Bashir Al Nakib Limiting Market Abuse (Abl 13 March 2009) [Compatibility Mode]

Bashir Al Nakib

LIMITING MARKET ABUSE FRAMEWORKBashir Al Nakib

CAMS, ACFE, CFAPMarch 13, 2009,

Recent Market Abuse CasesVidVideo

3/11/2009 Limiting Market Abuse - Bashir Al Nakib 2

Index of PresentationIndex of Presentation

•SECTION 1: Introduction•SECTION 2: Insider Trading•SECTION 3: Manipulation•SECTION 3: Manipulation

•SECTION 4: Manipulation VS BBP & Stabilisation

•SECTION 5: Preventive Measures

33/11/2009 Limiting Market Abuse - Bashir Al Nakib

Introduction 1•Market Abuse Directive: timetable•Market Abuse Directive: timetable•1989: Directive on insider trading (89/592)•1999: Financial Services Action Plan1999: Financial Services Action Plan•2000: Lisbon Council, implementation of FSAP by• 2005; Wise Men Committee005; se e Co ttee•2001: Lamfalussy Report, 4 level approach•2001: Commission proposalp p•2002: Common position; Cesr•2003: Final Directive•2004, October 12: deadline for implementation (include laws,regulations and administrative provisions)


Introduction 2Introduction 2•LAMFALUSSY FOUR‐LEVEL APPROACH

LEVEL 1: Framework Directive (Commission proposal/Council‐Parliament co‐decision) and definition of implementing powers for the Commission•LEVEL 2: Implementing Measures (CESR technical advice after consultation/Commission/European Securities Committee (majority vote); European Parliament kept fully informed, may adopt resolutions a) within 3 months on draft implementing measures b) within 1 month after vote of ESC if level 2 measures exceed implementing powers)•LEVEL 3: Joint interpretation/Common (non binding) standards (CESR)•LEVEL 4 Compliance/enforcement (Commission against Member States)


Introduction 3Introduction 3•CESR/Commission: level 2 timetable•2002 March Commission 1st request to CESR for advice on•2002, March. Commission 1st request to CESR for advice on implementing measures•2002, April on. Expert‐Consultative Working Group meetings2002, April on. Expert Consultative Working Group meetings•2002, July. CESR 1st Consultation paper•2002, December. CESR final advice to the Commission,•2003, January. Commission 2nd request to CESR for advice onimplementing measures•2003, March. Commission publishes draft directives (2) andregulation (1) on implementing measures•2003 April CESR 2nd Consultation paper (Additional level 2•2003, April CESR 2nd Consultation paper (Additional level 2implementing measures)•2003, May. Inter‐Institutional Monitoring Group, First Report, y g p, p


I t d ti 4Introduction 4R f di ti k t b•Reason for a new directive on market abuse(insider trading + market manipulation)

NO existing directive on mkt manipulation (only on insider)G di i i l l l ( l d f )Great diversity at national level (rules and enforcement)New financial instruments and techniques increasing mkt

manipulationmanipulationNeed to protect market integrity to ensure integration of

financial markets (other directives: ISD, single prospectus, transparency, takeover)


Introduction 5Introduction 5Measures to Promote Market Integrity

issuers exchangesintermediaries

issuers

P e regulators

Price Discovery Process

AnalystsInstitutional

investors

Mass - MediaFinancial

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Financial journalists3/11/2009 Limiting Market Abuse - Bashir Al Nakib

Introduction 6Market Integrity (2003/6/EC Directive)

– An integrated and efficient financial market requires k t i t itmarket integrity.

– The smooth functioning of securities markets and public confidence in markets are prerequisites for

i th d ltheconomic growth and wealth.

