Preventing Market Abuse

Investors expect — and are entitled to expect — a fair and stable market. When market abuses such as insider dealing and market manipulation take place, investors often become reluctant to commit their capital to the market. This reluctance can have a significant impact on the cost of capital, the growth potential of the economy and the reputation of the marketplace. For these reasons and others, EU governments have taken extensive measures to prevent market abuse.

In 2014, the EU adopted ‘MAD II’ and ‘MiFID II’ legislation to replace the earlier Market Abuse Directive (MAD) 2003 and the Markets in Financial Instruments Directive (MiFID) 2007. MAD II consists of the EU Market Abuse Regulation (MAR) and the EU Criminal Sanctions for Market Abuse Directive (CSMAD). MAR came into force on 3 July 2016, and member states had until that date to transpose the CSMAD into their national law. MiFID II applies starting in January 2018. In the UK, the Financial Conduct Authority (FCA) oversees the anti-market abuse regime. 

In 2011, the EU regulation on wholesale energy market integrity and transparency (REMIT) extended the market abuse regime that was already applicable to securities, derivatives, commodities and carbon markets to the wholesale gas and electricity markets.  REMIT introduced a consistent, EU-wide framework for identifying and penalizing energy market abuse. In addition, the UK Electricity and Gas (Market Integrity and Transparency) (Criminal Sanctions) Regulations 2015 provide for a criminal regime for reckless or intentional market abuse. The Office of Gas and Electricity Markets (Ofgem) is the UK regulator for gas and electricity markets, and the UK national regulatory authority that monitors, investigates and enforces against breaches of REMIT.

The goals of anti-market abuse legislation are to ensure that the market is fair for all users and to create a consistent approach to the regulation of market conduct. Violation of these laws can result in serious penalties, from fines to prison time.

Summary

The topics covered in the course include:

• How to recognize insider dealing and market manipulation
• EU anti-market abuse legislation
• The UK anti-market abuse regime and the regulator's role in overseeing it
• How to protect inside information
• What to do if you witness market abuses