Some guidance at last: the new rules and regulations on market abuse

Insider trading has proved extremely difficult to prosecute successfully in the UK. The Financial Services and Markets Act 2000 seeks to remedy this by means of a new civil offence of market abuse. In July the Financial Services Authority issued a Draft Code of Market Conduct which seeks to clarify the scope of the new offence. Michael Grant of London Guildhall University reviews the regulator’s approach.

Background

In the past few years concern has been growing amongst the financial community, regulators and the courts that the rules which govern the prohibition on insider dealing have been flouted and ignored. A number of recent examples serve to evidence this belief. In February 1999 there were allegations of insider dealing following the hostile bid by Photobition for Wace. Bankers and brokers on both sides were contacted by the Stock Exchange. In September 1999 600 names were passed to regulators, sparking the biggest insider dealing investigation to date. The inquiry was launched after the value of the Legal and General shares rose on rumours circulating in the City, which also appeared on the Internet, that National Westminster Bank was to launch a UK£11billion takeover bid. The rumour triggered a stampede into Legal and General shares and 42 million changed hands. The leak forced the chief executives of the two companies to reveal details of the merger at least two weeks before they had intended. The 600 names included everyone who was known to have worked on the merger. Once again, in October 1999 the Stock Exchange launched an investigation into trading in Tarmac shares after they rose 12 per cent shortly before the company disclosed that it had been approached by a bidder. The new market abuse regime contained within the Financial Services and Markets Act 2000 is intended to counter such activity.