Implementing new powers to keep UK financial markets clean

Gay Wisbey, FSA Director, Markets and Exchanges, said:

The Code is a unique document. It provides a clear statement of the standards we expect to see in UK markets. It doesnt just cover those who deal in shares but those who trade on any of the UKs eight exchanges, covering a diverse range of products from securities to commodities. Nowhere else in the world do market participants have such a clear statement of where they stand. It does not cover every eventuality, nor can anyone realistically expect it to do so - insider traders and those who manipulate markets are notoriously innovative people. But the provisions of the Code should cause no difficulty for the vast majority of participants in the London markets who already adhere to high standards of conduct.

The Code will be relevant for everyone who uses UK financial markets, not just those regulated by the FSA. For the first time, there will be a level playing field for all users of the UK financial markets, whether they are private investors or market professionals. This is a significant improvement from the existing arrangements which applies the criminal law to all but restricts the imposition of financial penalties to firms and individuals regulated by the FSA. In future, the FSA will be able to seek the imposition of a civil penalty, such as a fine or public censure, on any person who is found by an independent statutory tribunal to have fallen below the standards expected of that person.

What is market abuse? There are three main categories:

• Misuse of information for example, knowing of a forthcoming takeover and buying shares in the target company prior to general disclosure of that information;

• Creating false or misleading impressions for example, 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;

• Market distortion for example, ramping the price of shares to a distorted level.

For any behaviour to constitute market abuse it must also be regarded by a regular user of that market as falling below the standards they would expect to see.

In producing this Code the FSA has undertaken extensive public consultation and discussed its proposals with advisory panels whose members were drawn from a wide range of market users and exchanges. The FSA will continue to use such groups to ensure that the Code is kept up to date and reflects developments in market practice.

Commenting on next steps, Gay Wisbey, said:

Now the Code has been finalised we will be turning our attention to practical implementation issues. These include setting out detailed arrangements for how we will co-operate with the Takeover Panel and the eight UK exchanges, who will continue to have a front line monitoring role, and how we will give guidance on the Code to those who require it. We are also planning a major conference in the summer to discuss in more detail the content of the Code and how it will operate.

Notes for editors

1. The final Code of Market Conduct is available from the FSAs website (www.fsa.gov.uk) under Publications.

2. The FSAs new powers to tackle market abuse are set out in the Financial Services and Markets Act 2000. The Act defines a regular user as a reasonable person who regularly deals on the market. The regular user can be considered a close relative of the courts reasonable man, or the person on the Clapham Omnibus, and someone who understands the market concerned.

3. The UKs markets have the reputation of being fair, clean and transparent. If this reputation is sustained, the FSA does not expect to be pursuing large numbers of market abuse cases, but will not hesitate to take action whenever appropriate. This action might comprise court injunctions, where these are appropriate, or the start of administrative proceedings. The latter entails FSA staff bringing a case before a Regulatory Decisions Committee that is comprised of public interest members and practitioner representatives to ensure objectivity. If the Committees findings and proposed penalty are not accepted by the alleged abuser, the whole case will be referred to an independent statutory tribunal run as part of the Court Service under the auspices of the Lord Chancellors Department.

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.