Market Abuse

Market abuse is a civil offence. Market abuse covers seven types of behaviour which relate to, or have an impact on, investments traded on certain markets (including AIM).

A person can commit market abuse by either carrying out one of the behaviours himself, or by encouraging or requiring another person to carry it out. The penalty for market abuse is an unlimited financial penalty or a private or public censure. The FSA can also seek an injunction to restrict abusive behaviour and a restitution order compensating those suffering loss as a result of the market abuse.

Seven types of behaviour:

1.                       Insider dealing

"Insider dealing" involves dealing, or attempting to deal, in investments on the basis of inside information.

"Inside information" is information which is precise, not generally available, relates to the issuer of the investments, and, if generally available, would be likely to have a significant effect on the investment price.

An "insider" is any person who has inside information as a result of:

• his membership of an administrative, management or supervisory body of a Company;
• his holding in the shares of a Company;
• his access to the information through his employment;
• his criminal activities; or
• other means

and which he knows, or could reasonably be expected to know, is inside information.

Insider dealing would include, for example, the situation of "pre-positioning", namely entering into a transaction for a person's own benefit, on the basis of and ahead of an order which he is to carry out with or for another person (in respect of which information concerning the order is inside information), which takes advantage of the anticipated impact of the order on the market price.

2.                       Improper disclosure

"Improper disclosure" involves an insider disclosing inside information to another person other than in the proper course of his employment, profession or duties.

This would include, for example, the disclosure of inside information by the director of an issuer to another person in a social context.

3.                       Misuse of information

"Misuse of information" involves misusing information which is not generally available to those using the market, and which would be regarded by a regular user of the market as relevant when deciding the terms on which transactions in such investments should be effected. "Misuse of information" involves a failure to observe the standard of behaviour reasonably expected of a person in his position in relation to the market.

This would include, for example, dealing in an investment based on information regarded by a regular user of the market as relevant, which is not generally available.

4.                       Manipulating transactions

"Manipulating transactions" involves effecting a transaction or giving an order to trade which either gives, or is likely to give, a false or misleading impression as to the supply of, or demand for, or as to the price of, investments; or which secures the prices of such investments at an abnormal or artificial level.

This would include, for example, deliberately buying or selling shares in an AIM company at the close of the market with the effect of misleading investors who act on the basis of closing prices.

5.                       Manipulating devices

Using "manipulating devices" involves effecting transactions which employ fictitious devices or any other form of deception.

This would include, for example, a "pump and dump" scenario, namely taking a long position in an investment and then disseminating misleading positive information about the investment with a view to increasing its price in the short term prior to selling stock.

6.                       Dissemination

"Dissemination" involves behaviour which gives, or is likely to give, a false or misleading impression as to investments, if the person acting knew, or could have been expected to have known that information was false or misleading.

This would include, for example, knowingly or recklessly spreading false or misleading information about an AIM company through the media.

7.                       Distortion

"Distortion" involves giving a false or misleading impression of the market in the investments.

This would include, for example, the movement of an empty cargo ship, which might create a false or misleading impression as to the supply of, or the demand for, or the price or value of a commodity or the deliverable into a commodity futures contract.

Market Manipulation

"Market manipulation" is a criminal offence. It involves creating a false or misleading impression as to the market in, or price or value of, any investment for the purpose of inducing another person to deal in that investment.

Misleading Statements

Care must be taken by a person to ensure that he does not make a misleading statement at any time. This criminal offence involves a person inducing others to deal by:

• making a statement which he knows is materially misleading, false or deceptive;
• dishonestly concealing any material facts; or
• recklessly making (whether dishonestly or not) a statement, promise or forecast which is materially misleading, false or deceptive.

Disclosure of Directors' and Connected Persons' Dealings

Directors and persons connected with directors of AIM companies must ensure that the companies meet their obligations to notify the London Stock Exchange of the individual's dealings in the company's shares. These obligations are set out more clearly in the "Continuing Obligations for AIM Companies" section.

Restrictions on Dealings – Close Periods

Directors and persons connected with directors of AIM companies must ensure that the companies do not allow directors and applicable employees to deal in the company's AIM securities during a close period. This obligation is set out more clearly in the "Continuing Obligations for AIM Companies" section.