s7c - mad 2 mar: operational compliance

MAD 2 MAR Operational Compliance Training Manual

© Copyright 2017 | Storm-7 Consulting | All Rights Reserved 1

MAD 2 MAR: Operational Compliance Training Manual

Storm-7 Consulting

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TABLE OF CONTENTS

TABLE OF CONTENTS ......................................................................................... 2

FIGURES ............................................................................................................... 9

TABLES ............................................................................................................... 10

LIST OF ABBREVIATIONS ................................................................................. 13

LIST OF RELEVANT DOCUMENTS ................................................................... 16

CHAPTER 1 ......................................................................................................... 17

The MAD 2 (Directive 2014/57/EU) and MAR (Regulation No 596/2014) Operational Framework .................................................................................. 17

1 CHAPTER 1 ABBREVIATIONS ........................................................................................ 17 2 MAD 2 FRAMEWORK ....................................................................................................... 18 3 NEW MINIMUM RULES FOR CRIMINAL SANCTIONS AND CRIMINAL PENALTIES ... 19

3.1 Aims ........................................................................................................................................................... 19 3.2 Offences ..................................................................................................................................................... 19 3.3 Application to financial instruments ............................................................................................................. 20 3.4 Application to behaviour, transactions, and bids ......................................................................................... 20 3.5 Application to market manipulation offence ONLY ...................................................................................... 20

4 APPLICATION TO SPOT COMMODITY CONTRACTS AND TRANSACTIONS ............. 21 5 MAR BENCHMARK MANIPULATION ............................................................................... 22

5.1 Ratings examples ....................................................................................................................................... 22 5.2 Indexes examples ....................................................................................................................................... 22 5.3 Figures examples ....................................................................................................................................... 22

6 DIRECTIVE OFFENCES ................................................................................................... 22 6.1 OFFENCE 1: Insider Dealing, recommending or inducing another person to engage in insider trading ....... 22

6.1.1 Persons covered ............................................................................................................................... 22 6.1.2 Other situations covered ................................................................................................................... 23 6.1.3 Recommending or inducing another person to engage in Insider Dealing ......................................... 23 6.1.4 Legitimate behaviour ......................................................................................................................... 23

6.2 OFFENCE 2: Unlawful Disclosure of Inside Information .............................................................................. 23 6.2.1 Persons covered ............................................................................................................................... 24 6.2.2 Other situations covered ................................................................................................................... 24

6.3 OFFENCE 3: Market manipulation .............................................................................................................. 24 6.3.1 Activity 1 ........................................................................................................................................... 24 6.3.2 Activity 1 Exemption .......................................................................................................................... 24 6.3.3 Activity 2 ........................................................................................................................................... 25 6.3.4 Activity 2 Exemption .......................................................................................................................... 25 6.3.5 Activity 3 ........................................................................................................................................... 25 6.3.6 Activity 4 ........................................................................................................................................... 25 6.3.7 Activity 5 ........................................................................................................................................... 25

6.4 OFFENCE 4: Inciting, aiding and abetting, and attempt .............................................................................. 25 6.5 Inchoate Offences in the UK ....................................................................................................................... 26

6.5.1 Incitement ......................................................................................................................................... 26 6.5.2 Aiding and abetting ........................................................................................................................... 26 6.5.3 Attempt ............................................................................................................................................. 26



6.5.4 Legitimate behaviour ......................................................................................................................... 26 7 LIABILITY FOR NATURAL PERSONS ............................................................................. 27 8 LIABILITY FOR LEGAL PERSONS .................................................................................. 27 9 SANCTIONS FOR LEGAL PERSONS .............................................................................. 27 10 NEW OBLIGATIONS FOR TRADING VENUES .......................................................... 28

10.1.1 Multilateral Trading Facilities (MTFs) ................................................................................................ 28 10.2 Organised Trading Facilities (OTFs) ...................................................................................................... 31 10.3 Emission Allowances ............................................................................................................................. 31 10.4 Issuers ................................................................................................................................................... 32

11 MAR FRAMEWORK..................................................................................................... 33 11.1 NEW FINANCIAL INSTRUMENTS COVERED ...................................................................................... 33

11.1.1 Full Scope Financial Instruments ...................................................................................................... 33 11.1.2 Partial Scope Financial Instruments .................................................................................................. 33

