Posts Tagged ‘fsa’

1. Introduction 

The EU Market Abuse legislation (directives, regulations and Level 3 guidelines), with the market integrity and investor confidence as its primary objectives, represents a major achievement towards integrated financial markets in EU.

As a matter of domestic legislation and other applicable rules deriving from the Market Abuse legislation, issuers are expected to have adequate preventive measures, systems, procedures and controls in place to ensure discharge of their regulatory obligations and make it as difficult as possible to commit market abuse. The higher the quality of systems and controls implemented by the issuers, the lower the likelihood that their financial instruments become subject to insider dealing or other forms of market abuse.

Given the importance of issuers’ compliance efforts under the Market Abuse regime, it is vital that substantially similar standards and compliance arrangements will evolve to protect investor confidence and market integrity within the EU. A pre-condition for such evolution is an objective understanding about issuers’ anti-market abuse systems, controls and compliance practices as applied on a daily basis.

A survey conducted between February and March 2008 among leading multinational companies listed on the Nordic Market (1)  in cooperation with the City of London, represents an effort to capture such understanding on a regional level.

The survey was conducted by means of confidential questionnaire addressed to general counsels and compliance officers of companies listed on the Nordic Market. The questionnaire focused on selected elements of preventive anti-market abuse systems and controls dealing with:

• identification of inside information within the issuer and its group
• ensuring fair trading by members of the management bodies and employees
• proper handling of inside information and prevention of leaks
• ensuring the quality and reliability of compliance procedures, techniques and record-keeping regarding the above
• internal allocation of responsibilities and tasks regarding the above.

This article summarizes the key-findings of the survey and aims to provide useful comparative information for those in charge of legal and compliance with respect to Market Abuse rules.

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Telegraph writes about Richard Ralph, a former Governor of the Falkland Islands and a past British ambassador to both Peru and Romania, has been fined £117,691.41 by the City regulator after it was discovered he asked a friend to buy shares in Monterrico Metals.

Mr Ralph became chairman of Monterrico in August 2006, shortly before the £93m mining business was taken over by China’s Zijin Consortium. The FSA found that during the takeover talks Mr Ralph asked his friend Filip Boyen to buy about £30,000 of shares in order to conceal his true identity.

At the time, Mr Ralph was closely involved in the takeover talks and was and would have been expected to publicly disclose any dealing in company shares. As well as buying the shares for Mr Ralph, Mr Boyen also bought shares for himself worth £77,162.05. After a takeover deal was announced to the market, Mr Boyen sold both men’s holdings, generating a collective profit of £42,174.36.

Once the FSA began to investigate suspicious trading prior to the takeover, Mr Ralph voluntarily contacted the FSA and admitted to insider dealing. Mr Boyen was fined £81,982.95 and sources said both fines would have been as much as a third higher had it not been for the full co-operation and early settlement by the pair.

Before joining Monterrico, Mr Ralph had a long career as a diplomat, beginning in 1969. He previously hit the headlines when serving as ambassador to Romania after he was embroiled in a controversy surrounding the attempt by steel tycoon Lakshmi Mittal to take over Sidex, a Romanian steel plant.

Hedge Funds Review wrote that Recently the UK Financial Services Authority (FSA) broke new ground by taking action against a hedge fund manager for using inside information to deal in corporate bonds (UK FSA fines hedge fund manager over insider trading, September 9, 2008).

Steven Harrison, the former manager with Moore Capital Management, was fined £52,500 and agreed not to perform any controlled function for a period of 12 months.Although this is not the first time the FSA has taken action against a hedge fund manager for market abuse, it is the first case involving activity in the credit markets.

Hedge funds and their managers need to focus on this case. Two important questions are of immediate concern:

Are hedge funds providing adequate training to enable staff to identify how the market abuse and insider dealing regimes relate to their business?

Do hedge funds have effective procedures in place to identify when they receive inside or restricted information and how to conduct themselves when they do?

Although the FSA found Harrison’s conduct was not deliberate, it did make the point that he “ought to have realised that the information he was given constituted inside information”.

