MAR Market Conduct

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MAR 1

The Code of Market Conduct

MAR 1.1

Application and interpretation

MAR 1.1.1

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

MAR 1.1.2

handbook-guidance

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. (1) want to avoid engaging in market abuse or to avoid requiring or encouraging another to do so; or
  2. (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

handbook-guidance
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 ENF 14.

Using MAR 1

MAR 1.1.4

handbook-guidance
  1. (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. (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

handbook-guidance

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. (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. (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. (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

handbook-guidance

The Code does not exhaustively describe all types of behaviour that may 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. (1) the elements specified by the Act as making up the relevant type of market abuse; and
  2. (2) any relevant descriptions of behaviour which, in the opinion of the FSA, do not amount to market abuse.

MAR 1.1.7

handbook-guidance
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

handbook-guidance
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

handbook-guidance
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

handbook-uk-text

Table: section 118(1) of the Act

MAR 1.2.3

handbook-guidance
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

handbook-guidance
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

handbook-evidential-provisions
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. (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. (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

handbook-evidential-provisions
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. (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. (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

handbook-uk-text

Table: section 118B of the Act

MAR 1.2.8

handbook-evidential-provisions
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. (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. (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

handbook-guidance
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

handbook-uk-text

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

MAR 1.2.11

handbook-guidance
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

handbook-evidential-provisions
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. (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. (2) whether the information is contained in records which are open to inspection by the public;
  3. (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. (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. (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

handbook-evidential-provisions
  1. (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. (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

handbook-guidance
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.
  • 01/07/2005

MAR 1.2.15

handbook-uk-text

Table: section 118C(4) of the Act

  • 01/07/2005

MAR 1.2.16

handbook-evidential-provisions
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. (1) the transaction is not immediately executed on an arm's length basis in response to a price quoted by that person; and
  2. (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

handbook-guidance
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.
  • 01/07/2005

MAR 1.2.18

handbook-uk-text

Table: section 118C(3) of the Act

  • 01/07/2005

MAR 1.2.19

handbook-uk-text

Table: section 118C(7) of the Act

  • 01/07/2005

The regular user

MAR 1.2.20

handbook-guidance

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

  1. (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. (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

handbook-guidance
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

handbook-uk-text

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

  • 01/07/2005

MAR 1.2.23

handbook-guidance

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

  1. (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. (2) a person recommends or advises a friend to engage in behaviour which, if he himself engaged in it, would amount to market abuse.
  • 01/07/2005

MAR 1.3

Market abuse (insider dealing)

MAR 1.3.1

handbook-uk-text

Table: section 118(2) of the Act

Descriptions of behaviour that amount to market abuse (insider dealing)

MAR 1.3.2

handbook-evidential-provisions
The following behaviours are, in the opinion of the FSA, market abuse (insider dealing):
  1. (1) dealing on the basis of inside information which is not trading information;
  2. (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. (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. (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

handbook-evidential-provisions
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. (1) if the decision to deal or attempt to deal was made before the person possessed the relevant inside information; or
  2. (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. (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.
  • 01/07/2005

MAR 1.3.4

handbook-evidential-provisions
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.
  • 01/07/2005

MAR 1.3.5

handbook-evidential-provisions
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.
  • 01/07/2005

Descriptions of behaviour that do not amount to market abuse (insider dealing) and relevant factors: legitimate business of market makers etc:

MAR 1.3.6

handbook-conduct
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

handbook-conduct
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]
  • 01/07/2005

MAR 1.3.8

handbook-guidance
MAR 1.3.7 C applies even if the person concerned in fact possesses trading information which is inside information.
  • 01/07/2005

MAR 1.3.9

handbook-evidential-provisions
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.
  • 01/07/2005

MAR 1.3.10

handbook-evidential-provisions
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. (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. (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. (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. (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.
  • 01/07/2005

MAR 1.3.11

handbook-evidential-provisions
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.
  • 01/07/2005

Descriptions of behaviour that do not amount to market abuse (insider dealing) and relevant factors: execution of client orders

MAR 1.3.12

handbook-conduct
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

handbook-guidance
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

handbook-evidential-provisions
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.
  • 01/07/2005

MAR 1.3.15

handbook-evidential-provisions
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. (1) whether the person has complied with the applicable provisions of COB or MAR 3, 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. (3) whether the person's behaviour was with a view to facilitating or ensuring the effective carrying out of the order; or
  4. (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. (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

handbook-guidance
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.
  • 01/07/2005

Descriptions of behaviour that do not amount to market abuse (insider dealing) and relevant factors: takeover and merger activity

MAR 1.3.17

handbook-conduct
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. (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. (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. (3) making arrangements to offer cash as consideration for the takeover or merger offer as an alternative to securities consideration.
  • 01/07/2005

MAR 1.3.18

handbook-guidance

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

  1. (1) information that an offeror or potential offeror is going to make, or is considering making, an offer for the target;
  2. (2) information that an offeror or potential offeror may obtain through due diligence.
  • 01/07/2005

MAR 1.3.19

handbook-evidential-provisions
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. (1) whether the transactions concerned are in the target company's shares; or
  2. (2) whether the transactions concerned are for the sole purpose of gaining that control or effecting that merger.
  • 01/07/2005

Examples of market abuse (insider dealing)

MAR 1.3.20

handbook-guidance

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

  1. (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. (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.
  • 01/07/2005

MAR 1.3.21

handbook-guidance
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.
  • 01/07/2005

MAR 1.3.22

handbook-guidance
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).
  • 01/07/2005

MAR 1.3.23

handbook-guidance

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. (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. (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.
  • 01/07/2005

MAR 1.4

Market abuse (improper disclosure)

MAR 1.4.1

handbook-uk-text

Table: section 118(3) of the Act

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

MAR 1.4.2

handbook-evidential-provisions
The following behaviours are, in the opinion of the FSA, market abuse (improper disclosure):
  1. (1) disclosure of inside information by the director of an issuer to another in a social context; and
  2. (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

handbook-conduct
Disclosure of inside information will not amount to market abuse (improper disclosure), if it is made:
  1. (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. (2) otherwise to such a body in connection with the performance of the functions of that body.

MAR 1.4.4

handbook-conduct
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

handbook-evidential-provisions
In the opinion of the FSA, 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. (1) whether the disclosure is permitted by the rules of a prescribed market, of the FSA or the Takeover Code; or
  2. (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. (3)

Examples of market abuse (improper disclosure)

MAR 1.4.6

handbook-guidance
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

handbook-guidance
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

handbook-uk-text

Table: section 118(4) of the Act:

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

MAR 1.5.2

handbook-evidential-provisions
The following behaviours are, in the opinion of the FSA, market abuse (misuse of information):
  1. (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. (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

handbook-guidance

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

  1. (1) dealing in a qualifying investment based on relevant information, which is not generally available and is not inside information;
  2. (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. (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

handbook-evidential-provisions
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

handbook-evidential-provisions
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

handbook-evidential-provisions
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. (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. (2) if the information differs from information which is generally available and can therefore be said to be new or fresh information; or
  3. (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. (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

handbook-evidential-provisions
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. (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 SARs(or theirequivalents in the relevant jurisdiction) on, or in relation to, qualifying investments; or
    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. (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. (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

handbook-guidance

MAR 1.5.9

handbook-conduct
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

handbook-evidential-provisions
The following behaviour may amount to market abuse (misuse of information):
  1. (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. (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;
  3. 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.
  4. (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

handbook-uk-text

Table: section 118(5) of the Act

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

MAR 1.6.2

handbook-evidential-provisions
The following behaviours are, in the opinion of the FSA, market abuse (manipulating transactions) of a type involving false or misleading impressions:
  1. (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. (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. (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. (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

handbook-guidance
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

handbook-evidential-provisions
The following behaviours are, in the opinion of the FSA, market abuse (manipulating transactions) involving securing the price of a qualifying investment:
  1. (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. (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. (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. (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. (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. (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. (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

handbook-evidential-provisions
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. (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. (2) if the person has another, illegitimate, reason behind the transactions or order to trade; [Note: Recital 20 Market Abuse Directive]
  3. (3) if the transaction was executed in a particular way with the purpose of creating a false or misleading impression.

MAR 1.6.6

handbook-evidential-provisions
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. (1) if the transaction is pursuant to a prior legal or regulatory obligation owed to a third party;
  2. (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. (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. (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

handbook-guidance
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

handbook-guidance
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

handbook-evidential-provisions
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. (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. (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. (3) whether transactions undertaken lead to no change in beneficial ownership of a qualifying investment admitted to trading on a regulated market;
  4. (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. (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. (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. (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

handbook-evidential-provisions
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. (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. (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. (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

handbook-evidential-provisions
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. (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. (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. (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. (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

handbook-guidance
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

handbook-guidance
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

handbook-evidential-provisions
The following are accepted by the FSA as accepted market practices for the purposes of market abuse (manipulating transactions):
  1. (1) The practices set out in the London Metal Exchange's document "Market Aberrations: The Way Forward" published in October 1998 which govern the behaviour expected of long position holders (see MAR 1 Annex 2 G).

