Sections 118, 397 – Market Abuse

“Market manipulation is a deliberate attempt to interfere with the free and fair operation of the market and create artificial, false or misleading appearances with respect to the price of, or market for, a security, commodity or currency.” (http://en.wikipedia.org/wiki/Market_manipulation)

http://www.fca.org.uk/firms/markets/market-abuse states: “Certain types of behaviour, such as insider dealing and market manipulation, can amount to market abuse. Types of conduct constituting market abuse are set out in section 118 of the Financial Services and Markets Act 2000 and in the Market Abuse Directive.”

Financial Services and Markets Act 2000, section 118 states (http://www.legislation.gov.uk/ukpga/2000/8/section/118):

(5)The

fourth is where the behaviour consists of effecting transactions or orders to trade (otherwise than for legitimate reasons and in conformity with accepted market practices on the relevant market) which—

(a)give,

or are likely to give, a false or misleading impression as to the supply of, or demand for, or as to the price of, one or more qualifying investments, or

(b)secure the price of one or more such investments at an abnormal or artificial level.

(6)The

fifth is where the behaviour consists of effecting transactions or orders to trade which employ fictitious devices or any other form of deception or contrivance.

(7)The

sixth is where the behaviour consists of the dissemination of information by any means which gives, or is likely to give, a false or misleading impression as to a qualifying investment by a person who knew or could reasonably be expected to have known that the information was false or misleading.

(8)The seventh is where the behaviour (not falling within subsection (5), (6) or (7))—

(a)is

likely to give a regular user of the market a false or misleading impression as to the supply of, demand for or price or value of, qualifying investments, or

(b)would

be, or would be likely to be, regarded by a regular user of the market as behaviour that would distort, or would be likely to distort, the market in such an investment,

and the behaviour is likely to be regarded by a regular user of the market as a failure on the part of the person concerned to observe the standard of behaviour reasonably expected of a person in his position in relation to the market.

Section 397 makes it a criminal offense to mislead a market or investors.

In the Financial Services Act 2012, section 397 offense is replaced by section 89 (misleading statements), 90 (misleading impressions) and 91 (misleading statements and impressions in relation to benchmarks) of the new Act. (http://is.gd/xgmm7g)

Section 89 applied to a person P who “makes a statement which P knows to be false or misleading in a material respect,”, being reckless as to whether it is, or dishonestly conceals any material facts.

“Recklessness usually arises when an accused is actually aware of the potentially adverse consequences to the planned actions, but has gone ahead anyway, exposing a particular individual or unknown victim to the risk of suffering the foreseen harm but not actually desiring that the victim be hurt.” http://en.wikipedia.org/wiki/Recklessness_%28law%29 .

So advisors to companies might be on the hook if they make statements to the market. Tests can be of three types: subjective, objective, or both. An objective test would impute men rea on the basis “that a reasonable person with the same general knowledge and abilities as the accused would have had those elements”.

I’d like to think that the FCA are going to look into recent activities of some directors and their advisors.

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About mcturra2000

Computer programmer living in Scotland.
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