– Market abuse harms the integrity of financial markets and public confidence in securities and derivatives


Insider trading ExampleInsider trading - Example


Manipulation – Example


The 2003/6/EC DirectiveInsider TradingInsider Trading


Insider trading 1 1Insider trading 1.1Definition of “inside information” Art 1

•"Inside information" shall mean information of a

Definition of inside information Art. 1

precise nature which has not been made public, relating, directly or indirectly, to one or more issuersrelating, directly or indirectly, to one or more issuers of financial instruments or to one or more financial instruments and which if it were made public wouldinstruments and which, if it were made public, would be likely to have a significant effect on the prices of those financial instruments or on the price of relatedthose financial instruments or on the price of related derivative financial instruments


Insider trading 1 2Insider trading 1.2Definition of “inside information” (more)

– Member States should tackle the practice known as

Definition of inside information (more)

Member States should tackle the practice known as "front running", including "front running" in commodity derivatives, where it constitutes market abuse under the definitions contained in this Directive (whereas n. 19)

– For persons charged with the execution of orders concerning financial instruments, "inside information" shall also mean information conveyed by a client and related to the client's pending orders…. (Art.1, 1 3rd

)para.)143/11/2009 Limiting Market Abuse - Bashir Al Nakib

Insider trading 2Insider trading 2 Level 2

European Commission asked advice on the meaning of:meaning of:

Precise nature1)

Price sensitive2)


Insider trading 2 1Insider trading 2.11) ( 2 )1) precise information (art. 2 draft directive)

Information of a precise nature shall mean any a) information consisting of a matter or an event which is true or could reasonably be expected to become true in the future…

a)

(remember: relevant definition also for issuers disclosure!)

“True”: based on firm and objective evidence (as opposed to Rumours) which are not are not inside informationinside information

“could become true”: uncertain but contingencies don’t mitigate precise of info (if

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(expected merger doesn’t occur, this could be in any case precise info).


Insider trading 2 2Insider trading 2.2

1) ( 2 )

b) …when this information is specific enough to allow

1) precise information (art. 2 draft directive)

b) …when this information is specific enough to allow a conclusion to be drawn about its possible impact on prices

The information should be price sensitiveThe information should be price sensitive

A piece of info “allow a conclusion ”:A piece of info “allow a conclusion ”:A piece of info “allow a conclusion …”:A piece of info “allow a conclusion …”:

Either when enable a reasonable investor to Either when enable a reasonable investor to take an investment decision without (or at take an investment decision without (or at

))very low) riskvery low) risk

Or when it is likely to be exploited immediately Or when it is likely to be exploited immediately on the marketon the market

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on the marketon the market


Insider trading 2 3Insider trading 2.3

2) price sensitivity of information 2) price sensitivity of information

(art. 3 draft directive)

“Information which … would be likely to have a significant effect …” mean ex‐ante available ginformation an average person would be likely to use as part of the basis of his investment decisions in order to optimise his interestsorder to optimise his interests


Insider trading 2 4Insider trading 2.42) Price sensitivity

Market participants have to be able to assess beforehand whether the information is price sensitive, in order to be able to act accordingly, regarding the duties of confidentiality, prompt disclosure and prohibition

i ito enter into transactions.This assessment has to take into consideration the market impact, which would be foreseeable at the moment when the information has not yetwould be foreseeable at the moment when the information has not yet been disclosed.Ex-ante factors have to be found in order to guide market participants in their decisions Any (relevant) information available at the time has to betheir decisions. Any (relevant) information available at the time has to be taken into account. Other variables would include prices, returns, volatilities, liquidity, price relationships among financial instruments, volume, supply, demand, order book, timing of prices and newsvolume, supply, demand, order book, timing of prices and news disclosure, rules governing the exchange and market microstructure, etc. A piece of information could be considered as likely to have a significant effect on prices of financial instruments even though when the piece of

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effect on prices of financial instruments even though, when the piece of information is published, this doesn’t actually produce any effect.3/11/2009 Limiting Market Abuse - Bashir Al Nakib

Insider trading 2 5Insider trading 2.52) price sensitivity:

Useful indicators:Useful indicators:

Type of info is the same as info which had in the Type of info is the same as info which had in the past a significant effect on pricespast a significant effect on prices