Examples of market abuse (manipulating transactions)

MAR 1.6.15

handbook-evidential-provisions
The following are examples of behaviour that may amount to market abuse (manipulating transactions):
  1. (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. (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. (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. (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

handbook-evidential-provisions
The following is an example of an abusive squeeze:

  1. 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

handbook-uk-text

Table: section 118(6) of the Act

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

MAR 1.7.2

handbook-evidential-provisions
The following behaviours are, in the opinion of the FSA, market abuse (manipulating devices):
  1. (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. (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. (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. (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

handbook-evidential-provisions
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. (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. (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

handbook-uk-text

Table: section 118(7) of the Act

MAR 1.8.2

handbook-uk-text

Table: section 118A(4) of the Act

Descriptions of behaviour that amount to market abuse (dissemination)

MAR 1.8.3

handbook-evidential-provisions
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

handbook-evidential-provisions
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

handbook-evidential-provisions
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

handbook-evidential-provisions
The following are examples of behaviour which may amount to market abuse (dissemination):
  1. (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. (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

handbook-evidential-provisions

Table: section 118(8) of the Act:

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

handbook-evidential-provisions
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. (1) the movement of physical commodity stocks, which might create a misleading impression as to the supply of, or demand for, or price or value of, a commodity or the deliverable into a commodity futures contract; and
  2. (2) the movement of an empty cargo ship, which might create a false or misleading impression as to the supply of, or the demand for, or the price or value of a commodity or the deliverable into a commodity futures contract.

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

MAR 1.9.3

handbook-conduct
Behaviour that complies with the requirements imposed on long position holders in the London Metal Exchange's document "Market Aberrations: The Way Forward" published in October 1998 will not amount to market abuse (distortion).

Factors to be taken into account: false or misleading impressions

MAR 1.9.4

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

Factors to be taken into account: standards of behaviour

MAR 1.9.5

handbook-evidential-provisions
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. (1) if the transaction is pursuant to a prior legal or regulatory obligation owed to a third party;
  2. (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. (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 section 198 of the Companies Act 1985);
  4. (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. (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. (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

handbook-guidance
  1. (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. (2) See MAR 2 in relation to stabilisation.
  3. (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

handbook-guidance

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. (1) COB 2.4.4 R (1) (Chinese walls) (see COB 2.4.4 R (4)); and
  2. (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 Code and SARs

MAR 1.10.3

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

MAR 1.10.4

handbook-conduct
Behaviour conforming with any of the rules of the Takeover Code or SARs about 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. (1) the rule is one of those specified in the table in MAR 1.10.5 C;
  2. (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. (3) it conforms to any General Principle set out at Section B of the Takeover Code relevant to that rule.

MAR 1.10.5

handbook-conduct

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

MAR 1.10.6

handbook-conduct
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. (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. (2) it conforms to any General Principle set out at Section B of the Takeover Code relevant to the rule.
  • 01/07/2005

MAR 1 Annex 1

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

  • 01/12/2004

MAR 1 Annex 1.1

MAR 1 Annex 2

Accepted Market Practices

handbook-guidance

Export chapter as

MAR 2

Stabilisation

MAR 2.1

Application and Purpose

Application

MAR 2.1.1

handbook-rule
This chapter applies to every firm.

MAR 2.1.2

handbook-guidance
This chapter is available to every person who wishes to show that he acted in conformity with:
(1) the Buy-back and Stabilisation Regulation, in accordance with section 118A(5)(b) of the Act; or
(2) rules, in accordance with section 118A(5)(a) of the Act; or
(3) the price stabilising rules, for the purposes of paragraph 5(1) of Schedule 1 to the Criminal Justice Act 1993 (Insider Dealing); or
(4) the price stabilising rules, for the purposes of section 397(4) or (5)(b) of the Act (Misleading statements and practices).

MAR 2.1.3

handbook-rule

This chapter:

  1. (1) so far as it provides a defence for any person, has the same territorial application as the provision which is alleged to have been contravened: and
  2. (2) in its application to a firm for purposes other than those falling within (1), applies to the firm's business carried on from an establishment in the United Kingdom.

Purpose

MAR 2.1.4

handbook-guidance
The purpose of this chapter is to describe the extent to which stabilisation activity has the benefit of a "safe harbour" for market abuse under the Buy-back and Stabilisation Regulation (see MAR 2.2 and MAR 2.3), and to specify by rules the extent to which stabilisation activity has the benefit of a "safe harbour" for market abuse (misuse of information), market abuse (misleading behaviour) or market abuse (distortion) (see MAR 2.2 and MAR 2.4), or for the criminal offences referred to in MAR 2.1.2 G (3) and MAR 2.1.2 G (4) (MAR 2.3 - MAR 2.5).

MAR 2.1.5

handbook-guidance
Stabilisation transactions mainly have the effect of providing support for the price of an offering of relevant securities during a limited time period if they come under selling pressure, thus alleviating sales pressure generated by short term investors and maintaining an orderly market in the relevant securities. This is in the interest of those investors having subscribed or purchased those relevant securities in the context of a significant distribution, and of issuers. In this way, stabilisation can contribute to greater confidence of investors and issuers in the financial markets. [Note: Recital 11 of the Buy-back and Stabilisation Regulation]

MAR 2.1.6

handbook-guidance
Stabilisation activity may be carried out either on or off a regulated market and may be carried out by use of financial instruments other than those admitted or to be admitted to the regulated market which may influence the price of the instrument admitted or to be admitted to trading on a regulated market. [Note: Recital 12 Buy-back and Stabilisation Regulation]

MAR 2.2

Stabilisation: general

Permitted stabilisation

MAR 2.2.1

handbook-rule
Stabilisation or ancillary stabilisation may be carried out by a firm in relation to a significant distribution of securities, if:
(1) they are relevant securities that have been admitted to trading on a regulated market or a request for their admission to trading on such a market has been made, and the stabilisation is carried out in accordance with the Buy-back and Stabilisation Regulation (see MAR 2.3); or
(2) the securities are not within (1) and they:
(a) have been admitted to trading on a market, exchange or other institution included in MAR 2 Annex 1 R; or
(b) a request for their admission to trading on such a market, exchange or institution has been made; or
(c) are or may be traded under the rules of the International Securities Markets Association; and
the stabilisation or ancillary stabilisation is carried out in accordance with the provisions in MAR 2.4.

MAR 2.2.2

handbook-guidance
Relevant securities include financial instruments that become fungible after an initial period because they are substantially the same, although they have different initial dividend or interest payment rights. [Note: Recital 13 Buy-back and Stabilisation Regulation.]

Scope of stabilisation "safe harbours" for market abuse

MAR 2.2.3

handbook-rule
For the purposes of section 118A(5)(a) of the Act, behaviour (whether by a firm or not) conforming with the MAR 2.2.1R (2) does not amount to market abuse.

MAR 2.2.4

handbook-guidance
The effect of article 8 of the Market Abuse Directive and section 118A(5)(b) of the Act is that behaviour by any person which conforms with the stabilisation provisions in the Buy-back and Stabilisation Regulation (see MAR 2.3) will not amount to market abuse.

MAR 2.2.5

handbook-guidance
However, the mere fact that stabilisation does not conform with the stabilisation provisions in the Buy-back and Stabilisation Regulation (see MAR 2.3) or with) MAR 2.2.1R (2) will not of itself mean that the behaviour constitutes market abuse. [Note: Recital 2 Buy-back and Stabilisation Regulation]
  • 01/07/2005

Block trades

MAR 2.2.6

handbook-guidance
In relation to stabilisation, block trades are not considered as a significant distribution of relevant securities as they are strictly private transactions. [Note: Recital 14 Buy-back and Stabilisation Regulation]
  • 01/07/2005

Behaviour not related to stabilisation

MAR 2.2.7

handbook-guidance
On the other hand, the exemptions created by the Buy-back and Stabilisation Regulation only cover behaviour directly related to the purpose of stabilisation activities. Behaviour which is not directly related to the purpose of stabilisation activities is therefore considered in the same way as any other action covered by the Market Abuse Directive and may result in sanctions, if the competent authority establishes that the action in question constitutes market abuse. [Note: Recital 3 Buy-back and Stabilisation Regulation]
  • 01/07/2005

MAR 2.2.8

handbook-guidance
In order to avoid confusion of market participants, stabilisation activity should be carried out by taking into account the market conditions and the offering price of the relevant security and transactions to liquidate positions established as a result of stabilisation activity should be undertaken to minimise market impact having due regard to prevailing market conditions. [Note: Recital 18 Buy-back and Stabilisation Regulation]
  • 01/07/2005

Rights of action for damages

MAR 2.2.9

handbook-rule
A contravention of the rules in MAR 2 does not give rise to a right of action by a private person under section 150 of the Act (and each of those rules is specified under section 150(2) of the Act as a provision giving rise to no such right of action).
  • 01/07/2005

MAR 2.3

Stabilisation under the Buy-back and Stabilisation Regulation

Conditions for stabilisation: general

MAR 2.3.1

handbook-eu-text

Table: Article 7 of the Buy-back and Stabilisation Regulation

MAR 2.3.2

handbook-guidance
Article 8 of the Market Abuse Directive is implemented in the United Kingdom in section 118A(5)(b) of the Act.

