Market Abuse

Financial Services and Markets Act 2000 (Market Abuse) Regulations 2014 Published

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On November 20, the Financial Services and Markets Act 2000 (Market Abuse) Regulations 2014 were published with an accompanying explanatory memorandum.  The Regulations were made on November 19, and come into force on December 15.  They amend the Financial Services and Markets Act 2000 (FSMA) to extend until July 3, 2016 the expiry dates of:

  • the prohibition on market manipulation (s118(8) FSMA);
  • the associated provisions (s118A(2) and (3) FSMA); and
  • the definition of “regular user” (s130A FSMA).

On July 3, 2016, the Market Abuse Regulation (MAR) will take effect and the above FSMA provisions will then expire.  The s118(8) prohibition will be replaced by a prohibition with similar scope under MAR.  Regulation.  Explanatory Memorandum.

FSA Bans and Fines Former Managing Director of Welcome Financial Services Ltd for Market Abuse

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The FSA published its final notice dated October 8 in relation to John Blake, the former managing director of Welcome Financial Services Ltd (Welcome).  In its final notice the FSA states that Mr. Blake engaged in market abuse, and has fined him £100,000 and banned him from performing any function relating to a regulated activity. 

Mr. Blake, together with other directors on the board of Welcome, approved Welcome’s 2007 annual report, which contained false and misleading statements.  As Welcome was at the time a subsidiary of the (as was) publically listed Cattles plc (which has since been de-listed), the false and misleading statements in the Welcome report were included in Cattles’ 2007 annual report and rights issue prospectus.  The FSA considered that Mr. Blake had been “knowingly concerned” in the failure of Welcome to take reasonable care to organise and control its affairs responsibly and effectively. 

The FSA viewed Mr. Blake’s conduct as particularly serious as it took place over a sustained period (approximately 18 months) and had a very serious impact both on Cattles’ shareholders (who lost all or virtually all of their investment) and on market confidence.

Tribunal Upholds FSA Decision to Ban and Fine Swiss Fund Manager and Two Former Cantor Fitzgerald Traders for Market Abuse

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The Upper Tribunal (Tax and Chancery Chamber) (the “Tribunal”) has directed the FSA to fine Stefan Chaligné, a Swiss-based hedge fund manager £900,000, (plus disgorgement of the financial benefit he obtained of €362,950) and Patrick Sejean, a former senior salesman on Cantor Fitzgerald Europe’s (CFE) London-based French desk £650,000. Chaligné, Sejean and a third trader, Tidiane Diallo, have in addition been banned by the FSA from performing any role in regulated financial services, at the direction of the Tribunal.

Chaligné recruited the assistance of Sejean and Diallo in manipulating the share price of securities in the hedge fund he was managing, thus increasing the value of the hedge fund on portfolio evaluation dates. This practice, known as “window dressing the close”, was achieved by Chaligné placing orders through CFE, effected and executed by Sejean and Diallo, which were designed to increase the closing price of nine securities traded on European and North American exchanges. The practical effect of his market abuse was to increase the performance and management fees paid to him by the beneficiaries of the hedge fund.

The Tribunal described this as “as serious a case of market abuse of its kind as one might conceive”.

Michael Barnier Reassures the City Over Euro Zone Integration

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Michael Barnier, the European commissioner overseeing financial services, has used the opportunity of speaking before an audience in London on 4 November 2011 to highlight the commission’s view on the key areas of progress in the development of European Financial Regulation and to address growing concerns that increased integration within the euro-zone will isolate or penalise EU member states who are not subscribed to the single currency.

The key areas of regulatory development referred to in the speech included:

  • The proposed increase in capital and liquidity requirements in compliance with Basel III;
  • The measures designed to increase transparency within hedge funds;
  • The new rules regarding short selling and credit default swaps;
  • The increased transparency of over the counter derivatives;
  • The revision of the Markets in Financial Instruments Directive (MiFID 2) which will regulate technological developments such as high frequency trading; and
  • New proposals on how to target Market Abuse.

European Commission: Press release (SPEECH/11/721) (4 November 2011).