regime 1 and, under the previous Code of Market Conduct applying to trading on the LME, provided a safe harbour for behaviour in conformity with the metal market aberrations regime 1 . 1 1 1
The structure characteristics of the market in question including whether it is a regulated or OTC market, the type(s) of financial instrument traded on the market and the type of market participants, including the extent of retail participation in the market;
The London Metal Exchange is a commodity derivatives market which has Recognised Investment Exchange status in the UK. It is a professional market with minimal retail involvement.
Overriding Principles
The FSA 1 had regard to the following overriding principles to ensure that the metal market aberrations regime does1 not undermine market integrity, while fostering innovation and the continued dynamic development of financial markets: 1 1
?	new or emerging market practices were not be assumed to be unacceptable simply because they had not been previously described as acceptable by the FSA;
?	the need to safeguard the operation of market forces and the interplay of proper supply and demand;
?	the need for market participants to operate fairly and efficiently without interfering in normal market activity.
Conditions relating to legitimate reasons and proper execution 1
The metal market aberrations regime 1 specifies the behaviour required in the circumstances where it is triggered and conduct in conformity with the metal market aberrations regime 1 is for legitimate reasons. 1 1

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