PrePre existing analyst’s reports and opinions existing analyst’s reports and opinions PrePre--existing analyst’s reports and opinions existing analyst’s reports and opinions indicate the that type of info is price sensitiveindicate the that type of info is price sensitive

Issuers itself has treated similar events as inside Issuers itself has treated similar events as inside infoinfo

List of price sensitive information: point 35 (Level 3)3)


Insider trading 3.1Definition of insider trader (Primary insiders) Art 2

•…Any person who possesses an inside information:

Definition of insider trader (Primary insiders) Art. 2

• (a) by virtue of his membership of the administrative, management or supervisory bodies of the issuer ormanagement or supervisory bodies of the issuer, or

• (b) by virtue of his holding in the capital of the issuer, or

• (c) by virtue of his having access to the information through the exercise of his employment, profession or duties, or,

• (d) by virtue of his criminal activities. 213/11/2009 Limiting Market Abuse - Bashir Al Nakib

Insider trading 3.2

Definition of insider trader (Secondary insiders -Tippees)

•The prohibitions applicable to the Primary

pp )

insiders should also apply to any person, who possesses inside information while that person p pknows, or ought to have known, that it is inside information (Art. 3).( )


Insider trading 3.3Prohibition•Member States shall prohibit any person (primary + secondary insiders) …. who possesses inside information from:

Prohibition

…. who possesses inside information from:using that information by acquiring or disposing of, or by trying to

acquire or dispose of, for his own account or for the account of a third party, either directly or indirectly, financial instruments to which that information relates; disclosing inside information to any other person unless suchdisclosing inside information to any other person unless such

disclosure is made in the normal course of the exercise of his employment, profession or duties; (confidentiality duties)recommending or inducing another person, on the basis of inside

information, to acquire or dispose of financial instruments to which that information relatesinformation relates.


h 2003/6/ C i iThe 2003/6/EC Directive MANIPULATIONMANIPULATION

Manipulation 1 Definition (Art 1 2)Manipulation 1 Definition (Art. 1.2) 1. Transactions or orders to trade:

which give or are likely to give false or misleading signals as to thewhich give, or are likely to give, false or misleading signals as to the supply of, demand for or price of financial instruments, or

which secure, by a person, or persons acting in collaboration, the price of one or several financial instruments at an abnormal or artificial level;

2 T ti d t t d hi h l fi titi d i2. Transactions or orders to trade which employ fictitious devices or any other form of deception or contrivance;

3 Dissemination of information through the media including the Internet3. Dissemination of information through the media, including the Internet, or by any other means, which gives, or is likely to give, false or misleading signals as to financial instruments, including the dissemination of rumours and false or misleading news, where the person who made the dissemination knew, or ought to have known, that th i f ti f l i l di

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the information was false or misleading.3/11/2009 Limiting Market Abuse - Bashir Al Nakib

Manipulation 1.1

T f i l tiTypes of manipulation:

d b d i l i− trade based manipulation− information based manipulation− action based manipulation


Manipulation 1.2

T d b d i l tiTrade based manipulation -

− In this case the manipulator tries to cause a price change in the price of a security by trading in the

kmarket.− E.g. the manipulator through a series of purchases in the market tries to induce others to think that he is an insider and thus to follow him in buying the security in order to create a “speculative bubble”


Manipulation 1 3Manipulation 1.3Action based manipulation− In this case the manipulator tries to cause a

change in the price of a security through actionschange in the price of a security through actionsthat give the appearance of an active market in

h itsuch security Examples:

( f• wash sales (transactions involving no change in the beneficial ownership of the security);

t h d t d (th b d ll h i l d• matched trades (the buyer and seller have previously agreed to cancel the effects of the trade);• In both the examples the manipulator is bearing no risk

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• In both the examples the manipulator is bearing no risk.3/11/2009 Limiting Market Abuse - Bashir Al Nakib

Manipulation 1.4

Information based manipulationInformation based manipulation

I hi h i l i− In this case the manipulator tries to cause achange in the price of a security by spreadingfalse, exaggerated or misleading information.

