Glossary
Notice to readers: This is a high-level summary of some terms used on the International and EU web pages. It is no substitute for considering the actual text of the relevant directives and other legislation or taking legal advice, where appropriate.
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An accepted market practice
A practice that features in the market abuse regime in two ways:
- it is a factor in deciding what is inside information in the commodity markets; and
- it provides a defence against market manipulation where there is also a legitimate reason for the trading.
In the latter case, accepted market practices are those reasonably expected in the market in question and accepted by the FSA. In the case of a market in another EEA State, they are accepted by the competent authority of that state. Competent authorities have a duty to consult, both nationally and with other competent authorities, and to disclose any market practices they have accepted. CESR provides a forum for competent authorities to consult on these practices and also publishes accepted market practices on its website.
See MAD Article - Directive 2003/6/EC Art 1(2)(a) and Directive 2004/72/EC Articles 2 and 3
Annual Information Update
A document issuers are required to submit if they are admitted to trading on a Regulated Market. The update must consist of – or refer to – all the information the issuer has been required to file by regulators in the preceding 12 months within and outside the EU.
See PD Article 10(1)
MAD - Directive 2003/6/EC Art 1(2)(a) and Directive 2004/72/EC Articles 2 and 3
ATSs
ATS - Alternative Trading Systems. This is the description in relation to implementation of CESR ATS standards, published in July 2002.
Consolidated Admission and Reporting Directive (CARD)
CARD (2001/34/EC) deals with the admission of securities to official listing on a stock exchange and the information to be published on those securities.
Comitology
This is the term used to describe the .pre-set procedures that must be followed where the Commission is given the power in a measure of basic legislation (referred to as the parent instrument or act) to adopt delegated legislation, usually known as "implementing measures". It is a system of procedures involving supervisory committees, made up of representatives of the Member States and chaired by the Commission, whereby the Member States can exercise some degree of control over powers to adopt implementing legislation delegated to the Commission by the legislator. See, generally, Council Decision 1999/468.
Committee of European Securities Regulators (CESR)
The European Commission established CESR (in Decision 2001/527/EC of 6 June 2001). It is one of the two committees envisaged in the Lamfalussy Report. CESR is an independent committee that is made up of the heads of the securities regulators of the twenty-five Member States, plus Norway and Iceland. It acts as an advisory committee to assist the Commission, in particular in its preparation of draft implementing measures in the field of securities. It also works to ensure more consistent and timely day-to-day implementation of community legislation and to improve co-ordination between securities regulators.
CESR website - www.cesr-eu.org
Commodity Derivatives
Financial instruments (such as futures and options) whose value is based on, derived from, or determined by reference to an asset that is a commodity.
See MiFID Annex I Section C(5) and (7) and CESR's Draft Technical Advice on Possible Implementing Measures of the Directive 2004/39/EC on Markets in Financial Instruments – 2nd Set of Mandates – Consultation Paper (Ref: CESR/04-562).
Competent Authority
The national body which is (or the bodies which are) responsible, under the legal provisions of the Member States, for carrying out the obligations arising from EU legislation.
See MiFID Article 4.1.(24), TD Article 24, MAD Articles 11 and 12, PD Article 21 - sets out powers tasks.
Continuing Obligations
The on-going obligations imposed on a company that is admitted to trading on a regulated market. These include the periodic return of financial information and the requirement to keep the market informed of any price-sensitive information.
See MAD Articles 6(1), (2) and (3). TD Articles 4, 5,6,16,17 (2), and 18(2).
Debt securities/Non-equity securities
Debentures, debenture or loan stock, bonds and notes – whether secured or unsecured. Under the TD, debt securities are bonds or other forms of transferable securitised debts. The exception to this is securities that are equivalent to shares in companies, or which (if converted or if the rights conferred by them are exercised) give rise to a right to acquire shares or securities equivalent to shares.
See TD Article 2(1)(b), PD Article 2(1)(c)
Directives
In essence, a directive requires Member States to introduce its provisions via national legislation.,
"A directive shall be binding, as to the result to be achieved, upon each Member State to which it is addressed, but shall leave to the national authorities the choice of form and methods."
(Article 249 EC Treaty).
European Securities Committee (ESC)
This was established by the Commission decision of 6 June 2001 (2001/1493/EC). It acts as both an advisory body to the Commission and as a regulatory committee. It consists of representatives of Member States with the chairperson and secretariat from the European Commission. The Committee may invite technical experts or observers to take part in meetings. The ESC votes on the level 2 implementing measures submitted to it by the Commission.
Financial instrument
Examples of financial instruments include transferable securities, money-market products, units in collective schemes, options, futures and derivative contracts.
Note: Until MiFID implemented, the existing ISD1 description will apply for the MAD.
See MiFID Article 4.1(17) and Annex I Section C.
See MAD Article 1.
