MAR 3 Annex 1 Guidance relevant to MAR 3

1

This chapter, MAR 3, applies to firms in their dealings with market counterparties, as set out in MAR 3.1.2 R. When market counterparties have opted to be treated as intermediate customers under COB 4.1.7 R (Classification of another firm or an overseas financial services institution), this chapter does not apply. The requirements on firms in such circumstances are those set out in COB. MAR 3 does, however, apply to firms in their dealings with intermediate customers who have opted to be treated as market counterparties under COB 4.1.12 R (Large intermediate customer described as a market counterparty).

2

This chapter sets out the requirements upon firms in their dealings with market counterparties. The way a firm is assessed under COB 4.1 (Client classification) has no bearing on its obligations to assess its own clients.

3

The list of activities in MAR 3.1.2 R (Application: What?) is not based on types of permission. It is based on the activities of dealing , arranging and advice on investments . This means, for example, that a firm may be subject to MAR 3 if it purchases securities in the course of:

(1) operating a collective investment scheme; or

(2) acting as a life insurance company; or

(3) acting as agent for a customer;

in making that purchase This is notwithstanding that the operation of a collective investment scheme , acting as a life insurance company and acting as agent for a customer for a private customer are not activities that are covered by this chapter in their own right.

4

MAR 3 does not affect the application provisions of the Principles (see PRIN 3 (Rules about application)). The purpose of the application provisions of MAR 3, as they apply to the guidance on the Principles, is to explain in what situations MAR 3 may be used as guidance for interpreting the Principles . If MAR 3 is silent about how the Principles apply to a particular situation, the Principles still apply.

5

Principles. It is not, in general, specifically tailored for particular types of business, nor is it a comprehensive statement of how the Principles apply to inter-professional business in all situations. The guidance on the Principles in MAR 3 should be read in the light of other requirements that may be applicable in a particular case. For example, this guidance applies to on-exchange business, and does not take into account specific rules of exchanges.

6

The application provisions in MAR 3.1.2 R (Application: What?) mean that corporate finance business will normally be outside the scope of this chapter. However, firms should note that some activities, such as dealing , carried out in connection with corporate finance business, may be subject to this chapter.

7

This chapter does not apply to the approval by firms of a financial promotion (see MAR 3.1.3 R); rules and guidance relating to financial promotions are in COB 3. Most financial promotions by unauthorised persons to a market counterparty are exempt under the Financial Promotion Order , (for example, article 19 (investment professionals)) so approval should not be required. In addition, the application of COB 3 to approval of a financial promotion for communication to a market counterparty is limited (see COB 3.2.4 R (2) and COB 3.2.5 R(1) (Exemptions)).

8

The same transaction may give rise to obligations under this chapter and another sourcebook, such as COB . For example, if a firm purchases an inter-professional investment from a market counterparty on behalf of a customer , this chapter applies to the relationship between the firm and the market counterparty . COB governs the relationship between the firm and the customer .

9

In some cases, a deal carried out abroad by the firm's overseas branch or by another member of the firm's group may be subject to this chapter if the final booking is to the firm's balance sheet in the United Kingdom. In all cases, the question is whether the activity involves a firm carrying on inter-professional business from an establishment maintained by the firm in the United Kingdom. For the purposes of this discussion, booking does not include doing a deal with a counterparty and transferring it to the United Kingdom balance sheet by an intra-group back-to-back transaction. It is about putting the transaction with the market counterparty directly onto the UK balance sheet.

(1) In some cases, the transaction involves the firm and an overseas affiliate. The overseas affiliate negotiates and arranges the deal with the market counterparty abroad. However, the actual contract is between the firm in the United Kingdom and the market counterparty . It is likely that this chapter will apply to the firm . This is because the firm's entry into the contract amounts to dealing and that dealing is done from an establishment maintained by the firm in the United Kingdom.

(2) If the booking is merely an internal accounting exercise, and the transaction has no other United Kingdom connection, it is likely that this chapter will not apply. For example, the transaction may be negotiated and executed by an overseas branch of the firm but booked to the firm'sUnited Kingdom balance sheet. If the booking to the United Kingdom balance sheet is the only involvement of the firm in the United Kingdom , it is likely that this chapter will not apply to the firm . This is because, even though the firm is party to the contract and is carrying out a dealing transaction, all the dealing activity takes place at the foreign branch. A mere bookkeeping entry in the United Kingdom , not involving the counterparty in any way, does not mean that the dealing activity is carried on from an establishment maintained by the firm in the United Kingdom. It is carried on from the overseas branch.

10

The territorial application of this chapter does not modify those of any other part of the Handbook. In particular, firms should note the application of Principle 5 (Market conduct), which applies to activities which have, or might reasonably be regarded as likely to have, a negative effect on confidence in the financial system, wherever they are carried on (see PRIN 3.3.1 R).

11

Nothing in this chapter:

(1) modifies any duty owed by a firm to a private customer or intermediate customer under the provisions of any other part of the Handbook; or

(2) relieves a firm of any other obligation to which it may be subject under the general law; or

(3) should be read as qualifying or modifying the Code of Market Conduct, the Code of Practice for Approved Person or the Statement of Principle.