11.2 OBLIGATIONS AND OFFENCES .......................................................................................................... 34 11.2.1 Inside Information ............................................................................................................................. 34 11.2.2 Information of a Precise Nature ......................................................................................................... 35 11.2.3 Protracted Process Precise Information ............................................................................................ 35 11.2.4 Intermediate Step ............................................................................................................................. 35 11.2.5 "Information which would be likely to have a significant effect" .......................................................... 35 11.2.6 EAMPs ............................................................................................................................................. 35

12 PROHIBITIONS ............................................................................................................ 35 12.1 Prohibition of Insider Dealing and Unlawful Disclosure of Inside Information .......................................... 35 12.2 Prohibition of Market Manipulation ......................................................................................................... 36

13 OFFENCES .................................................................................................................. 36 13.1 OFFENCE 4: Insider Dealing ................................................................................................................. 36

13.1.1 Recommending or Inducing .............................................................................................................. 36 13.1.2 Recommending or Inducing Situation 1 ............................................................................................. 36 13.1.3 Recommending or Inducing Situation 2 ............................................................................................. 36 13.1.4 Legal Persons ................................................................................................................................... 37 13.1.5 Insider Dealing Type 1 ...................................................................................................................... 37 13.1.6 Insider Dealing Type 2 ...................................................................................................................... 37 13.1.7 Insider Dealing Type 3 ...................................................................................................................... 37

13.2 OFFENCE 5: Unlawful Disclosure of Inside Information ......................................................................... 37 13.2.1 OFFENCE 5: Unlawful Disclosure of Inside Information - Exception ................................................. 37 13.2.2 Onward Disclosure of Recommendations or Inducements ................................................................ 37

13.3 OFFENCE 6: Market Manipulation ......................................................................................................... 38 13.3.1 Market Manipulation Activities ........................................................................................................... 38 13.3.2 Exception to Market Manipulation Activities (Types 1 and 2 Only) ..................................................... 38 13.3.3 Fictitious Device Non-Exhaustive Indicators ...................................................................................... 38 13.3.4 False and Misleading Signals and Price Securing Non-Exhaustive Indicators ................................... 39 13.3.5 Market Manipulation Behaviour ......................................................................................................... 39

13.4 Overview of Market Soundings .............................................................................................................. 40 13.4.1 What are Market Soundings? ............................................................................................................ 40 13.4.2 Examples of Market Soundings ......................................................................................................... 41 13.4.3 Conducting market soundings ........................................................................................................... 41

13.5 Overview of Transactions by Persons Discharging Managerial Responsibilities (PDMR) ....................... 41 13.6 Suspicious Transactions Reporting ........................................................................................................ 42



14 NEW WHISTLEBLOWING OBLIGATIONS ................................................................. 42 14.1 Reporting ............................................................................................................................................... 42 14.2 Protections ............................................................................................................................................ 43 14.3 Financial Incentives ............................................................................................................................... 43

CHAPTER 2 ......................................................................................................... 44

MAR OPERATIONAL PRACTICES I: Suspicious Transaction and Order Reports (STORs), Buy-Back Programme, and Stabilisation Measures ...... 44

15 CHAPTER 2 ABBREVIATIONS ................................................................................... 44 16 SUSPICIOUS TRANSACTION AND ORDER REPORT (STOR) FRAMEWORK ....... 45

16.1 General Requirements for Persons Professionally Arranging or Executing Transactions (PPAETs) ....... 45 16.2 General Requirements for Market Operators and Investment Firms Operating a Trading Venue (IFOTV) 45 16.3 Arrangements, Systems, and Procedures .............................................................................................. 45

16.3.1 Requirements for Arrangements, Systems, and Procedures ............................................................. 45 16.3.2 Proof and Documentation of Arrangements, Systems, and Procedures ............................................ 46 16.3.3 Human Analysis ................................................................................................................................ 47 16.3.4 Delegation of Monitoring Functions ................................................................................................... 47 16.3.5 Delegation of Data Analysis Functions .............................................................................................. 47 16.3.6 Software Requirements for Arrangements, Systems, and Procedures .............................................. 47

16.4 Suspicious Transaction and Order Report (STOR) ................................................................................ 48 16.5 Suspicious Transaction and Order Report (STOR) Content ................................................................... 48 16.6 Reporting Obligations ............................................................................................................................ 49

16.6.1 Level of Suspicion, Cancellation, and Modification of Orders ............................................................ 49 16.6.2 Prevention, Monitoring, and Detection Staff Training ......................................................................... 50 16.6.3 Means for Transmission .................................................................................................................... 50