MAR 2.3.3

handbook-rule
For the purposes of article 2(8) of the Buy-back and Stabilisation Regulation the standards of transparency of the markets, exchanges and institutions referred to in MAR 2.2.1R (2) are considered by the FSA to be adequate.

Time related conditions for stabilisation

MAR 2.3.4

handbook-eu-text

Table: Article 8 of the Buy-back and Stabilisation Regulation

Disclosure and reporting conditions for stabilisation

MAR 2.3.5

handbook-eu-text

Table: Article 9 of the Buy-back and Stabilisation Regulation

MAR 2.3.6

handbook-guidance
The FSA accepts as adequate public disclosure:
(1) disclosure through a regulatory information service or otherwise in accordance with Part 6 rules; or
(2) the equivalent disclosure mechanism required to be used in relation to the relevant regulated market.

MAR 2.3.7

handbook-guidance
Market integrity requires the adequate public disclosure of stabilisation activity by issuers or by entities undertaking stabilisation, acting or not on behalf of these issuers. Methods used for adequate public disclosure of such information should be efficient and can take into account market practices accepted by competent authorities. [Note: Recital 16 Buy-back and Stabilisation Regulation]

MAR 2.3.8

handbook-guidance
There should be adequate coordination in place between all investment firms and credit institutions undertaking stabilisation. During stabilisation, one investment firm or credit institution shall act as a central point of inquiry for any regulatory intervention by the competent authority in each Member State concerned. [Note: Recital 17 Buy-back and Stabilisation Regulation]

MAR 2.3.9

handbook-guidance
For the purposes of article 9(2) of the Buy-back and Stabilisation Regulation, the FSA is the competent authority of those markets listed as regulated markets at http://www.fsa.gov.uk/register/exchanges.do. Persons undertaking stabilisation will be taken to have notified the FSA for the purposes of article 9(2) if they email details of all their stabilisation transactions to stabilisation@fsa.gov.uk clearly identifying the offer being stabilised and the contact details for the persons undertaking the stabilisation.

Specific price conditions

MAR 2.3.10

handbook-eu-text
Table: Article 10 of the Buy-back and Stabilisation Regulation

Conditions for ancillary stabilisation

MAR 2.3.11

handbook-eu-text
Table: Article 11 of the Buy-back and Stabilisation Regulation

MAR 2.3.12

handbook-guidance
Overallotment facilities and greenshoe options are closely related to stabilisation, by providing resources and hedging for stabilisation activity. [Note: Recital 19 Buy-back and Stabilisation Regulation]
  • 01/07/2005

MAR 2.3.13

handbook-guidance
Particular attention should be paid to the exercise of an overallotment facility by an investment firm or a credit institution for the purpose of stabilisation when it results in a position uncovered by the greenshoe option. [Note: Recital 20 Buy-back and Stabilisation Regulation.]
  • 01/07/2005

MAR 2.4

Stabilisation when the Buy-back and Stabilisation Regulation does not apply

MAR 2.4.1

handbook-rule
To comply with MAR 2.2.1R (2) a firm must comply with the provisions in articles 8, 9, 10 and 11 of the Buy-back and Stabilisation Regulation (see MAR 2.3) subject to the modifications set out in the remainder of this section.

MAR 2.4.2

handbook-rule
For the purposes of the application of article 2(6) of the Buy-back and Stabilisation Regulation to this section, references to "relevant securities" are to be taken as references to securities which are within MAR 2.2.1R (2).

MAR 2.4.3

handbook-rule
For the purposes of the application of article 2(8) of the Buy-back and Stabilisation Regulation to this section, the requirement for the competent authority to agree to the standards of transparency does not apply.

MAR 2.4.4

handbook-rule
Article 8 of the Buy-back and Stabilisation Regulation is subject to the following modifications:
(1) the references to "adequate public disclosure" are to be taken as including any public announcement which provides adequate disclosure of the fact that stabilisation may take place in relation to the offer, for example:
(a) in the case of a screen-based announcement, wording such as "stabilisation/FSA"; or
(b) in the case of a final offering circular or prospectus, wording such as "In connection with this [issue][offer], [name of stabilisation manager] [or any person acting for him] may over-allot or effect transactions with a view to supporting the market price of [description of relevant securities and any associated investments] at a level higher than that which might otherwise prevail for a limited period after the issue date. However, there may be no obligation on [name of stabilisation manager] [or any agent of his] to do this. Such stabilising, if commenced, may be discontinued at any time, and must be brought to an end after a limited period."; and
(2) a person is taken to comply the requirements of article 9(1) of the Buy-back and Stabilisation Regulation for these purposes if a public announcement before the opening of the offer period indicates (in whatever terms) the fact that stabilisation may take place so long as any preliminary or final offering circular (or prospectus) contains the information specified in that article (other than information on the maximum size of any overallotment facility).

MAR 2.4.5

handbook-rule
Article 9 of the Buy-back and Stabilisation Regulation is subject to the following modifications:
(1) the references to "adequate public disclosure" are to be taken as including any public announcement which complies with MAR 2.4.4 R;
(2) article 9(2) does not apply;
(3) article 9(3) does not apply; and
(4) in article 9(4) the phrase "order or" does not apply.

MAR 2.4.6

handbook-rule
Article 10 of the Buy-back and Stabilisation Regulation is modified so that the reference to "public disclosure" is to be taken as including any public announcement which complies with MAR 2.4.4 R.

MAR 2.4.7

handbook-rule
Article 11 of the Buy-back and Stabilisation Regulation is subject to the following modifications:
(1) the reference to "disclosure to the public" is to be taken as including any public announcement which complies with MAR 2.4.4 R and
(2) article 11(b) and (d) do not apply.
  • 01/07/2005

MAR 2.5

The Price Stabilising Rules: overseas provisions

MAR 2.5.1

handbook-rule
(1) A person who in any place outside the United Kingdom acts or engages in conduct:
(a) for the purposes of stabilising the price of investments;
(b) in conformity with the provisions specified in (2), (3) or (4); and
(c) in relation to an offer which is governed by the law of a country (or a state or territory in a country) so specified;
is to be treated for the purposes of section 397(5)(b) of the Act (misleading statements and practices) as acting or engaging in conduct for that purpose and in conformity with the price stabilising rules.
(2) In relation to the United States of America, the specified provisions are:
(a) Regulation M made by the Securities and Exchange Commission (17 CFR 242, # 100-105).
(3) In relation to Japan, the specified provisions are
(a) The Securities and Exchange Law of Japan, (Law No 25, April 13 1948), Article 159, paragraphs 3 and 4;
(b) Cabinet Orders for the Enforcement of the Securities and Exchange Law of Japan (Cabinet Order 321, September 30, 1965), Articles 20 to 26;
(c) Ministerial Ordinance concerning the Registration of Stabilisation Trading (Ordinance of the Ministry of Finance No 43, June 14, 1971);
(d) Ministerial Ordinance concerning rules and otherwise governing the soundness of securities companies (Ordinance of the Ministry of Finance, No 60, November 5, 1965), Article 2.
(4) In relation to Hong Kong, the specified provisions are:
(a) The Securities and Futures (Price Stabilizing) Rules, Cap. 571 W made by the Hong Kong Securities and Futures Commission.
(5) The provisions in (2), (3) and (4) are specified as they have effect from time to time, so long as this paragraph has effect.

MAR 2.5.2

handbook-rule
A person who is treated under MAR 2.5.1R (1) as acting or engaging in conduct in conformity with the price stabilising rules is also to be treated to an equivalent extent as so acting or engaging for the purposes of:
(1) MAR 2.2.1R (2) and MAR 2.2.2 G, provided that the investments concerned are not admitted to trading on a regulated market and there has been no request for admission to trading on a regulated market;
(2) Part XIV (Disciplinary measures); and
(3) Part XXV (Injunctions and Restitution) of the Act.

MAR 2 Annex 1

List of specified exchanges (This is the list of other specified exchanges referred to in MAR 2.2.1R(2))

MAR 2 Annex 1

handbook-rule

Export chapter as

MAR 3

Inter-Professional
Conduct

MAR 3.1

Application

  • 01/12/2004

APPLICATION: WHO?

MAR 3.1.1

handbook-rule
This chapter applies to every firm except:
(1) a service company, unless the service company is an ATS operator, in which case, MAR 3.4.10 G and MAR 3.4.10A G apply to the service company in relation to the operation of the ATS;
(2) a non-directive friendly society;
(3) a non-directive insurer;
(4) a UCITS qualifier.
  • 01/04/2004

APPLICATION: WHAT?

MAR 3.1.2

handbook-rule

This chapter applies to a firm:

  1. (1) when it carries on:
    1. (a) regulated activities; or
    2. (b) related ancillary activities;
  2. (2) to the extent that the regulated activity the firm is carrying on is:
    1. (a) dealing in investments as principal; or
    2. (b) dealing in investments as agent; or
    3. (c) acting as an arranger; or
    4. (d) giving transaction-specific advice;
  3. (3) but only if the activity referred to in (1) and (2) is in or is in respect of an inter-professional investment and is undertaken with or for a market counterparty.
  • 01/12/2001

MAR 3.1.2A

handbook-rule
In MAR 3.1.2 R, the exclusion in article 15 of the Regulated Activities Order (Absence of holding out etc) is to be disregarded in determining whether dealing in investments as principal (or agreeing to do so) is a regulated activity.
  • 01/05/2003

MAR 3.1.3

handbook-rule
This chapter does not apply to the carrying on of the following activities:
(1) the approval by a firm of a financial promotion; or
(2) activities carried on between operators, or between operators and depositories, of the same collective investment scheme (when acting in that capacity); or
(3) corporate finance business;
(4) safeguarding and administering investments and agreeing to carry on that regulated activity; or
(5) concluding a distance contract with a retail customer.
  • 09/10/2004

APPLICATION: WHERE?

