FSA consults on market abuse safe harbours

The consultation paper sets out the FSAs proposed approach to the interaction between the market abuse regime and the requirements of the City Code on Takeovers and Mergers and the FSAs Listing Rules. This completes the draft package of measures that the FSA is proposing to introduce to implement the new market abuse regime.

Gay Wisbey, Director of Markets and Exchanges, said

The City Code and FSA Listing Rules play an important part in protecting investors and supporting market confidence and will continue to do so alongside the new market abuse regime. We have been working closely with the Takeover Panel and the UK Listing Authority to ensure that the respective regimes will interact effectively and efficiently. Our proposals today are designed to ensure that the FSA can discharge its statutory responsibility to tackle market abuse without leading to any loss in the effectiveness of takeover regulation or the listing regime.

The consultation paper addresses three issues:

• The interaction between the market abuse regime and the Takeover Panels City Code. The FSA proposes to grant safe harbour status to certain rules in the City Code, principally those that deal with announcements, disclosures and other releases of information. These safe harbours provide certainty to market users that compliance with these rules will not amount to market abuse. The proposed safe harbours have the agreement of the Panel and the approval of HM Treasury. The FSA and the Panel are working closely to establish effective operating arrangements so that clear procedures will be in place when suspicions of market abuse arise in the context of a transaction governed by the City Code;

• The interaction between the market abuse regime and the FSAs Listing Rules. The FSA proposes to grant safe harbour status to specific listing rules, principally those which relate to the public disclosure of information and those which regulate dealings in the listed securities of the issuer;

• The position of brokers or other intermediaries which execute abusive transactions on behalf of clients. The FSA firmly believes that the prime focus should be on the originator of an abusive transaction, rather than the broker. But where a broker knows that its client is engaging in market abuse then the FSAs view is that the broker, by proceeding with the transaction, is also engaging in market abuse. The new market abuse provisions do not impose any additional duties on brokers to regulate their customers nor to inquire as to their intentions, over and above the regulatory obligations that already exist.

Notes for editors

1. Consultation Paper 76 "Supplement to the Draft Code of Market Conduct is available on the FSA website under Publications. The consultation period runs until 2 February 2001. The paper supplements the main consultation on the draft Code of Market Conduct that was launched on 25 July. The FSAs proposed approach to use of its enforcement powers was set out in the draft Enforcement Manual published on 16 August. These publications are also available from the FSA website.

2. The new market abuse regime is aimed at maintaining and enhancing market integrity and confidence in UK markets for the benefit of all users. The regime will complement the existing criminal offences of insider dealing and market manipulation and is due to come into effect in summer 2001 when the Financial Services and Markets Act is implemented.

3. The Act defines three categories of market abuse and the FSAs draft Code gives guidance on behaviours that would or would not constitute abuse in each category: misuse of information (eg knowing of a forthcoming takeover and buying shares in the target company prior to general disclosure of that information); giving false or misleading impressions (eg posting on a bulletin board an inaccurate story that an important deal had been secured by a major company in order to give a false or misleading impression); and market distortion (eg undertaking trades just prior to an exchange closing, with the purpose of positioning the price of a share at a distorted level).

4. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the protection of consumers; and fighting financial crime.

5. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.