FSA Preventing Market Abuse
From mid-2001, under the new financial services and market act, all market participants were subject to the same CIVIL regime for dealing with market abuse, so levelling the playing field for all market users. In addition, they will have detailed guidance to help clarify what does amount to market abuse.
Financial penalties will be imposed on those who abuse markets.
As an alternative, the FSA can use public censure. The new market abuse regime complements the existing criminal offences of insider dealing and market manipulation. The FSA will be able to prosecute these offences.
Categories of market abuse
The Act defines three categories of market abuse. The draft Code sets out the FSA’s opinion on behaviours that would or would not constitute abuse in each category so as to give guidance to those affected by the new regime:
Misuse of information
Example, knowing of a forthcoming takeover and buying shares in the Target Company prior to general disclosure of that information.
Giving False or misleading impressions
Example, posting on a bulletin board an inaccurate story that an important deal had been secured by a major company.
Market Distortion
Example, undertaking trades just prior to an exchange closing, with the purpose of positioning the price of a share or basket of shares at a distorted level. This could, for example, be to avoid having to pay out on a related derivative contract.