MAR 3.1.4

handbook-rule
This chapter applies only with respect to a firm's activities carried on from an establishment maintained by the firm in the United Kingdom.
  • 01/12/2001

RIGHTS OF ACTION FOR DAMAGES

MAR 3.1.5

handbook-rule
A contravention of the rules in MAR 3 does not give rise to a right of action by a private person under section 150 of the Act (and each of the rules in this instrument is specified under section 150(2) of the Act as a provision giving rise to no such right of action).
  • 20/09/2001

MAR 3.2

Purpose

  • 01/12/2004

MAR 3.2.1

handbook-guidance

The main objective of this chapter (MAR 3) is the maintenance of confidence in the financial system, although it is also relevant to the FSA's other regulatory objectives under the Act. However, many of its provisions relate to the conduct of bilateral dealings and it seeks to secure good market practice by firms undertaking inter-professional business in three ways:

  1. (1) by increasing certainty by explaining how the Principles apply to inter-professional business, whilst acknowledging that what is required to meet the proper standards of conduct for a firm may differ depending on whether or not the firm is dealing with a market counterparty (see PRIN 1.2.1 G(Characteristics of the client));
  2. (2) by setting out rules for inter-professional business in cases when it is not appropriate to rely on the Principles alone; and
  3. (3) by setting out the FSA's understanding of certain market practices and conventions; drawing this information together in this way will assist certainty, reduce the scope for disputes and make it easier to resolve disputes that do arise.
  • 01/12/2001

MAR 3.3

Contents and status of this chapter

  • 01/12/2004

MAR 3.3.1

handbook-guidance
MAR 3 Annex 1 G provides guidance on the scope of this chapter.
  • 01/12/2001

MAR 3.3.2

handbook-guidance
MAR 3 is not the only chapter of the Handbook that applies to firms doing inter-professional business. Firms should always consider what other parts of the Handbook may apply to them. A table listing the applicable Principles is set out in MAR 3 Annex 2 G. The table also sets out the key provisions of COB and CASS that may also apply to firms doing inter-professional business, but it should not be read as an exhaustive list. Firms should also consider the other provisions of the Handbook, especially but not exclusively ML , IPRU and PRU .

MAR 3.3.3

handbook-guidance
MAR 3 Annex 3 G is a statement of what the FSA understands to be generally regarded as good market practice and conventions in certain areas. It is not guidance on rules.
  • 01/12/2001

MAR 3.4

Standards expected of firms when undertaking inter-professional business

  • 01/12/2004

MAR 3.4.1

handbook-guidance
This section 3.4 provides guidance on the interpretation of the Principles and in particular Principle 1 (Integrity), Principle 2 (Skill, care and diligence), Principle 5 (Market conduct) and Principle 7 (Communications with clients.)
  • 01/12/2001

MAR 3.4.2

handbook-guidance
The Principles, as they apply to inter-professional business, will be interpreted on the basis that market counterparties do not need or expect the level of protection provided to private customers or intermediate customers. In many respects, inter-professional dealings are mutually self-disciplining. Market counterparties have commercial sanctions available if they consider the conduct of someone they conduct business with is unacceptable, and are responsible for their own decisions. These factors are relevant also to the FSA's interpretation of the provisions of this chapter.
  • 01/12/2001

SUITABILITY AND ADVICE

MAR 3.4.3

handbook-guidance
The Principles do not require a firm to assess the suitability of a particular transaction for its client once it has established that it is dealing with a market counterparty. For example, the firm is not obliged to ensure that the market counterparty understands the risks involved; nor is it under any duty to provide best execution or other dealing protections (but see MAR 3.4.5 G to MAR 3.4.9 G).
  • 01/12/2001

MAR 3.4.4

handbook-guidance
Similarly, a firm is not obliged to give advice to a market counterparty. The mere passing of information does not mean the firm has assumed responsibility for giving advice. Although Principle 7 (Communications with clients) requires a firm to pay due regard to the information needs of its ''clients", the only requirement of Principle 7 relating to market counterparties is that a firm must communicate information to market counterparties in a way that is not misleading. (See PRIN 3.4.1 R.)
  • 01/12/2001

COMMUNICATION OF INFORMATION

MAR 3.4.5

handbook-guidance
Principle 7 (Communications with clients) requires that a firm's communications with a marketcounterparty should not be misleading. Otherwise, for the reasons explained in MAR 3.4.4 G, Principle 7 does not apply to a firm's communications with market counterparties.
  • 01/12/2001

MAR 3.4.6

handbook-guidance
If a firm volunteers information to a market counterparty, but no formal advisory arrangement is agreed, the firm need not advise a market counterparty about the reliability, relevance or importance of that information. Silence on the part of a firm does not result in a breach of Principle 7, unless, in the circumstances, it results in a communication made by a firm being misleading.
  • 01/12/2001

MAR 3.4.7

handbook-guidance
(1) It is for a firm to decide whether it wishes to provide information to a market counterparty. If it does so the firm is not obliged to keep the market counterparty informed of any changes to the information, unless the firm has agreed to do so.
(2) Because the duties owed by a firm to a market counterparty are limited, it will frequently be the case that there will be no clash between the duties owed by the firm to the market counterparty and the firm's interests. There will in those cases be no requirement on the firm to disclose its interests.
(3) When a firm does owe a duty to a market counterparty that arises under the general law of contract (see as an example MAR 3.4.8 G) it should manage any conflict of interest. This can be achieved by the operation of internal Chinese Walls (in accordance with (Chinese Walls) COB 2.4). Otherwise, before it transacts, the firm should disclose the nature and extent of any material conflict to the market counterparty.
(4) This paragraph, MAR 3.4.7 G, is guidance on Principle 1 (Integrity) and Principle 5 (Market conduct).
  • 01/12/2001

MAR 3.4.8

handbook-guidance
The following are examples of where there may be responsibilities that potentially give rise to a duty to disclose material conflicts of interest to the market counterparty:
(1) the firm is acting as agent for the market counterparty;
(2) the firm has agreed to advise the market counterparty;
(3) the firm otherwise owes fiduciary duties to the market counterparty.
  • 01/12/2001

MAR 3.4.9

handbook-guidance
Thus, a firm acting as an arranger for a market counterparty, when the firm is an affiliated company of the other principal, should disclose that relationship to the market counterparty.
  • 01/12/2001

CLARITY OF ROLE

MAR 3.4.10

handbook-guidance
A firm should take reasonable steps to ensure that it is clear to the market counterparty whether it is acting on its own account, as agent, or as arranger before it enters into a transaction. If a firm is acting as a wholesale market broker, it should indicate what type of broker it is, for example name-passing broker or matched principal broker. This paragraph, MAR 3.4.10 G, is guidance on Principle 7 (Communications with clients).
  • 01/12/2001

MAR 3.4.10A

handbook-guidance
An ATS operator should take reasonable steps to ensure that the respective roles and responsibilities of the ATS operator and the market counterparty in relation to use of the ATS are clear to the market counterparty.
  • 01/04/2004

MAR 3.4.11

handbook-guidance
If a firm has agreed with a market counterparty to act in one capacity in a transaction, it should not then act in any other capacity in that transaction without the consent of that market counterparty. For example, if a firm bids to transact on an agency basis, it should not, without consent, execute any part of the trade against its own book.
  • 01/12/2001

MAR 3.4.12

handbook-guidance
It is not consistent with acting solely as an arranger (or name-passing broker) to take positions, even fleetingly, or act on a matched principal basis in the course of that transaction.
  • 01/12/2001

MARKETING INCENTIVES, INDUCEMENTS AND PAYMENTS IN KIND

MAR 3.4.13

handbook-guidance
MAR 3.4.14 G and MAR 3.4.16 G provide guidance on the interpretation of the Principles and in particular Principle 1 (Integrity), Principle 3 (Management and control) and Principle 5 (Market conduct) as they apply to marketing incentives, inducements and payments in kind.
  • 01/12/2001

MAR 3.4.14

handbook-guidance
A firm should take reasonable steps to ensure that it, or any person acting on its behalf, does not offer, give, solicit or accept an inducement if it is likely to conflict to a material extent with any duty which a recipient firm owes to another person. Inducement can include entertainment and soft commissions.

MAR 3.4.15

handbook-guidance
If a firm gives an inducement and the recipient, although a market counterparty, is acting on behalf of customers, the firm may be subject to the provisions of COB 2.2 (Inducements and soft commission).