16.7 FCA Supervisory Priorities under the MAR STOR regime ...................................................................... 50 16.8 FCA Connect Obligations ...................................................................................................................... 51

16.8.1 FCA's Supervisory Approach ............................................................................................................ 51 17 BUY-BACK PROGRAMME (BBP) AND STABILISATION FRAMEWORK .................. 54

17.1 Buy-Back Programme Framework ......................................................................................................... 54 17.2 Buy-Back Programme Regulatory Technical Standards (RTS) .............................................................. 55 17.3 BBP Definitions ...................................................................................................................................... 56

17.3.1 Adequate Public Disclosure .............................................................................................................. 56 17.4 Disclosure and Reporting Obligations .................................................................................................... 56

17.4.1 Time-Scheduled Buy-Back Programme ............................................................................................ 57 17.4.2 BBP Information ................................................................................................................................ 57 17.4.3 BBP Reporting Obligations ............................................................................................................... 57

17.5 Conditions for Trading ........................................................................................................................... 57 17.6 Trading Restrictions ............................................................................................................................... 58

18 STABILISATION FRAMEWORK .................................................................................. 59 18.1 Stabilisation Definitions .......................................................................................................................... 59

18.1.1 Stabilisation ...................................................................................................................................... 59 18.1.2 Significant Distribution ...................................................................................................................... 59 18.1.3 Offeror .............................................................................................................................................. 59 18.1.4 Allotment........................................................................................................................................... 60 18.1.5 Ancillary Stabilisation ........................................................................................................................ 60 18.1.6 Overallotment Facility ....................................................................................................................... 60



18.1.7 Greenshoe Option ............................................................................................................................ 60 18.1.8 Limited Period ................................................................................................................................... 60

18.2 Regulatory Technical Standards Stabilisation (RTS) Conditions ............................................................ 62 18.2.1 Stabilisation Disclosure and Reporting Obligations ........................................................................... 62 18.2.2 Stabilisation Price Conditions ............................................................................................................ 63 18.2.3 Ancillary Stabilisation Conditions ...................................................................................................... 64

CHAPTER 3 ......................................................................................................... 65

MAR OPERATIONAL PRACTICES I: ACCEPTED MARKET PRACTICES (AMP) AND MARKET SOUNDINGS (MS) ....................................................... 65

19 CHAPTER 3 ABBREVIATIONS ................................................................................... 65 20 ACCEPTED MARKET PRACTICES *** ....................................................................... 66

20.1 Accepted Market Practices (AMP) Exemption ........................................................................................ 66 20.2 Establishing Legitimate Reasons and Conforming with Accepted Market Practice ................................. 66

20.2.1 Accepted Market Practice (AMP) Outline Criteria .............................................................................. 66 20.3 Accepted Market Practice (AMP) Procedure .......................................................................................... 67 20.4 Accepted Market Practice (AMP) Detailed Criteria ................................................................................. 68

20.4.1 Accepted Market Practice (AMP) Detailed Criteria: Transparency ..................................................... 68 20.4.2 Accepted Market Practice (AMP) Detailed Criteria: Safeguards ........................................................ 69 20.4.3 Accepted Market Practice (AMP) Detailed Criteria: Liquidity and Efficiency ...................................... 70 20.4.4 Accepted Market Practice (AMP) Detailed Criteria: Trading Mechanism ........................................... 70 20.4.5 Accepted Market Practice (AMP) Detailed Criteria: Market Integrity Risks ........................................ 71 20.4.6 Accepted Market Practice (AMP) Detailed Criteria: Investigations ..................................................... 72 20.4.7 Accepted Market Practice (AMP) Detailed Criteria: Structural Characteristics ................................... 72

20.5 AMP Procedure ..................................................................................................................................... 72 20.5.1 AMP RTS Submission Annex............................................................................................................ 73

21 MARKET SOUNDINGS (MS) ....................................................................................... 74 21.1 Standard Market Sounding .................................................................................................................... 75 21.2 Takeover Market Sounding .................................................................................................................... 75 21.3 Level II RTS and Implementing Technical Standards (ITS) on systems and notification templates to be used by disclosing market participants conducting market soundings .................................................................... 77 21.4 MS Arrangements RTS: MS Communications Requirements ................................................................. 77

21.4.1 MS Arrangements RTS: MS Communications Requirements (Inside Information) ............................. 77 21.4.2 MS Arrangements RTS: MS Communications Requirements (Non-Inside Information) ..................... 78

