Market Abuse and The Media

Article by Grania Baird and Richard Shillito

Introduction

The Financial Services and Markets Act 2000 ("FSMA") which came into force on 1 December 2001 involved radical reform of the regulation of the financial services industry in the UK. The Financial Services Authority ("FSA") became the single central authority for financial market supervision and regulation within the UK and was given extensive rule making, investigation and enforcement powers.

Most significantly, the FSMA created a new market-abuse regime, a civil regime which supplements rather than replaces the existing criminal regimes for insider dealing and market manipulation and is designed to catch those market-abusers who have not been caught by existing legislation. The FSA investigation, which has led to confrontation with five national press organisations including the FT, over disclosure of sources, (see Media Bulletin, September 2002) arises from the criminal regime set up by the FSMA. The investigation is said to be into a potentially serious case of insider dealing/market manipulation offences under the Criminal Justice Act 1993 and/ or what is now s 397(3) of the FSMA. It is not alleged that the press has committed any offence. The FSA says it requires documents from the press for the purpose of tracking down the alleged market manipulator. This has led to a dispute about the extent to which the press is protected by the provisions of s 10 Contempt of Court Act 1981 from having to do anything which might disclose their source. The regime is not limited to investment professionals; it can apply to both authorised and unauthorised persons, including journalists.

The potentially very wide application of the market-abuse regime was not generally recognised by the media. As a result there was little or no lobbying during the drafting process to secure exemptions or "safe harbours" for journalists. More attention is now being paid to the Market-abuse Directive, an EU proposal designed to harmonise market-abuse provisions Europe-wide.

This article explains the offences created by the market-abuse regime and considers their potential impact on the media.

The market abuse- regime

In order for behaviour to constitute market abuse, it must:

occur in relation to a qualifying investment traded on a prescribed market;

satisfy one or more of the following conditions:

- involve the misuse of information;

- be likely to give a false or misleading impression;

- be likely to distort the market;

- fall below the standard reasonably expected by a regular user of the market; and

- not fall within a safe harbour.

The first element - misuse of information

Behaviour will be a misuse of information where it is based on material information, the information is not generally available to those using the market, the information is investment relevant and relates to matters which a regular user of the market would reasonably expect to be disclosed to other users in the market.

The Code of Market Conduct ("the Code" or "MAR"), published by the FSA, gives helpful guidance on what information is considered to be generally available. This will include information which has to be disclosed through an accepted channel for dissemination or otherwise under the rules of a prescribed market. Information will also be generally available if it is contained in records which are open to the public for inspection, it has otherwise been made public or it can be obtained through observation. (In each of these cases the fact that significant numbers of market users may not have obtained the information is irrelevant - the fact that it is available is sufficient.)

Misuse of information, the first element of market abuse...