Financial Services Action Plan (FSAP)
The European Commission produced the Financial Services Action Plan (FSAP) Communication on 11 May 1999 [Com(1999)232] and it was endorsed by the European Council in Lisbon in March 2000. The 42 measures it recommends are the original framework for the creation of a single market in financial services in Europe. In particular, they are the framework for a single wholesale market, an open and secure market for retail financial services and state-of-the-art prudential rules and supervision. The original timeframe for completion was 2005, but this was later amended to 2003 for wholesale capital market integration.
Home country; Host country
The directives refer to home Member States and host Member States. We use home country and host country for the purposes of this summary.
Under MiFID, the starting point is that the home country relates to the location of an investment firm's or regulated market's head office or registered office. The competent authority in this jurisdiction then has responsibility for authorising that entity. In the case of investment firms, this competent authority has responsibility for ensuring compliance with any relevant MiFID standards, both for firms' local and cross-border business. The exception to this is for some branch business, where the host country competent authority (e.g. the German regulator where a UK incorporated investment firm establishes a branch in Germany) has jurisdiction for business conducted within its territory.
See MiFID Articles 4(20) & (21) and 31-33.
Under the PD and the TD, the home country is defined as the location of the registered office of the issuer. This competent authority is responsible for approving prospectuses and ensuring compliance with continuing obligation standards. However, issuers of non-equity securities of a denomination of 1,000 euros or more have a choice of home country. An issuer from outside of the EU establishes its home country as the jurisdiction in which it first makes a public offer, after the directive [comes in force]. In the context of these directives, a host country is one where the issuer has had its financial instruments admitted to trading (other than the home country). Under the PD, the host country cannot impose additional standards because the PD is a maximum harmonisation directive to allow the passport to work without restrictions. The TD is a minimum harmonisation directive, but host authorities are nevertheless prevented from imposing additional standards in some areas. (See PD Article 2(m) & (n) and TD Article 2(i) & (j))]
IAS
International Accounting Standards. These are issued by the International Accounting Standards Board and are designated International Financial Reporting Standards (IFRSs).
Inside information
Information of a precise nature that has not been made public, relating directly or indirectly to issuers of financial instruments. If it were made public, this information would be likely to have a significant effect on the prices of those financial instruments or on the price of related financial derivative instruments. It is also information that a reasonable investor would be likely to use as part of the basis for their investment decisions.
The case is different for commodity derivatives. Inside information is what users of the markets where such derivatives are traded would expect to receive in accordance with accepted market practices on those markets.
See MAD Article - Directive 2003/6/EC Article 1(1), Directive 2003/124/EC Article 1 and Directive 2004/72/EC Art 4
Insiders' Lists
Lists maintained by issuers and their advisers that include details of persons acting on their behalf, who may have access to inside information.
See MAD Article - Directive 2003/6/EC Article 6(3) and Directive 2004/72/EC Article 5
Issuer
Generally, the company that has issued securities for trading on an EU regulated market. It is defined under the TD as a legal entity governed by private or public law (including a State) whose securities are admitted to trading on a regulated market. In the case of depository receipts representing securities, the issuer must have issued the securities represented.
See TD Article 2(1)(d)
Lamfalussy Report
The Final Report of the Committee of Wise Men on the Regulation of European Securities Markets is known as the Lamfalussy report. It proposes a four-level approach to European securities legislation.
Level One
The Commission proposes a directive or regulation after a full consultation process. Framework principles and descriptions of implementing powers are contained in the legislation adopted by the European Parliament and the Council.
Level Two
After consulting the ESC, the Commission requests advice from CESR on technical implementing measures that will implement level one's framework provisions. CESR prepares measures in consultation with stakeholders and sends it to the Commission. The Commission examines the measures and makes proposals to the European Securities Committee, which then votes on the proposal.
Level Three
The supervisory convergence of regulatory practice to ensure that there is consistent implementation and application of legislation across Europe. CESR works on joint interpretation recommendations, consistent guidelines and common standards (in areas not covered by EU legislation), peer review, and compares regulatory practice to ensure consistent implementation and application..
Level Four
The enforcement stage. The Commission checks Member States' compliance with EU legislation and may take action against those in breach.
Listing Rules
The FSA rules made under CARD and Part VI of the FSMA.
Managers' Deals
These are deals in the financial instruments of an issuer by those persons discharging managerial responsibility. Such managers are typically:
- the directors of the issuer; and
- senior executives who are not directors, but who have regular access to inside information about the issuer and the power to make managerial decisions concerning the issuer.
Managers are required to disclose details of all relevant deals to the issuer. These details can then be disclosed to the market through a regulatory information service.
See MAD Article - Directive 2003/6/EC Article 6(4) and Directive 2004/72/EC Article 6
Market Manipulation
Market Manipulation is a market abuse offence comprising three strands. The first of these is entering into transactions or orders to trade that:
(a) give a false or misleading impression of the supply of, demand for, or price of a qualifying investment; or
(b) secure the price of such an investment at an abnormal level.
