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

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Presentation at Lebanon Bankers Association March 2009

Presentation at Lebanon Bankers Association March 2009

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

  • 1. LIMITING MARKET ABUSE FRAMEWORK Bashir Al Nakib CAMS, ACFE, CFAP March 13, 2009 ,
  • 2. Recent Market Abuse Cases Video Vid 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 2
  • 3. Index 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 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 3
  • 4. Introduction 1 •Market Abuse Directive: timetable •Market Abuse Directive: timetable •1989: Directive on insider trading (89/592) •1999: Financial Services Action Plan 1999: •2000: Lisbon Council, implementation of FSAP by • 2005; Wise Men Committee 005; se e Co ttee •2001: Lamfalussy Report, 4 level approach •2001: Commission proposal p p •2002: Common position; Cesr •2003: Final Directive •2004, October 12: deadline for implementation (include laws, regulations and administrative provisions) 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 4
  • 5. Introduction 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) 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 5
  • 6. Introduction 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 meetings 2002, 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 on implementing measures •2003, March. Commission publishes draft directives (2) and regulation (1) on implementing measures •2003 April CESR 2nd Consultation paper (Additional level 2 •2003, implementing measures) •2003, May. Inter‐Institutional Monitoring Group, First Report , y g p, p 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 6
  • 7. Introduction I t d ti 4 R 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) Great diversity at national level (rules and enforcement) G di i i ll l( l d f ) New financial instruments and techniques increasing mkt    manipulation Need to protect market integrity to ensure integration of  financial markets (other directives: ISD, single prospectus,  transparency, takeover) 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 7
  • 8. Introduction 5 Measures to Promote Market Integrity intermediaries issuers exchanges Price P e regulators Discovery Process Institutional Analysts investors Mass - Media Financial 3/11/2009 journalists Limiting Market Abuse - Bashir Al Nakib 8
  • 9. Introduction 6 Market Integrity (2003/6/EC Directive) – An integrated and efficient financial market requires  market integrity.   k t i t it – The smooth functioning of securities markets and  public confidence in markets are prerequisites for  economic growth and wealth.  i th d lth – Market abuse harms the integrity of financial markets  and public confidence in securities and derivatives 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 9
  • 10. Insider trading - Example 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 10
  • 11. Manipulation – Example 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 11
  • 12. The 2003/6/EC Directive Insider Trading 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 12
  • 13. Insider trading 1.1 11 Definition of “inside information” Art 1 inside information Art. •"Inside information" shall mean information of a  precise nature which has not been made public,  relating, directly or indirectly, to one or more issuers  relating, 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 would 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 related  those financial instruments or on the price of related derivative financial instruments 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 13
  • 14. Insider trading 1 2 1.2 Definition of “inside information” (more) inside information – Member States should tackle the practice known as 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.)) 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 14
  • 15. Insider trading 2 Level 2 European Commission asked advice on the meaning of: 1) Precise nature 2) Price sensitive 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 15
  • 16. Insider trading 2 1 2.1 1) precise information ( (art. 2 draft directive) ) a) Information consisting of a matter or an event information of a precise nature shall mean any which is true or could reasonably be expected to become true in the future… (remember: relevant definition also for issuers disclosure!) “True”: based on firm and objective evidence (as opposed to Rumours) which are not are not inside information “could become true”: uncertain but contingencies don’t mitigate precise of info (if ( expected merger doesn’t occur, this could be in 3/11/2009 any case precise info).Bashir Al Nakib Limiting Market Abuse - 16
  • 17. Insider trading 2 2 2.2 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 sensitive A piece of info “allow a conclusion …”: ”: Either when enable a reasonable investor to take an investment decision without (or at very low) risk ) Or when it is likely to be exploited immediately on the market 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 17
  • 18. Insider trading 2 3 2.3 2) price sensitivity of information (art. 3 draft directive) “Information which … would  be likely to have a  significant effect …” mean ex‐ante available  g information an average person would be likely to use  as part of the basis of his investment decisions in  order to optimise his interests order to optimise his interests 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 18
  • 19. Insider trading 2 4 2.4 2) 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 to enter iinto transactions. i This assessment has to take into consideration the market impact, which would 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 be decisions 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 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 though information is published, this doesn’t actually produce any effect. 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 19
  • 20. Insider trading 2 5 2.5 2) price sensitivity: Useful indicators: Type of info is the same as info which had in the past a significant effect on prices Pre- Pre-existing analyst’s reports and opinions indicate the that type of info is price sensitive Issuers itself has treated similar events as inside info List of price sensitive information: point 35 (Level 3) 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 20