MAR 3.4.16

handbook-guidance
A firm should make and implement appropriate systems, controls and policies consistent with MAR 3.4.14 G.
  • 01/12/2001

MAR 3.5

Transactions at Non-Market Prices

  • 01/12/2004

INTRODUCTION

MAR 3.5.1

handbook-guidance
A firm should not enter into a transaction which it knows to be improper, or which it ought reasonably to have realised is improper, whether on its own account or for a third party. Firms often do not have the information to be able to assess the reasons why a market counterparty is entering into a transaction, but from past experience, a good indication that the purpose may be improper is if the transaction is undertaken at a price other than at the prevailing market price. Failure to use prevailing rates or prices may result in a firm participating, whether deliberately or unknowingly, in the concealment of a profit or loss, or in the perpetration of a fraud. There may, however, be legitimate reasons for entering into transactions at non-market prices, and MAR 3.5.4 R requires that a firm take reasonable steps to check this.
  • 01/12/2001

MAR 3.5.2

handbook-guidance
Firms acting as arrangers (or name-passing brokers) have a more limited role in the transaction and MAR 3.5.4 R and MAR 3.5.7 E do not apply to them. Under Principle 1 (Integrity) and Principle 5 (Market conduct), a firm acting as arranger (or name-passing broker) should not conclude the arrangement if there is information from which it ought reasonably to conclude that the transaction is improper, whether or not it is at a non-market price. Notwithstanding their limited role, firms acting as arrangers (or name-passing brokers) as well as other firms should also comply with obligations upon them arising from ML.

MAR 3.5.3

handbook-guidance
The requirements upon firms when conducting designated investment business with or for a customer are set out in COB 7.15 (Non-market-price transactions).
  • 01/12/2001

NON-MARKET-PRICE TRANSACTIONS

MAR 3.5.4

handbook-rule
Except where MAR 3.5.6 R applies, a firm must not enter into, as agent or principal, a non-market-price transaction under which it deals in an inter-professional investment unless it has taken reasonable steps to ascertain that the transaction is not being entered into by the market counterparty for an improper purpose (see also MAR 3.5.7 E).
  • 01/12/2001

MAR 3.5.5

handbook-rule
A firm must make and retain, for a period of three years, a record of the steps it has taken under MAR 3.5.4 R, in relation to each transaction.
  • 01/12/2001

MAR 3.5.6

handbook-rule
MAR 3.5.4 R does not apply to a non-market-price transaction if it is subject to the rules of an RIE.
  • 01/12/2001

MAR 3.5.7

handbook-evidential-provisions
(1) To take reasonable steps as required by MAR 3.5.4 R a firm should:
(a) have in place procedures to enable it to identify non-market-price transactions (for guidance on this, see MAR 3.5.8 G to MAR 3.5.12 G);
(b) have in place, and approved by an individual holding a senior position with the firm, a policy and procedure for the review (to take place before the firm commits itself to that transaction) of the non-market-price transaction:
(i) by an individual holding a senior position with the firm; or
(ii) in accordance with (2);
and should follow that policy and procedure (for guidance on this, see MAR 3.5.17 G to MAR 3.5.21 G);
(c) ensure the review considers the reasons for the transaction (for guidance on this, see MAR 3.5.13 G to MAR 3.5.16 G); and
(d) check whether it has been put on notice that the transaction is for an improper purpose.
(2) A firm may have the review in (1)(b) carried out by an individual working for the firm who does not hold a senior position in the firm if:
(a) the policy and procedures established under (1) cover such reviews;
(b) that policy sets out the categories of transaction that may be reviewed in this way;
(c) the transaction falls into one of those categories;
(d) the firm can demonstrate that these categories of transactions are routinely entered into by firms and are so defined that there is a high probability that transactions coming within them will be for proper purposes;
(e) the factors defining those categories do not in substance involve any judgment of whether any purpose is improper;
(f) the policy provides for matters to be referred to a senior level in appropriate circumstances;
(g) those approving the policy are satisfied that all those who are eligible under the policy to participate in the review have the appropriate level of skills;
(h) the policy has due regard to segregation of responsibilities; and
(i) the firm keeps under review whether the categories of transaction established under (2) do have the result described in (2)(d).
(3) Compliance with (1) and, to the degree relevant, (2) may be relied on as tending to show compliance with MAR 3.5.4 R.
(4) Contravention of (1) or, to the degree relevant, (2) may be relied on as tending to show contravention of MAR 3.5.4 R.
  • 01/12/2001

WHETHER A TRANSACTION IS TO BE CONSIDERED A NON-MARKET-PRICE TRANSACTION

MAR 3.5.8

handbook-guidance
A non-market-price transaction is a transaction where:
(1) the dealing rate or price paid by the firm or its client differs from the prevailing market rate or price to a material extent; or
(2) the firm or its client otherwise gives materially more or less in value than it receives in return.
  • 01/12/2001

MAR 3.5.9

handbook-guidance
Certain types of transactions or structured transactions are undertaken at non-market rates or prices, but are not necessarily considered to be non-market-price transactions. Examples are:
(1) a transaction with more than one component, where the individual components are entered into at non-market rates or prices, so long as the sum of the whole transaction produces an overall market rate or price, for example:
(a) asset swaps, where the underlying asset is sometimes sold at a non-market price; the fixed cash flows from the asset are then passed back to the seller, also at a non-market rate; where neither the asset trade nor the swap is at a market rate, the overall transaction can be considered to be at the market price where the combination of the two components delivers this result; and
(b) other types of swaps, where one or both legs is not on the forward curve (showing implied forward rates or prices), for example when up-front or final payments are involved;
(2) the purchase and sale of out of the money options. The fact that the strike price is away from the market price is not in itself sufficient to give rise to a non-market-price transaction; other factors, such as the level of premium, must also be considered;
(3) in tax-based transactions, a tax gain or liability should be taken into account in order to determine whether it is a non-market-price transaction.
  • 01/12/2001

MAR 3.5.10

handbook-guidance
Certain circumstances may result in a transaction being undertaken at a price other than the market price, for example:
(1) the transaction is not for a marketable amount; or
(2) an order has been carried out over a period of time; or
(3) a transaction is executed outside normal market hours; or
(4) a transaction is executed in illiquid markets; or
(5) a transaction has a non-standard settlement period;
and these circumstances may be relevant in assessing whether the transaction constitutes a non-market-price transaction.
  • 01/12/2001

MAR 3.5.11

handbook-guidance
The question of whether a transaction is a non-market-price transaction is to be judged as at the time it is effected and not with hindsight.
  • 01/12/2001

MAR 3.5.12

handbook-guidance
The variation or rolling over of an existing transaction should be regarded as a new transaction for the purposes of MAR 3.5.4 R.
  • 01/12/2001

WHETHER A TRANSACTION IS TO BE CONSIDERED TO BE FOR IMPROPER PURPOSES

MAR 3.5.13

handbook-guidance

Examples of improper purposes for transactions (see MAR 3.5.4 R) include:

  1. (1) the perpetration of a fraud;
  2. (2) the disguising or concealment of the nature of a transaction or of profits, losses or cashflows;
  3. (3) transactions which amount to market abuse;
  4. (4) vulnerable transactions under the Insolvency Act 1986; and
  5. (5) "window dressing", in particular around the year end, to disguise the true financial position of the person concerned.
  • 01/12/2001

MAR 3.5.14

handbook-guidance
A transaction may be for one or more of the purposes stated in MAR 3.5.13 G yet still not be a non-market-price transaction. MAR 3.5 should not be taken as qualifying in any way obligations on firms, however these arise, regarding these transactions.
  • 01/12/2001

MAR 3.5.15

handbook-guidance
When a non-marketpricetransaction has more than one component, the assessment of whether or not the transaction is improper should be made by reference to the transaction as a whole. Although the judgment is formed with reference to the whole transaction, a firm may conclude that the rationale for one component would cause it to be in breach of MAR 3.5.4 R.
  • 01/12/2001

MAR 3.5.16

handbook-guidance
A transfer between a firm and its nominee or an intra-group transfer for risk management purposes may not be at a market price, but will often be for proper purposes. Where that is so, the firm may take part in it. However a firm should establish, and act in accordance with, a policy dealing with these transfers, and other intra-group non-market-price transactions, and be able to demonstrate that it has considered the consequences of participating in them.
  • 01/12/2001

PROCEDURES TO BE TAKEN BY A FIRM

MAR 3.5.17

handbook-guidance
The procedures a firm has in place to identify non-market-price transactions should be appropriate for the types of transaction in question, bearing in mind MAR 3.5.8 G to MAR 3.5.12 G.
  • 01/12/2001

MAR 3.5.18

handbook-guidance
When a firm proposes to enter into a non-market-price transaction, the personnel considering the transaction should:
(1) consider the justification and rationale of the other parties to the proposed transaction and whether the decision to enter into it was taken by the parties concerned at a senior level, and not by an individual trader or treasurer; and
(2) (if the transaction is approved) be satisfied that all the material terms of the non-market-price transaction (so far as they affect the firm) have been agreed before the transaction is entered into and that they are promptly recorded in accordance with MAR 3.5.7E; material terms are likely to include the amounts each counterparty is to pay and receive and whether any amounts are to be netted against or offset against any amounts due and owing under a separate transaction.
  • 01/12/2001

MAR 3.5.19

handbook-guidance
The degree of seniority referred to in MAR 3.5.7 E (1)(b) may depend on the nature of the transaction.
  • 01/12/2001

