1. CISI – Financial Products, Markets & Services
Topic – Financial Services Regulation and Professional Integrity
Lesson: 8.3 Insider Dealing and Market Abuse

2. Transparency International Corruption Index 2015
Source:

3. Financial services is the least trusted industry globally
Trust in Industries, 2013 vs 2014
Source: 2014 Edelman Trust Barometer Survey +2 +2 +1 -1 +2 +1

4. What is insider dealing?
“When confidential, price-sensitive knowledge and data is used to provide an unfair advantage when buying and selling securities”
FT.com, 2016

5. Insider Dealing Timeline
23 June 1980, The Companies Act 1980 came into force and made insider dealing a criminal offence in certain specified circumstances. The relevant act is now The Criminal Justice Act 1993
Up to the end of World War II the buying and selling of stocks and shares in a company on the basis of information known only to the company or its directors, officers and advisers was considered legitimate and was widespread.
The Stock Exchange and the Takeover Panel issued a joint statement calling for criminal sanctions for insider dealing.
By the late 1950s it began to be considered unethical to make private profits at the expense of the main body of shareholders.
The practice became widespread once more, often using inside knowledge of a take over.
1945
Late 1950’s
1960’s and early 1970’s
1973

6. The Criminal Justice Act 1993
The Act made insider dealing a criminal offence (punishable by a fine and/or jail term). It defines...
What is deemed to be inside
information
Who is deemed to be an insider
The situations that give rise to the offence of insider dealing
Information relating to particular securities or a particular issuer of securities and which:
A person in possession of price sensitive information and knows it that it is inside information from an inside source. They may have:
An insider acquires or disposes of price-affected securities while in possession of unpublished, price-sensitive information.
Is specific or precise
Has not been made public
Gained it through being a director, employee or shareholder of the security issuer
Encouraging another person to deal in price-affected securities.
If it were made public, would be likely to have a significant effect on the price of the securities
Disclosure of the information to another person (other than those permitted to know it).
Gained it by virtue of his employment, office or profession e.g. company auditors
Information is public when it is:
Published e.g. Co. Results
Derived from accessible information e.g. Analysis of accounts or press releases
Acquisition of disposal must occur on a regulated market or through a professional intermediary.
Sourced it from either of the above, either directly or indirectly

7. The Criminal Justice Act 1993
The instruments covered by the law are described as securities.
This includes:
Shares
Bonds (Including Gilts or those issued by a company or public sector body)
Warrants (Similar to an option, normally based on equities)
Depositary receipts
Options (To acquire or dispose of securities)
Futures (To acquire or dispose of securities)
Contracts for differences (Based on securities, interest rates or indices)
Not included:
Commodities
Units/Shares in Unit Trusts, OEICs and SICAVs

8. price of the investment
Market Abuse
The offence of market abuse was introduced by the Financial Services and Markets Act It was subsequently amended by the Market Abuse Directive of 2005.
Market abuse relates to behaviour by a person or group of people working together in relation to qualifying investments, on a prescribed market that satisfies one of the following three conditions:
The behaviour is based on
information that is generally not
available to those using the market
The behaviour is likely to give
a false or misleading
impression of the
investment’s …
The behaviour is likely
to distort the market
in the investment
And if it were available, it
would have an impact on the
price of the investment
Supply
Demand
Value
In a nutshell, market abuse is what a regular user of the market would view as a failure to observe the standards of behaviour normally expected in the market

9. Market Abuse – qualifying investments
HM Treasury has defined the “qualifying investments” and “prescribed markets” as the investments traded on any of the UK’s exchanges