  • 21. Insider trading 3.1 Definition of insider trader (Primary insiders) Art 2 Art. •…Any person who possesses an inside information: • (a) by virtue of his membership of the administrative,  management or supervisory bodies of the issuer, or management 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. 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 21
  • 22. Insider trading 3.2 Definition of insider trader (Secondary insiders -Tippees) pp ) •The prohibitions applicable to the Primary  insiders should  also apply to any person, who  p possesses inside information while that person  p knows, or ought to have known, that it is inside  ( ) information (Art. 3). 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 22
  • 23. Insider trading 3.3 Prohibition •Member States shall prohibit any person (primary + secondary insiders)   …. who possesses inside information from: …. 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 such  disclosing 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 relates. information relates 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 23
  • 24. The 2003/6/EC Directive  h 2003/6/ C i i MANIPULATION
  • 25. Manipulation 1 Definition (Art 1 2) (Art. 1.2) 1. Transactions or orders to trade: which give or are likely to give, false or misleading signals as to the give, give 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. Transactions or orders to trade which employ fictitious devices or any 2 T ti d t t d hi h l fi titi d i other form of deception or contrivance; 3. 3 Dissemination of information through the media, including the Internet, media 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 the i f th information was false or misleading. ti f l i l di 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 25
  • 26. Manipulation 1.1 Types of manipulation: T f i l ti − trade b d based manipulation d i l i − information based manipulation − action based manipulation 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 26
  • 27. Manipulation 1.2 Trade b T d based manipulation - d i l ti − In this case the manipulator tries to cause a price change in the price of a security by trading in the market. k − 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” 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 27
  • 28. Manipulation 1.3 13 Action based manipulation − In this case the manipulator tries to cause a change in the price of a security through actions that give the appearance of an active market in such security h it Examples: • wash sales ((transactions involving no change in the beneficial f ownership of the security); • matched t d (th b t h d trades (the buyer and seller h d ll have previously agreed i l d to cancel the effects of the trade); • In both the examples the manipulator is bearing no risk risk. 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 28
  • 29. Manipulation 1.4 Information based manipulation − I this case the manipulator tries to cause a In hi h i l i change in the price of a security by spreading false, exaggerated or misleading information. − Internet is the ideal way to implement such y p strategy 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 29
  • 30. Manipulation 2 CESR approach Signals to be taken into account for Level 2 L possibly manipulative behaviours (art 8 of (art. draft directive) Rules related to •market microstructure •market liquidity Level 3 diagnostic flags: indications which should draw further scrutiny and are likely to be present individually or cumulatively as signals of manipulative behaviour 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 30
  • 31. Manipulation 2 1 2.1 1) Orders which produce false signals 2) Orders which secure the price at an abnormal or artificial level Factors offering a strong indication: indication: •The extent to which orders given or transactions undertaken represent a significant proportion of the daily volume of transactions in a financial instrument, in particular when these activities lead to a significant change in the price of the financial instrument. instrument. •The extent to which orders given or transactions undertaken by persons with a significant position (long or short) in a financial instrument lead to significant changes in the price of the financial instrument or related derivative or underlying asset 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 31
  • 32. Manipulation 2.2 22 1) Orders which produce false signals 2) Orders which secure the price at an abnormal or artificial level Factors offering a strong indication: indication: •Whether orders given or transactions undertaken lead to no change in beneficial ownership of the financial instrument or which reallocate holdings among associated companies within a corporate holding. •The extent to which orders given or transactions undertaken include position reversals in a short period and represent a significant proportion of the daily volume, and/or are associated with significant changes in the price y , g g p of a financial instrument. •The extent to which orders given or transactions undertaken are concentrated within a short time span in the trading session and lead to a price change which is subsequently reversed. 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 32
  • 33. Manipulation 2 3 2.3 1) Orders which produce false signals 2) Orders which secure the price at an abnormal or artificial level Factors offering a strong indication: •The extent to which orders given change the representation of best bid or offer prices in a financial instrument, or more generally the representation of the order book available to market participants, and are removed before they th are executed. t d •Whether the systematic purchase or sale of a financial instrument affects its p price, without symmetric price impact by simultaneous counteracting , y p p y g transactions on other markets. •The extent to which transactions when undertaken at or around a specific time when reference prices settlement prices and valuations are calculated prices, lead to price changes which have an effect on such prices and valuations.. 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 33