This is an unusually sympathetic view for the regulator given that it had evidence that Harrison had been asked if he “wished to receive restricted information in connection with an upcoming financing”. This was immediately before being given information, which he later claimed he did not identify as inside information, and despite the fact he almost immediately instructed his traders to purchase the bonds to which the information referred.

It is doubtful the FSA will continue to be so sympathetic. Hedge fund managers can expect closer scrutiny in respect of equity markets and credit market transactions.

It has been almost a year since the FSA published its findings of visits to hedge fund managers in Market Watch 24. The visits focused on the controls in place to mitigate the risk of market abuse. The FSA commented it was “disappointed by some of what we saw”.

In April 2008 the FSA’s market cleanliness update reported informed price movements (IPMs) as being just under 30% of all takeovers during 2007. This was up from the previously published 2005 figure of 23.7% which at the time the FSA said remained “a cause for particular concern”.

The FSA’s action was designed to send a clear message of the regulator’s expectations in this area. Given the ‘disappointing’ results from its review of hedge fund’s market abuse controls and the rising instances of IPMs, it can only be a matter of time before the FSA looks for more suitable scalps to underline its credible deterrence message in insider dealing and market abuse.

Fund managers need to think carefully about the consequences of being wall crossed and ensure that if they are they do not become involved in trading affected securities.

Midland businesses have been warned to beware a major new crackdown on insider trading launched by the City regulator, the Financial Services Authority.

The FSA, once criticised for being a toothless watchdog, is now looking to get tough, cautioned Russell Orme, corporate partner in the Birmingham office of law firm DLA Piper.

And he urged bosses to make sure company announcements were done by the book, giving no cause to arouse suspicion. It has been estimated that about a fifth of results announcements and a third of takeovers are preceded by insider trading. But a series of dawn raids and arrests recently suggest the FSA now means business. The raids came just days after the announcement of two further criminal prosecutions for insider dealing.

Matthew Uberoi and Neel Uberoi have been charged with 17 counts of insider dealing in an indictment filed at the City of Westminster Magistrates’ Court. The pair are said to have traded more than 300,000 shares in various companies over a four month period, between May and August 2006, while privy to inside information.

And Malcolm Calvert, a former trader and partner of Cazenove bank, was recently charged with 12 counts of insider dealing over a two-year period following his retirement from the firm. Both cases have been adjourned to September 2008.

Read more from Birmingham Post.

Eight arrests have been made in connection with a major investigation into insider dealing rings by the UK FSA. Workers at Swiss bank UBS and JP Morgan Cazenove, one of the oldest names in the City, were arrested for alleged insider dealing yesterday according to the sources of the Financial Times.

Arrests were carried out in cooperation with City Police who become involved because the FSA has no powers of arrest. City of London police and 40 FSA officials raided premises throughout London and the South East in what the regulator described as “a major ongoing investigation into insider dealing rings”.

The FSA suspects that the alleged ring traded on price sensitive information contained in deal announcements produced at one or both of the banks’ printing plants but which had yet to be made public.

This is the third high-profile action the FSA has taken in the past week over insider trading, in a sign of a tougher approach to a problem the regulator believes is rife in the City and a threat to the integrity of the markets.

Last week, a former partner at the investment bank Cazenove pleaded not guilty to a series of charges brought by the FSA. In only the second criminal case brought by the FSA, Malcolm Calvert was accused of acquiring shares, with inside information, in several companies earmarked for management buyouts, takeovers or mergers. Mr Calvert was remanded on bail, with the case adjourned until September 11.

The FSA launched its first criminal prosecution for insider dealing in January, it has ramped up its focus on market abuse in recent months, after an unprecedented slump in the shares of mortgage bank HBOS.

The FSA’s high-profile crackdown sends a serious warning to the City, where criminal prosecutions are seen as a new threat. The offence carries a maximum sentence of seven years in prison.