21.5 MS Arrangements RTS: MS Data Requirements ................................................................................... 79 21.6 MS Arrangements RTS: MS Cessation of Inside Information ................................................................. 80 21.7 MS Arrangements RTS: MS Record Keeping Requirements.................................................................. 80

21.7.1 Data Requirements: Written Minutes and Notes ................................................................................ 81 21.8 ESMA MS Guidelines ............................................................................................................................ 81 21.9 Level II RTS and Implementing Technical Standards (ITS) on appropriate arrangements, procedures and record keeping requirements. ................................................................................................................................ 81

21.9.1 Level II RTS Annex I ......................................................................................................................... 82 21.9.2 Level II RTS Annex II ........................................................................................................................ 83 21.9.3 Level II RTS Annex III ....................................................................................................................... 84

SESSION 4 .......................................................................................................... 86

MAD 2 AND MAR EXEMPTIONS, POWERS, AND SANCTIONS ................... 86

22 SESSION 4 ABBREVIATIONS .................................................................................... 86 23 NEW EXEMPTIONS .................................................................................................... 87



23.1 Exemption for trading in own shares in buy-back programmes (BBP) .................................................... 87 23.2 Exemption for trading in securities for the stabilisation of securities and eligibility conditions ................. 87 23.3 Exemption for monetary and public debt management activities and climate policy activities ................. 88

23.3.1 Public Authorities in Pursuit of Monetary Exchange Rate .................................................................. 88 23.3.2 Public Authorities in Pursuit of Public Debt Management Policy ........................................................ 89

23.4 EU Agricultural Policy and Climate Policy .............................................................................................. 89 23.5 Chinese Walls ........................................................................................................................................ 90

24 NEW POWERS AND SANCTIONS ............................................................................. 90 24.1 ESMA and Competent Authorities.......................................................................................................... 90 24.2 Minimum Supervisory and Investigatory Powers .................................................................................... 90 24.3 Member State Takeover Frameworks .................................................................................................... 92 24.4 MAR Legislative and Contractual Precedence ....................................................................................... 92 24.5 Member State Administrative Sanctions and Other Administrative Measures ......................................... 92 24.6 MSCA Minimum Administrative Sanctions and Measures ...................................................................... 93

24.6.1 Maximum Administrative Pecuniary Sanctions: NATURAL PERSONS.............................................. 94 24.6.2 Maximum Administrative Pecuniary Sanctions: LEGAL PERSONS ................................................... 95

24.7 Exercise of Supervisory Powers and Imposition of Sanctions ................................................................ 95

SESSION 5 .......................................................................................................... 97

IDENTIFYING MARKET ABUSE, INSIDER DEALING, AND UNLAWFUL DISCLOSURE OF INFORMATION BEHAVIOUR IN PRACTICE .................... 97

25 SESSION 5ABBREVIATIONS ..................................................................................... 97 25.1 Indicators for Suspicious Transactions ................................................................................................... 97

26 INSIDER DEALING SIGNALS AND EXAMPLES ........................................................ 98 26.1.1 Unexpectedly Large or Unusual Order .............................................................................................. 99 26.1.2 Out of Line with Historical Behaviour ................................................................................................. 99 26.1.3 Immediate Execution of an Order ...................................................................................................... 99 26.1.4 Unusual Trading in Shares ................................................................................................................ 99 26.1.5 Employee's Own Account Transaction .............................................................................................. 99

27 MARKET MANIPULATION SIGNALS AND EXAMPLES ............................................ 99 27.1 Three possible signals of Market Manipulation ....................................................................................... 99

27.1.1 Order Size ........................................................................................................................................ 99 27.1.2 Valuation Modification ....................................................................................................................... 99 27.1.3 Bypassing Trading Safeguards ......................................................................................................... 99

27.2 Practical Examples of Market Manipulation ............................................................................................ 99 28 EXAMPLE CASES ..................................................................................................... 101

28.1 Jabre Case .......................................................................................................................................... 101 28.2 Square Mile Securities Ltd (10 January 2008) ...................................................................................... 101 28.3 BlackRock: Mark Lyttleton (October 2016) ........................................................................................... 102