− Internet is the ideal way to implement suchy pstrategy


Manipulation 2Manipulation 2 CESR approach

L 2Signals to be taken into account for possibly manipulative behaviours (art 8 of Level 2 possibly manipulative behaviours (art. 8 of draft directive)

Rules related to

Level 3

•market microstructure

•market liquidityLevel 3diagnostic flags: indications which should draw further scrutiny and are likely to be present individually or cumulatively as

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present individually or cumulatively as signals of manipulative behaviour


Manipulation 2 1Manipulation 2.11) Orders which produce false signals

2) Orders which secure the price at an abnormal or artificial level

Factors offering a strong indicationFactors offering a strong indication::

artificial level

••TheThe extentextent toto whichwhich ordersorders givengiven oror transactionstransactions undertakenundertaken representrepresent aasignificantsignificant proportionproportion ofof thethe dailydaily volumevolume ofof transactionstransactions inin aa financialfinancialinstrument,instrument, inin particularparticular whenwhen thesethese activitiesactivities leadlead toto aa significantsignificant changechangeinstrument,instrument, inin particularparticular whenwhen thesethese activitiesactivities leadlead toto aa significantsignificant changechangeinin thethe priceprice ofof thethe financialfinancial instrumentinstrument..••TheThe extentextent toto whichwhich ordersorders givengiven oror transactionstransactions undertakenundertaken byby personspersonswithwith aa significantsignificant positionposition (long(long oror short)short) inin aa financialfinancial instrumentinstrument leadlead totowithwith aa significantsignificant positionposition (long(long oror short)short) inin aa financialfinancial instrumentinstrument leadlead totosignificantsignificant changeschanges inin thethe priceprice ofof thethe financialfinancial instrumentinstrument oror relatedrelatedderivativederivative oror underlyingunderlying assetasset


Manipulation 2 2Manipulation 2.21) Orders which produce false signals


Factors offering a strong indicationFactors offering a strong indication::

artificial level

•Whether orders given or transactions undertaken lead to no change inbeneficial ownership of the financial instrument or which reallocate holdingsamong associated companies within a corporate holding.•The extent to which orders given or transactions undertaken includeposition reversals in a short period and represent a significant proportion ofthe daily volume, and/or are associated with significant changes in the pricey , g g pof a financial instrument.•The extent to which orders given or transactions undertaken areconcentrated within a short time span in the trading session and lead to a

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concentrated within a short time span in the trading session and lead to aprice change which is subsequently reversed.


Manipulation 2 3Manipulation 2.31) Orders which produce false signals1) Orders which produce false signals


Factors offering a strong indication:Factors offering a strong indication:

abnormal or artificial level

•The extent to which orders given change the representation of best bid oroffer prices in a financial instrument, or more generally the representationof the order book available to market participants, and are removed beforeth t dthey are executed.•Whether the systematic purchase or sale of a financial instrument affects itsprice, without symmetric price impact by simultaneous counteractingp , y p p y gtransactions on other markets.•The extent to which transactions when undertaken at or around a specifictime when reference prices settlement prices and valuations are calculated

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time when reference prices, settlement prices and valuations are calculatedlead to price changes which have an effect on such prices and valuations..


Manipulation 2 4Manipulation 2.4

3) Orders which employ fictitious devices or 3) Orders which employ fictitious devices or any other form of deception or contrivance

Factors offering a strong indication:Factors offering a strong indication:•Whether orders to trade given or transactions undertaken are preceded or•Whether orders to trade given or transactions undertaken are preceded orfollowed by dissemination of false or misleading disclosure by the same oror associated persons.Wh th d t t d i ht b i t ti d t k b•Whether orders to trade might be given or transactions undertaken by

persons, and associated persons, before or after they produce or disseminateresearch or investment recommendations which are erroneous or biased anddemonstrably influenced by material interestdemonstrably influenced by material interest