MAR 3.5.20

handbook-guidance
A firm operating an electronic matching system should consider implementing appropriate systems to identify potential non-market-price transactions. In these circumstances, it may be appropriate for such identification, and appropriate resulting action, to occur after the transaction has taken place.
  • 01/12/2001

MAR 3.5.21

handbook-guidance
A firm may take reasonable steps to ascertain its market counterparty's rationale for entering into the transaction, as set out in MAR 3.5.18 G, but still be unable to find this out. It is up to the firm, having regard to the circumstances, to decide whether it is appropriate to enter into the transaction. One relevant circumstance is whether or not the market counterparty is another firm, in which case the firm is entitled to assume that the other firm is acting properly, in the absence of any further information to the contrary.
  • 01/12/2001

MAR 3.6

Taping

  • 01/12/2004

MAR 3.6.1

handbook-guidance
(1) This section MAR 3.6 provides guidance on the interpretation of the Principles, and in particular Principle 3 (Management and control), as they apply to the capture of certain transactional information and other matters. MAR 3.6 applies only to inter-professional business and there are other requirements in the Handbook which relate to record-keeping requirements.
(2) MAR 3.6 also provides additional guidance on the record-keeping requirements of SYSC 3.2.20 R(Records).
  • 01/12/2001

MAR 3.6.2

handbook-guidance
MAR 3.6 does not apply:
(1) to a firm acting in the course of carrying on the regulated activity of establishing, operating or windingupa collective investment scheme; or
(2) to an insurer; or
(3) in respect of a transaction if the firm is subject to record-keeping requirements in COB for that transaction.
  • 01/12/2001

MAR 3.6.3

handbook-guidance
A firm should implement appropriate systems and controls with a view to ensuring that the material terms of all transactions to which it is a party, and other material information about such transactions, are promptly and accurately recorded in its books or records. The manner in which this information may be recorded include:
(1) voice recordings of transactions;
(2) voice recordings of oral confirmations;
(3) written trading logs or blotters; and
(4) automated electronic records.
  • 01/12/2001

MAR 3.6.4

handbook-guidance
A firm acting as an arranger (or name-passing broker) need record only those terms that are necessary for the transaction to be identified in its records or that are otherwise relevant to its role as arranger (or name passing broker). For example, it would not normally know the payment and settlement instructions.
  • 01/12/2001

MAR 3.6.5

handbook-guidance
A firm should be able to access all records as promptly as necessary. Records should be kept in comprehensible form or should be capable of being promptly so reproduced. The firm should make and implement appropriate procedures to avoid unauthorised alteration of its records.
  • 01/12/2001

MAR 3.6.6

handbook-guidance
If the records identified in MAR 3.6.3 G are substituted by written or electronic confirmations produced in accordance with SYSC 3.2.20 R (Records), then that confirmation may be an adequate record of the transaction.
  • 01/12/2001

MAR 3.6.7

handbook-guidance
If a transaction is agreed or arranged through an electronic trading, matching and order-routing system, then the records provided by that system may be an adequate record of the transaction.
  • 01/12/2001

MAR 3.6.8

handbook-guidance
A firm should keep under review whether, and to what extent, to make and retain voice recordings of its front and back office telephone lines used for negotiating, agreeing, arranging and confirming transactions and for the passing of payment instructions. (See also MAR 3.6.10 G.)
  • 01/12/2001

MAR 3.6.9

handbook-guidance
If a firm undertakes oral confirmations of the transactions it executes or brings about, voice recordings of these conversations can constitute an adequate record of that confirmation.
  • 01/12/2001

MAR 3.6.10

handbook-guidance
In undertaking a review under MAR 3.6.8 G, it is likely to be a relevant factor that voice recordings:
(1) provide an immediate record of all transactions and therefore may assist firms in resolving any disputes;
(2) may assist a firm to identify whether any personnel of the firm or of its market counterparty are involved in inappropriate behaviour; market counterparties may take comfort in knowing that their transactions are immediately recorded and that this provides evidence that can be relied upon; and
(3) can provide evidence of the rationale for a particular trading strategy or other aspects of inter-professional business and thereby provide protection to the firm.
  • 01/12/2001

MAR 3.6.11

handbook-guidance
A firm should make and implement policies on the length of time it keeps tapes. The FSA does not expect tapes to be kept for the full period required by the general record-keeping requirement, except where a firm relies upon voice recordings to comply with record-keeping requirements, in which case it should retain those recordings in accordance with the relevant requirements. One factor in setting that policy may be the use of tapes to assist the firm in resolving any disputes with market counterparties.
  • 01/12/2001

MAR 3.7

Firms acting as Wholesale market brokers and those undertaking transactions through them; provisions concerning brokers and arrangers generally

  • 01/12/2004

MAR 3.7.1

handbook-guidance
MAR 3.7 provides guidance on the interpretation of the Principles, and in particular Principle 5 (Market conduct), as they apply to certain responsibilities of firms acting as wholesale market brokers and of persons undertaking transactions through them. In particular, it covers the passing of names and differences.
  • 01/12/2001

MAR 3.7.2

handbook-guidance
The use of various terms for brokers and arrangers are based on the understanding that name-passing brokers are, in simple terms, what arrangers are called in certain wholesale markets. As such, the terms are virtually interchangeable and in MAR both terms have generally been used for the avoidance of doubt. Similarly, name-passing brokers and "matched principal brokers" are both subsets of wholesale market brokers. The use of the latter term is intended to reduce confusion.
  • 01/12/2001

PASSING OF NAMES

MAR 3.7.3

handbook-guidance
A firm acting as a name-passing broker should not prematurely divulge the names of the prospective counterparties to each other, for example before both sides display a serious intention to transact. However, as soon as the material terms of a transaction have been agreed, a firm acting as a name-passing broker should aim to achieve a mutual and immediate exchange of names. When a market counterparty name is unacceptable to another, it is quite proper for a firm acting as a name-passing broker not to divulge by whom the name was refused.
  • 01/12/2001

SETTLEMENT OF DIFFERENCES

MAR 3.7.4

handbook-rule
MAR 3.7.5 R to MAR 3.7.8 G apply:
(1) to a firm when it acts as a name-passing broker; and
(2) to a firm whether acting as principal or agent, when its transaction is brought about by a firm acting as a name-passing broker.
  • 01/12/2001

MAR 3.7.5

handbook-rule
(1) If a firm acting as a name-passing broker compensates a market counterparty for a difference, that difference must be settled in money (which for these purposes includes payment by discounting, reducing or rebating commission).
(2) A "difference" means (in MAR 3.7.5 R to MAR 3.7.8 G) any difference between a rate or price quoted by a firm acting as a name-passing broker and the rate or price at which the transaction is ultimately concluded.
  • 01/12/2001

MAR 3.7.6

handbook-guidance
When arranging a transaction, a name-passing broker is trying to achieve a mutual and immediate exchange of names, based on firm quotation of prices. Inevitably, for non-electronic arrangers, there will be occasions when the transaction is not completed at the original price (for instance because a firm price has been hit by another counterparty). The name-passing broker is said to have missed the original price when a market counterparty accepts a firm quote at that price, but the name-passing broker is unable to arrange for the deal to be completed at that price.
  • 01/12/2001

MAR 3.7.7

handbook-guidance
A firm acting as a name-passing broker should not ordinarily accept liability for differences and should provide its services on the basis that it does not do so. (This is because accepting liability for differences amounts to taking a position legally and economically, and the name-passing broker would not be following MAR 3.4.12 G.) A firm doing business with a name-passing broker should not, in the ordinary course, ask the latter for compensation for differences. However, once a difference has arisen, a firm acting as a name-passing broker may offer to compensate its market counterparty for some or all of the difference to preserve the relationship with the market counterparty concerned or for other legitimate commercial reasons. That compensation should be in accordance with MAR 3.7.5 R.
  • 01/12/2001

MAR 3.7.8

handbook-guidance
When a price has been missed, a firm acting as principal or agent should generally complete the transaction at the next available price through the name-passing broker that has missed the original price. To do otherwise can be prejudicial to the smooth operation of the markets. If the firm does not proceed with the transaction, it should first consider whether withdrawing would be likely to affect the market concerned, and should immediately communicate its decision to the name-passing broker. The firm should not decline to enter into the transaction at the new price if it would breach a reasonable expectation on the part of the name-passing broker that it would not do this.
  • 01/12/2001

GENERAL PROVISIONS ON WHOLESALE MARKETBROKERS AND ARRANGERS

MAR 3.7.9

handbook-guidance
Any payment for broking or arranging services rendered by a firm, other than on a matched principal basis, should be in money (which for these purposes includes payment by discounting, reducing or rebating commission) unless otherwise agreed in writing between the parties.
  • 01/12/2001

MAR 3.7.10

handbook-guidance
A firm acting as a wholesale market broker or arranger should not unfairly favour one market counterparty client over another. Treatment that would otherwise have been unfair is not unfair if the market counterparty concerned has expressly consented to it. The "client" of a wholesale market broker or arranger means (in MAR 3.7.10 G and MAR 3.7.11 G) a person for whom it is providing its services as wholesale market broker or arranger.
  • 01/12/2001