29 UNLAWFUL DISCLOSURE OF INFORMATION SIGNALS AND EXAMPLES ......... 102 29.1 Factors to be taken into account in determining whether or not behaviour amounts to unlawful disclosure (UK) 103 29.2 Indications of Unlawful Disclosure of Information ................................................................................. 103 29.3 Examples of Possible Inside Information Concerning the Corporation ................................................. 104

30 CROSS-MARKET MANIPULATION .......................................................................... 105 30.1 Nasdaq QMX SMARTS ....................................................................................................................... 106

31 THE STOR FRAMEWORK ........................................................................................ 106 31.1 STOR-related Communications ........................................................................................................... 107



31.2 FCA STOR Supervisory Visits ............................................................................................................. 107 31.3 FCA Connect ....................................................................................................................................... 107 31.4 Analysing the STOR Template ............................................................................................................. 111 31.5 STOR Section 3 (Description of the Nature of the Suspicion) ............................................................... 117 31.6 STOR Section 4 (Identity of Entity/Person Suspected) ......................................................................... 119 31.7 STOR Section 5 (Additional Information) ............................................................................................. 120 31.8 STOR Section 6 (Documentation Attached) ......................................................................................... 120

SESSION 6 ........................................................................................................ 122

IMPLEMENTING AND UPDATING MARKET ABUSE COMPLIANCE PROGRAMMES .............................................................................................. 122

32 SESSION 6 ABBREVIATIONS .................................................................................. 122 33 MARKET ABUSE OPERATIONAL COMPLIANCE ................................................... 122

33.1 The FCA's General Enforcement Powers............................................................................................. 123 33.2 FCA Thematic Review: Asset Management Firms and the Risk of Market Abuse (February 2015) ...... 123 33.3 Commodities Trading Thematic (CT) Review (September 2015).......................................................... 124 33.4 MAD 2 MAR Operational Review ......................................................................................................... 125 33.5 MAD 2 MAR Regulatory Compliance Policy ......................................................................................... 125 33.6 MAD 2 MAR Operational Compliance Framework ............................................................................... 126

33.6.1 MAID Risk Assessment................................................................................................................... 127 33.6.2 Sample MAID Risk Metrics ............................................................................................................. 128

33.7 Developing MAIDOC Programmes and Manuals ................................................................................. 129 33.8 Pre-Trade Controls and Surveillance (Real-time and Post-trade) ......................................................... 131

33.8.1 Pre-Trade Controls ......................................................................................................................... 131 33.8.2 Post-Trade Surveillance .................................................................................................................. 131 33.8.3 Case Study: W H Ireland (WHI) Fined £1.2 Million by the FCA ....................................................... 133

33.9 Insider Lists ......................................................................................................................................... 134 33.10 Record Keeping ................................................................................................................................... 135 33.11 STOR Storage ..................................................................................................................................... 136 33.12 Investment Recommendations ............................................................................................................. 136

33.12.1 Disproportionate Disclosure ....................................................................................................... 137 33.12.2 Investment Strategy Type B Persons and Experts...................................................................... 137 33.12.3 Conflicts of Interest .................................................................................................................... 138 33.12.4 Investment Strategy Type B Persons and Experts Conflicts of Interest Disclosures ................... 139

34 MODIFICATION OF EXISTING INFORMATION TECHNOLOGY INFRASTRUCTURES............................................................................................................. 140 35 ORGANISATION: SYBENETIX ................................................................................. 140

35.1 Solution: Sybenetix Compass .............................................................................................................. 140 36 ORGANISATION: NICE ............................................................................................. 141

36.1 Solution: NICEActimize ........................................................................................................................ 141 36.1.1 NICEActimize - Trading Surveillance Solution ................................................................................. 141

37 ORGANISATION: R3COGNITION ............................................................................. 143 37.1 Solution: r3cognition ............................................................................................................................ 143

37.1.1 r3cognition - Trade Surveillance and Monitoring System ................................................................. 143 37.1.2 Advantages ..................................................................................................................................... 143 37.1.3 Areas Covered ................................................................................................................................ 143 37.1.4 Surveillance System: r3cognition Web ............................................................................................ 144 37.1.5 Benefits .......................................................................................................................................... 145



37.1.6 Trading Activity Statistics: Activity Statistics .................................................................................... 145 37.1.7 Benefits .......................................................................................................................................... 145

38 ORGANISATION: CINNOBER ................................................................................... 145 38.1 Solution: Cinteg™ ................................................................................................................................ 145

38.1.1 Cinteg - Turnkey Surveillance System ............................................................................................ 145 39 ORGANISATION: SOFTWARE AG ........................................................................... 147