Manip lation The Gre AreaManipulation – The Grey Area

•Journalists (art. 1.2.c)•in respect of journalists when they act in their p j yprofessional capacity such dissemination of information is to be assessed,….., taking into account the rules governing their profession, unless those persons derive, directly or indirectly, an advantage or profits from the dissemination of the information in question.•Discretion to Member States for self‐regulation


Manipulation vs Buy BackManipulation vs. Buy Back ProgramProgram

&Price Stabilisation

Manip lation s B Back ProgramManipulation vs. Buy Back Program

(A t 8) “Th hibiti id d f i thi Di ti h ll t l t(Art. 8) “The prohibitions provided for in this Directive shall not apply to trading in own shares in buy-back programmes or to the stabilisation of financial instrument provided such trading is carried out in accordance with implementing measures adopted pursuant to the procedurewith implementing measures adopted pursuant to the procedure referred to in Article 17(2)”

Safe harbour Insider tradingSafe harbour(i.e. Exemption)

Market MManipulation



CESR/Commission ApproachCESR/Commission Approach

AimsAllow BBP without jeopardise market integrityintegrity

BBP identification

BBP disclosureMain issues Potential for Market Abuse

F Fair treatment of shareholders

Allow flexibilities


Manip lation s B Back ProgramManipulation vs. Buy Back ProgramBBP identificaton

The safe harbour covers:•(1) the buying back of shares for the purposes of reducing thecapital of an issuer;•(2) the buying back of shares to meet obligations arising fromdebt financial instruments exchangeable into equity instruments;(3) f lfilli bli ti i i f l h ti•(3) fulfilling obligations arising from employee share option

programmes and other allocations of shares to employees.



BBP ex ante disclosure

•Prior to the start of trading full details of the programme must be

BBP ex-ante disclosure

Prior to the start of trading, full details of the programme must bepublished through an officially appointed mechanism in the jurisdictions inwhich an issuer has requested that its shares be admitted to trading on aregulated market. (…) All subsequent changes to the programme must be

bl h d h h h ff ll d h ( )g ( ) q g p g

published through the same officially appointed mechanism(s).

•The issuer must have in place the mechanisms necessary to ensure that it isable to fulfil trade reporting obligations to the relevant competent authorityand/or market.



Conditions for trading (art 3 draft regulation)When executing trades under the programme, an issuer;

Conditions for trading (art. 3 draft regulation)

•shall not purchase shares at a price higher than either theprice of the last independent trade or the current independentbidbid•may not purchase more than 25% of the average daily volume ofthe shares in any one day on the regulated marketthe shares in any one day on the regulated market.•however, in case of extreme low liquidity, the issuer may deviatefrom the above mentioned 25% limit provided that the issuer: a)p )informs in advance the Competent Authority; b) discloseadequately its intention; c) does not exceed 50% of the averagedaily volume.

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daily volume.3/11/2009 Limiting Market Abuse - Bashir Al Nakib

Manip lation VS Stabilisation 1Manipulation VS. Stabilisation 1

St bili ti t h ff t h•Stabilisation mean to any purchase or offer to purchaseRelevant Securities, or any transaction in AssociatedSecurities equivalent thereto by investment firms or creditSecurities equivalent thereto, by investment firms or creditinstitutions, which is undertaken in the context of aSignificant Distribution of Relevant Securities (IPO orSignificant Distribution of Relevant Securities (IPO orsecondary public offering) for exclusively securing a marketprice for such Securities that would not otherwise prevail.p f p

•Activity that is not directly linked to this purpose will notbenefit from the safe harbour.f f f


Manip lation s Stabilisation Conditions 1Manipulation vs Stabilisation - Conditions 1

•Stabilisation Period•Stabilisation Period

•Stabilisation shall be undertaken only during a defined period that has been disclosed to the market in advancehas been disclosed to the market in advance.

•• Stabilisation Price• Stabilisation Price•Stabilisation may only be undertaken to support the market price of the Relevant Securities having due regard to prevailing marketthe Relevant Securities having due regard to prevailing market conditions and in any event may not be executed above the offering price.