  • 34. Manipulation 2.4 24 3) Orders which employ fictitious devices or any other form of deception or contrivance Factors offering a strong indication: •Whether orders to trade given or transactions undertaken are preceded or followed by dissemination of false or misleading disclosure by the same or or associated persons. •Whether orders t t d might b given or t Wh th d to trade i ht be i transactions undertaken b ti d t k by persons, and associated persons, before or after they produce or disseminate research or investment recommendations which are erroneous or biased and demonstrably influenced by material interest 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 34
  • 35. Manipulation Manip lation – The Gre Area Grey •Journalists (art. 1.2.c) p j y •in respect of journalists when they act in their  professional 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 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 35
  • 36. Manipulation vs. Buy Back  Manipulation vs Buy Back Program  Program & Price Stabilisation
  • 37. Manipulation s B Manip lation vs. Buy Back Program (Art. “The (A t 8) “Th prohibitions provided f i thi Di ti shall not apply t hibiti id d for in this Directive h ll t l 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 procedure referred to in Article 17(2)” Safe harbour Insider trading (i.e. Exemption) Market Manipulation 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 37
  • 38. Manipulation s B Manip lation vs. Buy Back Program CESR/Commission Approach Allow BBP without jeopardise market Aims integrity BBP identification BBP disclosure Main issues Potential for Market Abuse Fair treatment of shareholders F Allow flexibilities 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 38
  • 39. Manipulation s B Manip lation vs. Buy Back Program BBP identificaton The safe harbour covers: •(1) the buying back of shares for the purposes of reducing the capital of an issuer; •(2) the buying back of shares to meet obligations arising from debt financial instruments exchangeable into equity instruments; •(3) f lfilli (3) fulfilling obligations arising f bli ti ii from employee share option l h ti programmes and other allocations of shares to employees. 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 39
  • 40. Manipulation s B Manip lation vs. Buy Back Program BBP ex ante disclosure ex-ante •Prior to the start of trading full details of the programme must be Prior trading, published through an officially appointed mechanism in the jurisdictions in which an issuer has requested that its shares be admitted to trading on a regulated market. (…) All subsequent changes to the programme must be g ( ) q g p g published through the same officially appointed mechanism(s). bl h d h h h ff ll d h () •The issuer must have in place the mechanisms necessary to ensure that it is able to fulfil trade reporting obligations to the relevant competent authority and/or market. 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 40
  • 41. Manipulation s B Manip lation vs. Buy Back Program Conditions for trading (art 3 draft regulation) (art. When executing trades under the programme, an issuer; •shall not purchase shares at a price higher than either the price of the last independent trade or the current independent bid •may not purchase more than 25% of the average daily volume of the shares in any one day on the regulated market market. •however, in case of extreme low liquidity, the issuer may deviate from the above mentioned 25% limit provided that the issuer: a) p ) informs in advance the Competent Authority; b) disclose adequately its intention; c) does not exceed 50% of the average daily volume. 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 41
  • 42. Manipulation VS Manip lation VS. Stabilisation 1 •Stabilisation mean t any purchase or offer t purchase St bili ti to h ff to h Relevant Securities, or any transaction in Associated Securities equivalent thereto by investment firms or credit thereto, institutions, which is undertaken in the context of a Significant Distribution of Relevant Securities (IPO or secondary public offering) for exclusively securing a market p price for such Securities that would not otherwise prevail. f p •Activity that is not directly linked to this purpose will not benefit from the safe harbour. f f f 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 42
  • 43. Manipulation s Manip lation vs Stabilisation - Conditions 1 •Stabilisation Period •Stabilisation shall be undertaken only during a defined period that  has been disclosed to the market in advance. has 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 market  the Relevant Securities having due regard to prevailing market conditions and in any event may not be executed above the offering  price.  3/11/2009 Limiting Market Abuse - Bashir Al Nakib 43
  • 44. Manipulation vs Stabilisation – Conditions p 2 •Ex ante disclosure •The possibility of Stabilisation, together with adequate disclosure of the risks and other aspects of Stabilisation which could be f p f material to an investor’s decision to subscribe for or purchase the Relevant Securities, must be disclosed. •The existence and maximum size of any Overallotment Facility or Greenshoe, Greenshoe the exercise period of the Greenshoe and any conditions for the use of the Overallotment Facility or exercise of the Greenshoe must also be disclosed, as well 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 44
  • 45. Manipulation vs. Stabilisation – p Conditions 3 •Post Stabilisation Disclosure •Within one week after the end of the Stabilisation Period, the Stabilisation transactions undertaken must b adequately d l d to bl d k be d l disclosed the public. This disclosure has to contain the following information: the date t hi h the Stabilisation th d t at which th St bili ti period ended; i d d d whether or not Stabilisation was undertaken; the i th price range b tbetween which St bili ti was undertaken; hi h Stabilisation d t k the date at which Stabilisation last occurred. 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 45
  • 46. Manipulation vs Stabilisation – Conditions p 4 •1. Record k i d keeping •Systems must be in place to record Stabilisation y p orders and transactions. •2. The stabilisation manager •One Investment Firm shall act as central point of h ll l f inquiry for any regulatory intervention. 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 46