39.1 Solution: Software AG Capital Markets: Market Surveillance and Monitoring ....................................... 147 39.1.1 Software AG Apama Trade Surveillance and Market Surveillance .................................................. 147 39.1.2 Trade Surveillance .......................................................................................................................... 147 39.1.3 Benefits .......................................................................................................................................... 147 39.1.4 Market Surveillance ........................................................................................................................ 148 39.1.5 Benefits .......................................................................................................................................... 148

APPENDIX 1 ...................................................................................................... 149

Directive 2014/57/EU of the European Parliament and of the Council of 16 April 2014 on criminal sanctions for market abuse (market abuse directive). ....................................................................................................... 149

APPENDIX 2 ...................................................................................................... 160

Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC Text with EEA relevance. .......................................................... 160



FIGURES

Figure 1: AMP RTS Submission Annex ....................................................................................... 73

Figure 2: Overall Market Sounding Requirements ..................................................................... 76

Figure 3: MS Written Minutes or Notes Template (Disclosure of Inside Information) ............ 82

Figure 4: MS Written Minutes or Notes Template (Disclosure of Non-Inside Information) .... 83

Figure 5: MS Cessation of Inside Information Template ............................................................ 84

Figure 6: Example MAIDOC Framework .................................................................................... 128

Figure 7: MAIDOC Programme Areas ........................................................................................ 129

Figure 8: MAID Defence Framework .......................................................................................... 130

Figure 9: Pre-Trade Risk Management ...................................................................................... 132

Figure 10: Post-Execution and Back Office Risk Management............................................... 133

Figure 11: Objective Presentation of Recommendations Requirements ............................... 136

Figure 12: Additional Presentation of Recommendations Requirements ............................. 137

Figure 13: Additional Presentation of Recommendations Requirements ............................. 139



TABLES

Table 1: CHAPTER 1 Abbreviations ............................................................................................. 17

Table 2: MiFID II definitions of multilateral system, investment firm, and market operator .. 28

Table 3: MiFID II definitions of financial instruments and investment services and activities ......................................................................................................................................................... 29

Table 4: Annex II of the Emissions Directive .............................................................................. 32

Table 5: MAR Full Scope Financial Instruments ......................................................................... 33

Table 6: MAR Partial Scope Financial Instruments .................................................................... 33

Table 7: Four Types of Inside Information .................................................................................. 34

Table 8: Insider Dealing Applicability .......................................................................................... 36

Table 9: Five types of Market Manipulation activities ................................................................ 38

Table 10: Seven Indicators of Manipulative Behaviour .............................................................. 39

Table 11: Five types of Market Manipulation Behaviour ............................................................ 39

Table 12: Type 3 Effect .................................................................................................................. 40

Table 13: CHAPTER 2 Abbreviations ........................................................................................... 44

Table 14: Six requirements for Arrangements, Systems, and Procedures .............................. 45

Table 15: Three Outsourcing Conditions .................................................................................... 47

Table 16: MAR Articles 16(1) and 16(2) Persons ........................................................................ 48

Table 17: Five STOR Contents ...................................................................................................... 48

Table 18: FCA SIF Functions ........................................................................................................ 51

Table 19: FCA Number of Suspicious Transaction Reports (STRs) received by the FCA (2013-2015) ...................................................................................................................................... 52

Table 20: Six TIOS and BBP Conditions ...................................................................................... 55

Table 21: Four Pre-Trading Public Information Disclosures ..................................................... 56

Table 22: Five Conditions for Trading ......................................................................................... 57

Table 23: Trading Restrictions, Restricted Activities, and Exemptions ................................... 58

Table 24: Three definitions of Limited Period ............................................................................. 60

Table 25: Five Stabilisation of Securities Conditions ................................................................ 61

Table 26: Six Pre-Offer Disclosures ............................................................................................. 62

Table 27: Three definitions of Limited Period ............................................................................. 63



Table 28: Stabilisation Price Conditions ..................................................................................... 63

Table 29: Ancillary Stabilisation Conditions ............................................................................... 64

Table 30: Chapter 3 Abbreviations ............................................................................................... 65

Table 31: AMP Outline Criteria ..................................................................................................... 66

Table 32: AMP Detailed Criteria 1: Transparency ....................................................................... 68

Table 33: AMP Detailed Criteria 2: Safeguards ........................................................................... 69

