FSA Implements Market Abuse Directive

by Robin Pilgrim, LawAndTax-News.com, London

30 March 2005

The UK's Financial Services Authority (FSA) last week revealed that it has published the final rules and guidance for implementing the Market Abuse Directive.

The Directive introduces a common EU approach for preventing and detecting market abuse and ensuring a proper flow of information to the market.

Hector Sants, Managing Director of the FSA's Wholesale Business Unit, announced that:

"The FSA has sought to ensure that the flexibility of the current market abuse regime is retained. Those activities which are offences under the current regime will continue to be offences following the Directive's implementation in July."

New measures contained in the Directive include:

• The creation of lists of persons who have access to inside information;
• Disclosure of managers' deals - persons discharging managerial responsibility on behalf of an issuer will be required to disclose details of their personal deals in the shares of the issuer and any related derivatives;
• Improved suspicious transactions reporting, whereby firms arranging transactions must report those transactions to the FSA where there is a reasonable suspicion that market abuse might have taken place;
• The introduction of an obligation for firms which produce research to disclose information about research sources and methods, and also conflicts of interest that may impact on the impartiality of the research.

According to the FSA, the UK's market abuse regime will continue to apply to all markets that are currently prescribed under the Financial Services and Markets Act, including the UK's commodity derivatives markets. It will also apply to all financial instruments admitted to trading on a regulated market, including OTC ('Over The Counter') trading in these instruments.

The new regime will also include Directive definitions of market abuse offences that differ slightly from the current regime definitions but will not affect their scope and application. These changes include:

• Misuse of Inside Information – the Directive offence defines this as the misuse of information that is "precise, non-public and likely to have a significant impact on the price of a financial instrument." The current offence of misuse of "relevant information not generally available" (RINGA), will be retained to avoid any narrowing of the current market abuse regime;
• Market Manipulation – specific Directive offences of market manipulation will be introduced, replacing the current offences of false and misleading information and market distortion. The FSA will retain an additional offence of more general behaviour that amounts to market manipulation;
• Disclosure of Inside Information - issuers must disclose inside information as soon as possible, replacing the current Chapter 9 obligations under the Listing Rules.

Recommended