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Current Market Conditions and Conduct Necessitate an Extension of the UK Market Abuse Regime’s Provisions

 

London, UK, May 7, 2008 − The CFA Institute Centre for Financial Market Integrity said today that it supports HM Treasury’s (HMT) proposal to extend the superequivalent provisions of the UK market abuse regime until the review of the EU Market Abuse Directive (MAD) is complete. In its response to the HMT’s consultation which ends today, CFA Institute Centre advocated that the UK legislation is more likely to capture market abuse than the EU MAD which is currently under review. Wider definitions of market abusive behaviour, proof of such behaviour and the investments included under such behaviour enables the UK FSMA regime to be more encompassing of market abuse than the current provisions of MAD.

The consultation comes at a significant time for the financial services industry which has recently suffered from market conduct leading to excessive short selling of stocks spurred on by market rumours. Adding to this has been figures from the recently published Financial Services Authority Market Watch 26 which demonstrates that insider dealing around M&A activity had increased in 2007. The complexity and lack of transparency associated with the ever evolving range of financial instruments traded has meant that market abuse is both difficult to capture and prove. Therefore, combined with the prevailing distressed market conditions, the problem of detecting and policing market abuse has become a significant burden for regulators and firms alike.

The CFA Institute Centre therefore supports a temporary extension of the superequivalent provisions of the UK regime on market abuse as they better address the issue of detecting and proving abuse, particularly in the current climate. The UK regime includes the concept of ‘relevant information not generally available’ (RINGA) which has wider scope than the term of ‘inside information’ contained in the provisions of MAD. Similarly the prescribed and specified nature of the various market abusive actions and investments in the MAD mean that ever evolving financial instruments and certain types of ‘inaction’ are excluded. The FSMA regime in the UK however uses the more all encompassing concepts of ‘behaviour’ and ‘qualifying investments’ and is likely to therefore be more up to date with market events and financial innovation.

Charles Cronin, head of CFA Institute Centre, Europe, Middle East and Africa said: “We believe that retaining the superequivalent provisions of the UK regime is central to ensuring greater investor protection and market efficiency particularly at a time when market conditions lend themselves to volatile behaviour. The CFA Institute Centre fully supports HM Treasury’s extension proposal and welcomes the opportunity to collaborate with industry peers in upholding the highest standards of ethical and professional behaviour.”

View (PDF) the CFA Institute Centre’s response to the HMT’s consultation paper.

CFA Institute Centre for Financial Market Integrity
The CFA Institute Centre develops timely, practical solutions to global capital market issues. Established in 2004, the CFA Institute Centre builds upon the CFA Institute mission to lead the investment profession globally by setting the highest standards of ethics, education and professional excellence. It carries forward the organization’s 60-year history of standards and advocacy work, especially its Code of Ethics and Standards of Professional Conduct for the investment profession. More information may be found at www.cfainstitute.org/centre.

CFA Institute
CFA Institute is the global membership association that administers the Chartered Financial Analyst (CFA) and Certificate in Investment Performance Measurement (CIPM) curriculum and exam programs worldwide; publishes research; conducts professional development programs; and sets voluntary, ethics-based professional and performance-reporting standards for the investment industry. CFA Institute has more than 94,000 members, who include the world’s 81,000 CFA charterholders, in 131 countries and territories, as well as 135 affiliated professional societies in 56 countries and territories. More information may be found at www.cfainstitute.org. (Bloomberg users can find CFA Institute at 497458Z).