News

MADness strikes

Long trailed but still irksome given that UK market participants were just coming to terms with the Code of Market Conduct and the idiosyncracies of the reasonable regular user, the joint HM Treasury / FSA consultation on the EU Market Abuse Directive (MAD) arrived in June.The implementation date under EU law is 12 October 2004 but the UK authorities intend to confirm the necessary legislative and rule amendments by the end of November at which point the industry will be have “approximately three months” before they take effect. Hope that any adjustment of the existing civil regime could be limited to tweaking has proved forlorn (though the criminal regime for insider dealing and market manipulation in Part 5 of the Criminal Justice Act 1993 and s397 of FSMA will not change): “important detailed differences” make “substantive changes” necessary, says the paper. In a move that some may interpret as another instance of UK gold-plating, super-equivalence in EU-speak, the Government has elected to retain the current scope of the domestic civil framework where this is wider than that of the directive. Part 8 of FSMA is one example: it refers to “behaviour” whereas the directive uses more precise, narrower phrasing such as “transactions or orders to trade”.The regular user test in Part 6 though will be replaced by specific defences to the misconduct identified in the legislation. To do otherwise, says the paper, would risk exculpating behaviour proscribed in MAD. The directive distinguishes between primary insiders – management and shareholders, employees and advisers, and criminals – and those in receipt of information from these sources. It requires that the ‘receivers’ must have known or should have known that the information was inside information in order to commit and offence. Market manipulation offences may be rebutted on grounds that the purpose underlying the activity was legitimate and that they conformed to “accepted market practices”, which will be determined by the FSA. New s130A(3) of FSMA provides for consultation; it says “accepted market practices” means practices that are reasonably expected in the financial markets or markets in question and are accepted by the Authority’. Safe harbours exist for activity in connection with share buy-backs and stabilisation.