The second is entering into transactions or orders to trade that employ fictitious devices or any other form of deception or contrivance. The third is disseminating information to give a false or misleading signal about a financial instrument.
See MAD Article - Directive 2003/6/EC Art 2 and Directive 2003/124/EC Articles 4 and 5
MTF
See MiFID Article 4.1(15) and Recital 6.
In broad terms, a Multilateral Trading Facility is a system that brings together multiple parties (e.g. retail investors or other investment firms) that are interested in buying and selling financial instruments and enables them to do so. These systems can be crossing networks or matching engines that are operated by an investment firm or a market operator. Instruments may include shares, bonds and derivatives. This is done within the MTF operator's system. The MTF operator is required to allow the interests of the buyers and sellers to interact, so that trades come about without unfairly intervening in the interaction of the interests. The description of MTF excludes bilateral systems where an investment firm enters into one side of a transaction effected using the system. It does this on its own account and not as a riskless counterparty between the buyer and the seller.
Passport
A term describing the right to conduct financial services across the EU based on a single authorisation or approval. Firms authorised in one Member State acquire passporting rights enabling them to establish branches in other Member States (see Articles 31 and 32 MiFID). Issuers have their prospectus approved by their home competent authority in one member state and are then allowed to "passport in" to any of the other 24 member states, using that prospectus to raise capital in those states without further approvals.
Qualified Investor
Persons that may be issued with securities without the need for an FSA-approved prospectus usually because they are knowledgeable in financial matters. These include:
legal entities that are authorised or regulated to operate in financial markets, including: credit institutions, insurance companies and pension funds;
national and regional governments, central banks and public international bodies; and
small and medium-sized enterprises and individuals who are authorised by the FSA.
See PD Article 2(1)(e)
Registration Document
A part of the three-part prospectus, the registration document contains information about the issuer. With the Securities Note and Summary, it forms a valid prospectus.
See PD Article 5(3)
Regulated Market
A market place, trading system or exchange which meets the minimum EU standards set out in title III of the MiFID. Under MiFID, entities that offer multilateral trading for financial instruments (such as an order book), must be organised as either a regulated market or an MTF, with slightly different standards applying to each. "Regulated market" is, however, the core concept across the FSAP directives for securities markets: admission to trading on a regulated market triggers prospectus obligations under the PD, disclosure and accounting obligations under the TD and market abuse obligations under the MAD.
See MiFID Article 4(14) and Recital 6. (The description in MAD Article 1.4 refers to the ISD description of a regulated market.)
Regulations
In contrast to directives, regulations do not have to be transposed separately into national legislation.
"A regulation shall have general application. It shall be binding in its entirety and directly applicable in all Member States"
(Article 249 EC Treaty).
Research Recommendation
In the context of the MAD, this is research or other information recommending an investment strategy concerning financial instruments. This includes opinions on the present or future value or price of such a financial instrument, which is intended for distribution channels or for the public.
See MAD Article - Directive 2003/6/EC Article 6(5) and Directive 2003/125/EC Article 1(3) and 1(4)
Share Buy-backs
These occur where an issuer enters into a programme to purchase its own securities - either to reduce its capital or to meet obligations arising from:
- debt financial instruments exchangeable into equity instruments; or
- employee share option programmes or other allocations of shares to employees of the issuer or of an associate company.
See MAD Article - Directive 2003/6/EC Article 8 and Commission Regulation (EC) No 2273/2003 Article 2(3) and 2(4)
Securities Note
A part of the three-part prospectus an issuer may choose to publish. It contains information about the securities being issued. Together with the Registration Document and Summary, it forms a valid prospectus.
See Article
Stabilisation
This is when an issuer that is involved in a distribution or offering of its securities buys or sells such securities in the market, in order to support the market price of those securities for a predetermined period of time. During this time, there may be selling pressure as a result of the distribution.
See MAD Article - Directive 2003/6/EC Article 8 and Commission Regulation (EC) No 2273/2003 Article 2(7)
Summary
With the Registration Document and Securities Note, it forms a valid prospectus. It briefly summarises in non-technical language the essential characteristics and risks associated with the issuer, any guarantor and the securities. A summary is not expected to be more than 2,500 words long.
See Article PD 5(2)
Suspicious Transactions
A firm engaged in professionally arranging a transaction may have a reasonable suspicion that the transaction might involve either insider dealing or market manipulation (market abuse). This is a suspicious transaction under the MAD. Firms are obliged to report suspicious transactions to the FSA.
See MAD Article - Directive 2003/6/EC Article 6(9) and Directive 2004/72/EC Article 7
Systematic Internaliser
See, generally, MiFID Articles 4.1(7) and 27 and Recital 53.
In broad terms, a systematic internaliser is an investment firm making markets outside a regulated market or an MTF. Level 2 measures will establish criteria for determining when an investment firm is a systematic internaliser.