MAR 3.7.11

handbook-guidance
A firm should not place an order with a firm acting as a wholesale market broker or arranger if the main purpose is to ascertain either the identity of any client of that firm, or information about transactions into which that client may be interested in entering. For example, a firm that wishes to purchase 1000 bonds should not have a firmarrange for the purchase of 100, in order to discover the identity of a person willing to sell those bonds, and then transact with that other person direct for the other 900.
  • 01/12/2001

MAR 3.8

Codes of Practice

  • 01/12/2004

MAR 3.8.1

handbook-guidance
The FSA does not endorse individual codes of practice applying to inter-professional business (except for the Takeover Code) that are in place in some markets. It will, however, take into account the differing standards and practices operating in markets when interpreting the Principles as they apply to inter-professional business. Further, non-compliance with those codes, or of the Non-Investment Products Code in respect of certain non-authorisable activities, may raise issues such as the integrity or competence of a firm which are relevant to the threshold conditions (see COND 2.5.6 G (4)).
  • 01/12/2001

MAR 3 Annex 1

Guidance relevant to MAR 3

  • 01/12/2004

handbook-guidance
  • 01/12/2001

MAR 3 Annex 2

Principles and key COB provisions

  • 01/12/2004

handbook-guidance
  • 01/12/2001

MAR 3 Annex 3

Good market practice and conventions

  • 01/12/2004

handbook-guidance
  • 01/06/2003

Export chapter as

MAR 4

Endorsement of the Takeover Code

MAR 4.1

APPLICATION AND PURPOSE

  • 01/12/2004

Application

MAR 4.1.1

handbook-rule
This chapter applies to every firm whose permission includes, or ought to include, any designated investment business, except as set out in MAR 4.4.1 R.
  • 20/09/2001

MAR 4.1.2

handbook-guidance
MAR 4.1.1 R applies regardless of whether the firm's activity:
(1) is a regulated activity;
(2) is carried on from an office of the firm in the United Kingdom; or
(3) is in respect of a client in the United Kingdom.
  • 20/09/2001

Purpose

MAR 4.1.3

handbook-guidance
The Takeover Code and the SARs provide valuable regulation in the areas of takeovers, mergers and substantial acquisition of shares of companies. The purpose of endorsing the Takeover Code and the SARs is to provide them with statutory support. The other requirements in this chapter provide further support for the functions of the Takeover Panel.
  • 20/09/2001

MAR 4.1.4

handbook-guidance
Endorsing the Takeover Code and the SARs and imposing the other requirements in this chapter furthers the FSA's regulatory objectives, and in particular the objectives of market confidence and protection of consumers.
  • 20/09/2001

MAR 4.2

ENDORSEMENT

  • 01/12/2004

MAR 4.2.1

handbook-rule
The FSA endorses:
(1) the Takeover Code; and
(2) the SARs;
as respects the firms described in MAR 4.1.1 R.
  • 20/09/2001

MAR 4.2.2

handbook-guidance
The FSA's endorsement in MAR 4.2.1R has effect in relation to the Takeover Code and the SARs as amended from time to time. This is because the FSA has notified the Takeover Panel that it is satisfied with the Takeover Panel's consultation procedures, and not withdrawn that notification, in accordance with section 143(6) of the Act (Endorsement of codes etc.).
  • 20/09/2001

MAR 4.2.3

handbook-guidance
The effect of the FSA's endorsement in MAR 4.2.1R is that, under section 143 of the Act (Endorsement of codes etc.):
(1) at the request of the Takeover Panel, the FSA may take enforcement action against a firm which contravenes the Takeover Code or the SARs, under Part IV (Permission to Carry on Regulated Activities), Part XIII (Incoming firms: Intervention by Authority), Part XIV (Disciplinary Measures) and Part XXV (Injunctions and Restitution) of the Act (see ENF 14.10); and
(2) at the request of the Takeover Panel, the FSA may take enforcement action against an approved person under section 66(2)(b) of the Act (Disciplinary powers).
  • 20/09/2001

MAR 4.2.4

handbook-guidance
A failure to comply with a requirement imposed, or ruling given, by the Takeover Panel under the Takeover Code or the SARs has the same effect as a contravention of the Takeover Code or the SARs, under section 143(5) of the Act (Endorsement of codes etc.).
  • 20/09/2001

MAR 4.2.5

handbook-guidance
ENF 14.10 contains guidance on the FSA's exercise of its enforcement powers in this area.
  • 20/09/2001

MAR 4.3

FURTHER SUPPORT OF THE TAKEOVER PANEL'S FUNCTIONS

MAR 4.3.1

handbook-rule
A firm must not act, or continue to act, for any person in connection with a transaction to which the Takeover Code or the SARs apply (including a rule 8 transaction ) if the firm has reasonable grounds for believing that the person in question, or his principal, is not complying or is not likely to comply with the Takeover Code or the SARs.

MAR 4.3.2

handbook-guidance
(1) The Takeover Panel publishes notices regarding compliance with the Takeover Code and SARs. It may also, from time to time, name in those notices persons as persons that, in the Takeover Panel's opinion, are not likely to comply with the Takeover Code or the SARs. Any notices of this type will be available on the Takeover Panel's website (www.thetakeoverpanel.org.uk).
(2) A firm should keep itself informed of Takeover Panel notices and take them into account in seeking to comply with MAR 4.3.1 R. If the Takeover Panel were to name such a person in such a notice, the FSA would expect a firm to comply with MAR 4.3.1 R by not acting or continuing to act for that person.
(3) The FSA would not regard a firm as in breach of MAR 4.3.1 R where the Takeover Panel has indicated that it is content for the firm to act in relation to that transaction.

MAR 4.3.3

handbook-guidance
(1) Where a restriction under MAR 4.3.1 R applies, among other things the firm is prevented from carrying on any designated investment business activity, or communicating or approving any financial promotion, in connection with a transaction to which the Takeover Codeor the SARsapplies.
(2) Where a restriction under MAR 4.3.1 R applies, the firm is not prevented from carrying on other activities (including regulated activities) in relation to that person. This includes designated investment business activity which is not in connection with a transaction to which the Takeover Codeor the SARsapplies.

MAR 4.3.4

handbook-guidance
(1) Where a restriction under MAR 4.3.1 R applies, an authorised professional firm is not prevented from providing professional advice or representation in any proceedings to the person where that falls within section 327(8) of the Act. This means that the person can obtain legal advice or representation in any proceedings from a law firm and accounting advice from an accounting firm: see MAR 4.4.1 R (2).
(2) While the FSA recognises the duty of authorised professional firms to act in the best interests of their clients, the duty cannot override the provisions of the Takeover Codeor SARsso as to require the authorised professional firm to provide services in breach of, or enable breach of, the Takeover Code or SARs.

MAR 4.3.5

handbook-rule
A firm must provide to the Takeover Panel:
(1) any information and documents in its possession or under its control which the Takeover Panel requests to enable the Takeover Panel to perform its functions; and
(2) such assistance as the Takeover Panel requests and as the firm is reasonably able to provide to enable the Takeover Panel to perform its functions.
  • 20/09/2001

MAR 4.3.6

handbook-guidance
In MAR 4.3.5 R, "documents" includes information recorded in any form and, in relation to information recorded otherwise than in legible form, references to providing documents include references to producing a copy of the information in legible form.
  • 20/09/2001

MAR 4.3.7

handbook-guidance
As a result of section 413 of the Act (Limitation on powers to require documents), MAR 4.3.5 R does not require a firm or an authorised professional firm to produce, disclose or permit the inspection of protected items.
  • 20/09/2001

MAR 4.4

EXCEPTIONS

  • 01/12/2004

MAR 4.4.1

handbook-rule
This chapter is subject to the following exceptions:
(1) this chapter does not require an authorised professional firm to contravene any rule or principle of, or requirement of a published guidance note relating to, professional conduct applying generally to members of the profession regulated by its designated professional body;
(2) this chapter does not prevent an authorised professional firm from providing professional advice, that is, in accordance with section 327(8) of the Act, advice:
(a) which does not constitute carrying on a regulated activity; and
(b) the provision of which is supervised and regulated by a designated professional body;
(3) this chapter does not have effect in relation to an authorised professional firm in respect of non-mainstream regulated activity; and
(4) this chapter does not apply to:
(a) a UCITS qualifier; or
(b) an incoming EEA firm which has permission only for cross border services and which does not carry on regulated activities in the United Kingdom.
  • 20/09/2001

Export chapter as

MAR 5

Alternative Trading Systems

MAR 5.1

Application and purpose

MAR 5.1.1

handbook-guidance
This chapter is relevant to every firm that has, or intends to apply for, a Part IV permission and that:
(1) if it is a UK domestic firm, operates or proposes to operate an ATS from an establishment in the United Kingdom or elsewhere;
(2) if it is an overseas firm, operates or proposes to operate an ATS from an establishment in the United Kingdom.

MAR 5.1.2

handbook-guidance
This chapter is subject to the provisions in ECO. For example, this chapter is not relevant to an incoming ECA provider acting as such.