  • 47. Preventive Measure P ti M
  • 48. Preventive Measures Prevention of insider trading • The protection of investors requires that: The protection of investors requires that: they will be protected against the improper use of inside information; they are supplied with appropriate, th li d ith i t regular information form the issuers of listed securities to ensure that they are p placed on equal footing and remove q g information asymmetry. 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 48
  • 49. Preventive Measures: Issuers Disclosure NEW! – Member States shall ensure that issuers of financial  instruments inform the public as soon as possible of  p p inside 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  provided that the issuer is able to ensure the  id d th t th i i bl t th confidentiality of that information. (Additional  requirement: inform competent authority without  requirement: inform competent authority without 3/11/2009 delay). Limiting Market Abuse - Bashir Al Nakib 49
  • 50. 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 public disclosure would be likely to affect the conclusion of a deal y or the normal course of negotiations; •(2) Decisions taken or contracts made by the management board of an issuer which need the approval g pp of the supervisory board in order to become effective, where the organisation of such an issuer requires the separation between these boards, provided that such a public disclosure before the approval would jeopardise the correct assessment of th i f t t f the information b th public. ti by the bli 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 50
  • 51. Preventive Measures: Research (art. 6.5) ( ) •Member States shall ensure that there is appropriate  regulation in place to ensure that persons who produce  l ti i l t th t h d 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 interest disclose their interests or indicate conflicts of  interest  concerning the financial instruments to which that  information relates. 3/11/2009 (Lack of) Coordination with ISD: ancillary service) Limiting Market Abuse - Bashir Al Nakib 51
  • 52. Preventive Measures Research: Level 2 •“Research and other information recommending  g or suggesting investment strategy” shall mean  – information produced by an independent analyst, p y p y , an investment firm, a credit institution, a rating agency or an individual employed by them that, directly or indirectly, expresses an investment recommendation on a financial instrument or an issuer of fi i f financial i t i l instruments, as well as t ll – information produced by others than the persons referred t above which di tl recommends an f d to b hi h directly d investment decision on a financial instrument. 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 52
  • 53. Preventive Measures Research: Level 2 P ti M R h L l •Standard for presentation of the recommendations •All Relevant Persons ‐ other than those financial journalists who are subject to an appropriate and equivalent self regulatory regime ‐ should take 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 considered reliable, this i clearly i di li bl hi is l l indicated; d – all projections, forecasts and price targets are clearly labeled as such and the material assumptions made in using them are indicated indicated. 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 53
  • 54. Preventive Measures Research: Level 2 •Specific Rules •Investment firms, credit institutions and credit rating agencies should take reasonable 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; – the meaning of any rating category assigned (e.g.buy, sell etc) or recommendation (e.g. “buy/hold/sell) made, is adequately explained and any appropriate risk warning indicated; – reference is made to the planned frequency, if any, of updates of the Relevant Information and to any major changes in the coverage policy previously announced (e g a decision to stop coverage); (e.g. – the date at which the Relevant Information was first released for distribution is indicated clearly and prominently, as well as the relevant date and time for any fi financial i t i l instrument price mentioned; t i ti d – the most recent change in recommendation or rating issued, if such change occurred over the previous twelve months, is indicated clearly and prominently: i l 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 54
  • 55. 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 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 55
  • 56. Preventive Measures Insiders’ lists: The directive requires all issuers and third parties acting on their behalf or for their account with access to inside g information to draw up lists of insiders. CESR proposes that those concerned should maintain lists of persons with access to inside information together with permanent lists of those who have i f ti t th ith t li t f th h h regular access to inside information. These lists should be updated on 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 the shares of the issuer. CESR proposes that this obligation should cover members of the administrative, management or supervisory boards of the issuer together with senior managers having similar decision making capacity within the issuers. 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 56
  • 57. Preventive Measures Notification of suspicious transactions: The directive p requires intermediaries to notify the competent authority of transactions that they suspect of being abusive. y p g CESR 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 p professionally arranging transactions has sufficient y g g indications that the transaction might be abusive. 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 57
  • 58. Preventive Measures • Other measures: A 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 e (i.e. “Chinese walls”) −Chinese walls within firms helps: Chinese • to ensure that privileged information will not flow or be disseminated t other d di i t d to th departments or di i i t t divisions engagingi 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, as such, be hampered or crippled in their activities. 3/11/2009 Limiting Market Abuse - Bashir Al Nakib 58
  • 59. 3/11/2009 RISK BASED APPROACH 59
  • 60. Thank You for your attention Nakib.ba@compliancealert.org N kib b @ li l t 3/11/2009 60