The FSA has more than doubled the size of its team of lawyers and investigators with criminal expertise and has announced plans to make more use of jail sentences, along with civil fines.

The Financial Services Authority (FSA) published yesterday (5 June) Market Watch 27, an update of the thematic review of controls over inside information, following the publication of Market Watch 21 in July last year.

The update includes a set of Principles of Good Practice (“The Principles”) for the handling of inside information that were drawn up by industry practitioners representing different areas involved in M&A activity, such as issuers, corporate finance houses, lawyers, accountants, public relations firms and financial printers.

The Principles, which highlight the importance of restricting access to price sensitive information, are voluntary to adopt, broad based and largely focused on the areas identified as requiring the most attention:

1. Policies and procedures
2. Awareness and training
3. “Need to know” and other information controls
4. Passing price sensitive information to third parties
5. Information technology security
6. Personal dealing policies

Work, in partnership with the industry, to reduce the leakage of price sensitive information relating to M&A activity therefore improving market cleanliness is a core part of the FSA’s strategy for tackling market abuse. Insider dealing is a criminal offence which the FSA will prosecute vigorously.

Richard Lambert, director-general of the CBI, welcomed the Principles published by FSA: “It is vital that investors have faith and confidence in honest and open capital markets. Insider trading destroys trust and these principles of good practice will help ensure transparency and fairness in the markets.”

Adam Kinsley, director of Regulation at the London Stock Exchange, said: “We support the FSA and the industry bodies who drafted this guidance, and share their objective to ensure that UK markets continue to be regarded as well-regulated and clean. These principles published by the FSA today provide helpful guidance to anyone who comes into contact with inside information. They will help ensure the UK remains a world-leading financial centre with high standards and good practices.”

Market Watch 27 also provides a detailed update on the follow up work that FSA has undertaken with FSA regulated firms and contains examples where individual firms strengthened their controls. It also reports on industry dialogue on two important topics: how to increase the focus at firms on the need to properly consider when to undertake internal leak enquiries, and whether more can be done to reduce the number of insiders on deals.

See full text of the official press release

The UK FSA has published the latest edition of its “Market Watch” newsletter (issue 26) which focuses on the FSA’s strategy and main objectives for tackling market abuse.

According to Sally Dewar, FSA Managing Director of Wholesale and Institutional Markets, clean markets are vital to the continuing success of London as an international financial centre. Market misconduct, particularly in the form of insider dealing and market manipulation is, put simply, cheating and reduces investor confidence in the UK markets. FSA’s aim is to have a regime which achieves “credible deterrence” and ensures a level of market quality we can all be proud of.

One of the most significant components of credible deterrence is ensuring that there is a genuine fear that wrongdoing will be identified and that the punishment received will be meaningful. Market Watch 26 therefore expands on the FSA’s enforcement approach, reiterating that sanctions will be imposed against wrongful behaviour that will be severe enough to have a deterrent effect. To this end the FSA has enhanced its in-house criminal investigation and prosecution skills and has begun a criminal insider dealing prosecution. There will be also increased financial penalties in cases pursued through the civil route.

FSA seems to be particularly concerned about the extent of informed price movements prior to M&A announcements and it intends to tackle this. The FSA’s review in 2006/07 of the systems and controls at several firms (regulated and unregulated) involved in M&A transactions identified a number of weaknesses which are contributing to the leakage of inside information.

Market Watch 26 elaborates more on the initiatives and activities for 2008 aimed at reducing the leakage of inside information. These will include number of very useful and practical deliveries:

• Report on the steps taken by the FSA to improve its enquiry work into the cause of leaks in specific takeover situations;
• Publication of “Principles of Good Practice for the Handling of Inside Information”, a document aimed at non-regulated firms to assist them in developing and demonstrating robust controls for handling inside information; and
• Report on steps taken by FSA authorised firms to improve their controls.

The newsletter is available http://www.fsa.gov.uk/pubs/newsletters/mw_newsletter26.pdf

Official press release is available: http://www.fsa.gov.uk/pages/Library/Communication/PR/2008/036.shtml