Manipulation vs Stabilisation – Conditions p2

•Ex ante disclosure•Ex ante disclosure•The possibility of Stabilisation, together with adequate disclosureof the risks and other aspects of Stabilisation which could bef p fmaterial to an investor’s decision to subscribe for or purchase theRelevant Securities, must be disclosed.

•The existence and maximum size of any Overallotment Facility orGreenshoe the exercise period of the Greenshoe and any conditionsGreenshoe, the exercise period of the Greenshoe and any conditionsfor the use of the Overallotment Facility or exercise of theGreenshoe must also be disclosed, as well


Manipulation vs. Stabilisation –pConditions 3

•Post Stabilisation Disclosure•Within one week after the end of the Stabilisation Period, the

b l d k b d l d l dStabilisation transactions undertaken must be adequately disclosed tothe public. This disclosure has to contain the following information:

th d t t hi h th St bili ti i d d dthe date at which the Stabilisation period ended;

whether or not Stabilisation was undertaken;

th i b t hi h St bili ti d t kthe price range between which Stabilisation was undertaken;

the date at which Stabilisation last occurred.


Manipulation vs Stabilisation – Conditions p4

d k i•1. Record keeping•Systems must be in place to record Stabilisationy porders and transactions.

•2. The stabilisation managerh ll l f•One Investment Firm shall act as central point of

inquiry for any regulatory intervention.


P ti MPreventive Measure

Preventive Measures

• The protection of investors requires that:

Prevention of insider trading

• The protection of investors requires that:

they will be protected against thethey will be protected against theimproper use of inside information;th li d ith i tthey are supplied with appropriate,regular information form the issuers oflisted securities to ensure that they areplaced on equal footing and removep q ginformation asymmetry.


Preventive Measures: Issuers Disclosure NEW!– Member States shall ensure that issuers of financial instruments inform the public as soon as possible of p pinside information which directly concerns the said issuers (art. 6): MISTAKE? INSIDE INFO VS RELEVANT EVENTS!

– Only for admission on request (art. 9)– An issuer may under his own responsibility delay the public disclosure of inside information, such as not to prejudice his legitimate interests provided that such omission would not be likely to mislead the public and

id d th t th i i bl t thprovided that the issuer is able to ensure the confidentiality of that information. (Additional requirement: inform competent authority withoutrequirement: inform competent authority without delay).


Preventive Measures: Issuers Disclosure

•Possible legitimate interests for issuers to delay public disclosure (art. 6 draft directive) (but don’t avoid risks!):( f ) ( )•(1) Matters in course of negotiation, when publicdisclosure would be likely to affect the conclusion of a dealyor the normal course of negotiations;

•(2) Decisions taken or contracts made by themanagement board of an issuer which need the approvalg ppof the supervisory board in order to become effective,where the organisation of such an issuer requires theseparation between these boards, provided that such apublic disclosure before the approval would jeopardise the

t t f th i f ti b th blicorrect assessment of the information by the public.503/11/2009 Limiting Market Abuse - Bashir Al Nakib

Preventive Measures: Research (art. 6.5)( )•Member States shall ensure that there is appropriate

l ti i l t th t h dregulation in place to ensure that persons who produce or disseminate research concerning financial instruments or issuers of financial instruments (including recommending or suggesting investment strategy), intended for distribution channels or for the public, take reasonable care to ensure that:

– such information is fairly presented, and

– disclose their interests or indicate conflicts of interestdisclose their interests or indicate conflicts of interest concerning the financial instruments to which that information relates.

(Lack of) Coordination with ISD: ancillary service)513/11/2009 Limiting Market Abuse - Bashir Al Nakib

Preventive Measures Research: Level 2Preventive Measures Research: Level 2•“Research and other information recommending gor suggesting investment strategy” shall mean

– information produced by an independent analyst,p y p y ,an investment firm, a credit institution, a ratingagency or an individual employed by them that,directly or indirectly, expresses an investmentrecommendation on a financial instrument or ani f fi i l i t t llissuer of financial instruments, as well as

– information produced by others than the personsf d t b hi h di tl dreferred to above which directly recommends an

investment decision on a financial instrument.