Purpose

MAR 5.1.3

handbook-guidance
The purpose of this chapter is to provide a framework for implementing several of the CESR ATS standards. The FSA considers that the implementation of these standards will protect consumers, promote market confidence, reduce financial crime and promote public understanding of the financial system. These standards, and therefore this chapter, do not apply to bilateral systems, which are excluded from the definition of an ATS.
  • 01/12/2004

MAR 5.2

Guidance about what constitutes an ATS

MAR 5.2.1

handbook-guidance
MAR 5.2.2 G to MAR 5.2.8 G set out guidance on the meaning of the expressions ATS and bilateral system (as defined in the Glossary). This guidance is adapted from the guidance contained in the CESR ATS standards on the meaning of "qualifying system" (which is the term equivalent to ATS used in those standards).

"System"

MAR 5.2.2

handbook-guidance
For the purposes of the definitions of an ATS and a bilateral system, a system is intended to include not only the electronic parts (if any) of a system but also any rules, protocols, procedures and agreements that make up the system. It is also intended to cover the various parts of a system whether provided directly by the ATS operator or by another person under an arrangement with the ATS operator.
  • 01/12/2004

"Price taking systems"

MAR 5.2.3

handbook-guidance
A system may be an ATS although it does not directly involve price formation. For example, a price taking system such as certain crossing systems may be an ATS.
  • 01/12/2004

"Buying and selling interests"

MAR 5.2.4

handbook-guidance
The expression buying and selling interests is intended to include not only orders, but also quotes and indications of interest.
  • 01/12/2004

"Brings together"

MAR 5.2.5

handbook-guidance
Buying and selling interests will be regarded as being brought together in the system if they are brought together under the system's rules or by means of the system's protocols or internal operating procedures. The concept of bringing together is intended to cover any process under which interests interact; this may be by automatic matching, by way of selection of interests by users themselves or otherwise. It is not necessary that the interests be displayed to users. The fact that, after interests are matched, the users must ratify a proposed transaction does not mean that the interests are not brought together in the system. However, systems such as order routing systems where interests are transmitted but do not interact are not intended to be covered by the definition of an ATS.
  • 01/12/2004

"Non-discretionary rules"

MAR 5.2.6

handbook-guidance
The reference to non-discretionary rules in the definition of an ATS is intended to exclude systems where the operator exercises discretion as to how the interests interact. However, the reference is not intended to exclude a system just because the operator has discretion as to whether or not to enter an interest into the system. It is also not intended to exclude a system just because users have discretion about whether or not to take up or accept any expression of interest.
  • 01/12/2004

Bulletin boards etc.

MAR 5.2.7

handbook-guidance
A bulletin board or similar system where users contact each other outside the system (that is, not under the system's rules and not by means of the system's protocols or internal operating procedures) to negotiate the material terms of transactions will not be covered by the definition of an ATS.
  • 01/12/2004

Bilateral system/central counterparty

MAR 5.2.8

handbook-guidance
The definition of an ATS excludes bilateral systems. The definition of bilateral system is intended to capture a system that is like an ATS except that a single person enters into one side of every transaction effected using the system. It is not however intended to cover central counterparty systems, where in substance participants deal among themselves but where their deals are assumed by the central counterparty as buyer and seller. A central counterparty will have a flat book unless there is a default or mistake, while typically the counterparty in a bilateral system will take principal positions in investments on a continuous basis. The definition of bilateral system is slightly flexible in that occasional crossings of client orders will not of itself make the system an ATS. It also includes a system where, rather than a single person, one of a number of persons in the same group enters into one side of every transaction effected using the system.
  • 01/12/2004

MAR 5.3

Notification of establishment of an ATS

Application for permission

MAR 5.3.1

handbook-guidance
A person who applies for a Part IV permission and proposes to operate an ATS will be required to complete appropriate parts of the application pack relating to the operation of an ATS(see AUTH 3.9 (Procedures in relation to applications for Part IV permission)).

Variation of permission to operate an ATS

MAR 5.3.2

handbook-guidance
If a firm that proposes to operate an ATS applies for variation of Part IV permission to carry on an additional regulated activity necessary to operate the ATS, the FSA considers that, for the purposes of SUP 6.3.20 G (Applications involving significant changes), the proposal will usually cause a significant change to the firm's business or risk profile. The FSA may therefore require the firm to complete the appropriate parts of the full application pack (see AUTH 3.9), as directed by the FSA.

Notice by firm that already has permission to operate an ATS

MAR 5.3.3

handbook-guidance
If a firm that proposes to operate an ATS already has permission to carry on the regulated activity necessary to operate the ATS, the firm should give notice of the proposal to the FSA before it begins to operate the ATS, in accordance with Principle 11 (Relations with regulators). This is because the FSA considers that this is a business expansion that could have a significant impact on the firm's risk profile or resources (see SUP 15.3.8 G). When the FSA receives notice, it may request further information from the firm such as the completion of a systems form.

Notification of significant changes to ATS

MAR 5.3.4

handbook-guidance
The FSA would also expect an ATS operator to give the FSA notice if there is any significant change to the operation of an ATS that it operates, in accordance with Principle 11 (Relations with regulators). Notice should be given as soon as reasonably practicable after the change.

MAR 5.4

Requirements to be imposed on the Part IV permission of an ATS operator

MAR 5.4.1

handbook-guidance
The FSA proposes to implement several of the CESR ATS standards by imposing requirements on the Part IV permissions of ATS operators.

MAR 5.4.2

handbook-guidance
The FSA proposes to impose the requirements on the Part IV permissions of ATS operators in a way that has regard to the principle in the CESR ATS standards that the standards should be implemented in a differentiated way, taking into account the particular risk to be addressed and each ATS's circumstances.
  • 01/12/2004

MAR 5.4.3

handbook-guidance
If a person who proposes to operate an ATS applies for a Part IV permission, the FSA will be minded to impose the requirements under section 43 of the Act (Imposition of requirements).
  • 01/12/2004

MAR 5.4.4

handbook-guidance
If a firm that proposes to operate an ATS applies for a variation of Part IV permission to carry on an additional regulated activity necessary to operate the ATS, the FSA will be minded to impose the requirements under section 44 (Variation etc. at request of authorised person) or section 45 (Variation etc. on the Authority's own initiative) of the Act.
  • 01/12/2004

MAR 5.4.5

handbook-guidance
In relation to current ATS operators, or firms proposing to operate an ATS that have permission to carry on the regulated activity necessary to operate the ATS, the FSA will be minded to impose the requirements under section 44 or 45 of the Act.
  • 01/12/2004

MAR 5.4.6

handbook-guidance
The FSA may decide not to impose particular requirements in particular cases if it is not appropriate to do so. For example, the FSA will be minded not to impose requirements for pre-trade information to be provided to users or published on ATS operators that operate price taking systems or request for quote systems. Also, it will be minded not to impose requirements for publication of post-trade information on ATS operators that operate ATS's that facilitate trading in interest-rate swaps, contractually based investments relating to currency, or debt securities other than benchmark bonds.
  • 01/12/2004

MAR 5.4.7

handbook-guidance
The FSA proposes to impose requirements for publication of pre-trade and post-trade information that are no more onerous in relation to an investment than the standard that applies under the Act or relevant national law of another State (as the case may be) to the exchange operating the underlying market for the investment.
  • 01/12/2004

MAR 5.4.8

handbook-guidance
MAR 5 Annex 1 G sets out an illustration of the form of requirements that the FSA will be minded to impose on the Part IV permission of an ATS operator. The exact form may vary to take into account the matters referred to in MAR 5.4.2 G. The FSA may also consider setting out more detail in the requirements if the FSA considers it appropriate to do so (for example, if requested to do so by an ATS operator).
  • 01/12/2004

MAR 5.5

Parts of the Handbook applicable to the operation of an ATS

MAR 5.5.1

handbook-guidance
The purpose of this section is to help prospective and actual ATS operators find their way around the Handbook by setting out which parts of it apply to them when operating an ATS.

MAR 5.5.2

handbook-guidance
The application of the Handbook to the operation of ATS's is summarised in MAR 5.5.3 G. ATS operators should read applicable parts of the Handbook to find out what the detailed regulatory requirements are for operating ATS's.
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MAR 5.5.3

handbook-guidance
Handbook provisions applicable to ATSs

MAR 5 Annex 1

Illustrative form of requirements: Alternative Trading Systems

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handbook-guidance
Fair and orderly trading
Publication of pre-trade information
Publication of post-trade information
Method of publication
Timing of publication
Monitoring of trading
Meaning of "appropriate arrangements"
Access to sufficient publicly available information
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Transitional Provisions and Schedules

MAR TP 1

Transitional Provisions

MAR TP 1.1
MAR TP 1.2

MAR Sch 1

Record Keeping requirements

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MAR Sch 1.1

handbook-guidance

MAR Sch 2

Notification requirements

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MAR Sch 2.1

handbook-guidance
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MAR Sch 3

Fees and other required payments

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MAR Sch 3.1

handbook-guidance
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MAR Sch 4

Powers Exercised

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MAR Sch 4.1

handbook-guidance
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MAR Sch 4.2

handbook-guidance

MAR Sch 5

Rights of action for damages

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MAR Sch 5.1

handbook-guidance
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MAR Sch 5.2

handbook-guidance
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MAR Sch 6

Rules that can be waived

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MAR Sch 6.1

handbook-guidance

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