The FSA consults on the price stabilising rules

The paper reviews the current stabilising rules, which provide a defence, or safe harbour, against the criminal offences of market manipulation and insider dealing. The rules are in need of review because of the introduction of a new framework in the Financial Services and Markets Bill to deal with market abuse; to take stock of market developments; and to provide greater clarity in the application of the rules.

The review proposes that the existing rules be amended in a number of areas but that the essence of the current rules is carried forward as a safe harbour. One of the main proposals for change to the rules is to require greater disclosure to the issuer regarding stabilisation activity and the use of the so-called Green Shoe or over-allotment option. The FSA intends to review stabilisation practices more widely at a later date as part of its work on developing a more integrated model of risk-based supervision and as part of its responsibility for maintaining market confidence.

Notes for editors

1. The Governments intention, that the FSA should be a single statutory regulator of financial services business, is being given effect in the Financial Services and Markets Bill. The Bill is expected to become law during the first half of 2000.

2. The underlying policy objective for permitting price stabilising action is to help maintain an orderly initial market in the securities, and potentially therefore to facilitate offers and reduce the costs to enterprises involved in the raising of capital. The stabilisation rules originated with the Financial Services Act 1986 and the introduction of the market manipulation offences in Section 47. A safe harbour was introduced to allow for the existing market practices surrounding new issues of equities and bonds whereby lead managers support the prices of new issues for a limited period after issue and make a general disclosure that stabilisation activity may be being undertaken.

3. The Green Shoe or over-allotment option allows a syndicate manager to purchase a stated number (or percentage) of shares over and above the number of shares being offered to the public, at the public offering price (less the underwriters discount) for a specified period of time after the underwriting.

4. Consultation Paper 40, The Price Stabilising Rules is available priced 10 by sending a cheque payable to the FSA to the FSAs Sales and Distribution Department. Alternatively the paper can be found on this website: http://www.fsa.gov.uk/pdf/cp40.pdf.

5. Comments on the consultation paper should be received by 24 March.