Editor’s note: this is general educational information about what the UK market abuse regime prohibits, not investment advice or legal advice. It is based on the legislation and rules listed at the end.
Analysis: the scope provision does more work than the offences
The list of prohibited conduct is long, but the provision that decides most real cases is Article 2. The regulation applies to instruments admitted to trading on a UK regulated market or for which admission has been requested, to instruments traded on or admitted to a UK multilateral trading facility, to instruments traded on a UK organised trading facility, and to instruments not covered by any of those whose price or value depends on or affects the price of one that is, expressly including credit default swaps and contracts for difference.
Three consequences follow. First, growth market and derivative exposure is inside the regime, so trading an instrument that never touches the main market can still be caught through its reference asset. Second, Article 2(3) applies the regulation to any transaction, order or behaviour concerning those instruments irrespective of whether it takes place on a trading venue, which brings over the counter and off venue activity within reach. Third, Article 2(4) applies the prohibitions to actions and omissions wherever they take place, whether in the United Kingdom or another country or territory. Location is not a defence, and neither is inaction, since omissions are named.
For manipulation and benchmark conduct the perimeter is wider again. Articles 12 and 15 also reach spot commodity contracts that are not wholesale energy products where the behaviour has or is likely or intended to affect the price of a covered instrument, certain financial instruments whose behaviour affects a spot commodity contract, and behaviour in relation to benchmarks.
What a careful reader should take from this is that the intuitive test, did anyone trade on a secret, answers almost none of the questions the regime asks. The operative questions are whether the instrument sits inside Article 2, whether the behaviour is one of the patterns in Article 12, and, for the transaction based limb, whether the person can establish legitimate reasons and conformity with an accepted market practice. Article 12(4) closes the corporate gap by applying the article to the natural persons who participate in a decision to carry out the activity for a legal person’s account.
What the documents say
The popular picture of market abuse is a director buying shares before an announcement. The UK regime is written more broadly than that, and the breadth is not decorative. Two prohibitions carry it. Article 14 of the UK Market Abuse Regulation says a person shall not engage or attempt to engage in insider dealing, recommend that another person engage in insider dealing or induce another to do so, or unlawfully disclose inside information. Article 15 adds a single sentence: a person shall not engage in or attempt to engage in market manipulation. Everything else is definition.
Attempt matters in both. A trade that never executes, and information that never moves a price, are inside the prohibitions.
Dealing, recommending, disclosing
Insider dealing under Article 8 arises where a person possesses inside information and uses it by acquiring or disposing of financial instruments to which the information relates, for their own account or someone else’s, directly or indirectly. Cancelling or amending an order placed before the person came into possession of the information counts as use. So the classic defensive move, pulling a resting order once a person learns something confidential, is treated as dealing rather than as abstention.
The reach extends past the person who trades. Recommending on the basis of inside information that another person buy, sell, cancel or amend, or inducing them to do so, is itself covered, and the recipient who acts on the recommendation is caught where they know or ought to know it was based on inside information. Article 8 applies to members of an issuer’s administrative, management or supervisory bodies, to holders of capital in the issuer, to anyone with access through employment, profession or duties, and to persons who possess inside information as a result of being involved in criminal activities. It then reaches anyone else who possesses inside information where that person knows or ought to know what it is.
Unlawful disclosure, in Article 10, needs no trade at all. It arises where a person possesses inside information and discloses it to any other person, except where the disclosure is made in the normal exercise of an employment, a profession or duties. Passing on a recommendation or inducement based on inside information is also unlawful disclosure where the person passing it on knows or ought to know its basis. The conversation is the offence.
Manipulation without a secret
Market manipulation, defined in Article 12, requires no confidential information whatsoever. It covers a transaction, an order to trade or any other behaviour that gives or is likely to give false or misleading signals as to supply, demand or price, or that secures or is likely to secure the price at an abnormal or artificial level, unless the person establishes that the behaviour was carried out for legitimate reasons and conforms with an accepted market practice. It also covers behaviour employing a fictitious device or any other form of deception or contrivance, the dissemination of information, including rumours, that gives false or misleading signals where the disseminator knew or ought to have known it was false, and the transmission of false inputs in relation to a benchmark.
Article 12(2) then names specific patterns. Securing a dominant position over supply or demand with the effect of fixing prices or creating unfair trading conditions is manipulation. So is buying or selling at the open or the close in a way likely to mislead investors acting on displayed prices. Order book conduct gets its own paragraph: placing, cancelling or modifying orders by any means, including algorithmic and high frequency strategies, which disrupts or delays the functioning of a venue’s trading system, makes it harder for others to identify genuine orders, including by overloading or destabilising the order book, or creates a false or misleading signal, in particular by entering orders to initiate or exacerbate a trend.
One pattern is aimed squarely at commentary. Taking advantage of occasional or regular access to traditional or electronic media to voice an opinion about an instrument, or indirectly about its issuer, while holding a previously taken position and profiting from the impact of that opinion, without simultaneously disclosing the conflict of interest to the public in a proper and effective way, is manipulation. The FCA’s guidance in MAR 1.8 puts a worked example on the record: a person posting information on an internet bulletin board or chat room containing false or misleading statements about a takeover of a listed company, knowing the information is false, may contravene Article 12(1)©.
The criminal layer alongside it
UK MAR is a civil and regulatory regime enforced by the FCA. A separate criminal statute sits beside it. Under section 89 of the Financial Services Act 2012, a person commits an offence by making a statement known to be false or misleading in a material respect, or being reckless as to whether it is, or by dishonestly concealing material facts, where this is done with the intention of inducing another person to enter into a relevant agreement or exercise rights under a relevant investment, or recklessly as to whether it may induce them. The section carries a defence that the statement was made in conformity with price stabilising rules, control of information rules, or the relevant provisions of Article 5 of the market abuse regulation, the exemption for buy-back programmes and stabilisation.
The penalties are set by section 92. A person guilty of an offence under that Part is liable on summary conviction to imprisonment for the applicable maximum term or a fine not exceeding the statutory maximum, or both, and on conviction on indictment to imprisonment for a term not exceeding 10 years or a fine, or both. The applicable maximum term on summary conviction is the general limit in a magistrates’ court in England and Wales, 12 months in Scotland and 6 months in Northern Ireland.