P ti M R h L l 2Preventive Measures Research: Level 2

•Standard for presentation of the recommendations•All Relevant Persons ‐ other than those financial journalists who aresubject to an appropriate and equivalent self regulatory regime shouldsubject to an appropriate and equivalent self regulatory regime ‐ shouldtake reasonable care to ensure that:

– facts are clearly distinguished from interpretations, estimates,f y g f p , ,opinions and other types of non‐factual information;

– all sources are reliable or that, where a source is not consideredli bl hi i l l i di dreliable, this is clearly indicated;

– all projections, forecasts and price targets are clearly labeled as suchand the material assumptions made in using them are indicatedand the material assumptions made in using them are indicated.


Preventive Measures Research: Level 2•Specific Rules•Investment firms, credit institutions and credit rating agencies should takereasonable care to ensure that:

– all substantially material sources are indicated;– any basis of valuation or methodology used to evaluate an issuer or financial

instrument is adequately summarised;instrument is adequately summarised;– the meaning of any rating category assigned (e.g.buy, sell etc) or

recommendation (e.g. “buy/hold/sell) made, is adequately explained and anyappropriate risk warning indicated;appropriate risk warning indicated;

– reference is made to the planned frequency, if any, of updates of the RelevantInformation and to any major changes in the coverage policy previouslyannounced (e g a decision to stop coverage);announced (e.g. a decision to stop coverage);

– the date at which the Relevant Information was first released for distributionis indicated clearly and prominently, as well as the relevant date and time for

fi i l i t t i ti dany financial instrument price mentioned;– the most recent change in recommendation or rating issued, if such change

occurred over the previous twelve months, is indicated clearly andi lprominently:


Preventive Measures

• Other preventive measures:

•the creation of “insiders’ lists",

•the application of "window trading" to sensitive categories of personnel,

•the application of internal codes of conduct and

•the establishment of "Chinese walls".

Implementing Measures


Preventive MeasuresInsiders’ lists: The directive requires all issuers and third parties acting on their behalf or for their account with access to inside ginformation to draw up lists of insiders. CESR proposes that those concerned should maintain lists of persons with access to inside i f ti t th ith t li t f th h hinformation together with permanent lists of those who have regular access to inside information. These lists should be updated on a continuous basis to ensure that they are always currenton a continuous basis to ensure that they are always current

Disclosure of (all) transactions: The directive requires those in managerial positions within an issuer to disclose dealings in themanagerial positions within an issuer to disclose dealings in the shares of the issuer. CESR proposes that this obligation should cover members of the administrative, management or supervisorycover members of the administrative, management or supervisory boards of the issuer together with senior managers having similar decision making capacity within the issuers.


Preventive MeasuresPreventive MeasuresNotification of suspicious transactions: The directive prequires intermediaries to notify the competent authority of transactions that they suspect of being abusive. y p gCESR proposes that notification should occur once suspicions are aroused. p

These persons need not have any evidence.

The notification obligation has to be fulfilled if the person professionally arranging transactions has sufficient p y g gindications that the transaction might be abusive.


Preventive Measures• Other measures:A primary role in the prevention of insider trading isA primary role in the prevention of insider trading is played by the existence of rules imposing a clear segregation of functions within investment firms (i esegregation of functions within investment firms (i.e. “Chinese walls”)Chinese walls within firms helps:−Chinese walls within firms helps:

• to ensure that privileged information will not flow or be di i t d t th d t t di i i idisseminated to other departments or divisions engaging in other activities of projects, and•To avoid that people working for the other parts of the firm be considered as holding privileged information and,

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as such, be hampered or crippled in their activities.3/11/2009 Limiting Market Abuse - Bashir Al Nakib

3/11/2009 RISK BASED APPROACH 59

Thank You for your attention

N kib b @ li l t

3/11/2009 60

[email protected]

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Bashir Al Nakib Limiting Market Abuse (Abl 13 March 2009) [Compatibility Mode]

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