Table 34: AMP Detailed Criteria 3: Liquidity and Efficiency ...................................................... 70

Table 35: AMP Detailed Criteria 4: Trading Mechanism ............................................................. 70

Table 36: AMP Detailed Criteria 5: Market Integrity Risks ......................................................... 71

Table 37: AMP Detailed Criteria 6: Investigations ...................................................................... 72

Table 38: AMP Detailed Criteria 7: Structural Characteristics .................................................. 72

Table 39: Five MSCA AMP Notification Elements ....................................................................... 73

Table 40: MAR MS Information Requirements ............................................................................ 76

Table 41: MAR MS Operational Requirements ............................................................................ 76

Table 42: MS Arrangements RTS: Communications (Inside Information) Requirements ...... 78

Table 43: MS Arrangements RTS: Communications (Non-Inside Information) ....................... 78

Table 44: MS Arrangements RTS: Data Requirements .............................................................. 79

Table 45: MS Arrangements RTS: Cessation of Inside Information Requirements ................ 80

Table 46: MS Arrangements RTS: Record Keeping Requirements .......................................... 80

Table 47: MS Arrangements RTS: Record Keeping Requirements .......................................... 81

Table 48: Session 4 Abbreviations ............................................................................................... 86

Table 49: BBP Exemption Conditions .......................................................................................... 87

Table 50: Stabilisation of Securities Exemption Conditions ..................................................... 88

Table 51: MSCA Minimum Supervisory and Investigatory Powers .......................................... 91

Table 52: MAR Infringements........................................................................................................ 92

Table 53: MSCA Minimum Administrative Sanctions and Measures ....................................... 93

Table 54: Maximum Administrative Pecuniary Sanctions for Natural Persons ....................... 94

Table 55: Maximum Administrative Pecuniary Sanctions for Legal Persons .......................... 95

Table 56: MSCA All Relevant Circumstances Issues ................................................................. 96



Table 57: Session 5 Abbreviations ............................................................................................... 97

Table 58: Practical Examples of Market Manipulation Practices .............................................. 99

Table 59: Session 6 Abbreviations ............................................................................................. 122

Table 60: Risk Selection Scorecard (Adapted from CEB Compliance & Ethics Leadership Council, Building a Risk-Based Monitoring Dashboard) ......................................................... 127

Table 61: Sample Insider Dealing Risk Metrics......................................................................... 128

Table 62: Sample Market Manipulation Risk Metrics ............................................................... 128



LIST OF ABBREVIATIONS

Abbreviation Term

AMP Accepted Market Practices

APEA Auctioned Product based on an Emission Allowance

APs Auctioned Products

APsEAs Auctioned Products based on Emission Allowances

BBP Buy-Back Programmes

CATV Competent Authority of the Trading Venue

CDS Credit Default Swaps

CEP Complex Event Processing

CFD Contracts for Difference

CH4 Methane

CO2 Carbon Dioxide

CPS Crown Prosecution Service

CSMAD Criminal Sanctions for Market Abuse Directive

CT Commodities Trading Thematic

DMP Disclosing Market Participant

EA Emission Allowance

EAM Emission Allowance Market

EAMP Emission Allowance Market Participant

EASP Effective Arrangements, Systems and Procedures

EFSF The European Financial Stability Facility

ESCB European System of Central Banks

ESM European Stability Mechanism

ESMA European Securities and Markets Authority

ESMA Final Report

ESMA Final Report (Draft Technical Standards on the Market Abuse Regulation)

EU European Union

FCA Financial Conduct Authority

FI Financial Instrument

FSA Financial Services Authority

FSMA Financial Services and Markets Act

HFCs Hydrofluorocarbons

IFOTV Investment Firms Operating a Trading Venue

IRO Independent Review Obligation

IT Information Technology

ITS Implementing Technical Standards

LEI Legal Entity Identifier

MAD Market Abuse Directive (Directive 2003/6/EC)

MAD 2 Updated Market Abuse Directive (Directive 2014/57/EU) (The Directive)



Abbreviation Term

MAID Market Abuse and Insider Dealing

MAIDOC Market Abuse and Insider Dealing Operational Compliance

MAR Market Abuse Regulation (Regulation No 596/2014) (The Regulation)

MATA Market Triage and Allocation

MiFID II Markets in Financial Instruments Directive II (Directive 2014/65/EU)

MiFIR Markets in Financial Instruments Regulation (Regulation No 600/2014)

MS Market Soundings

MS&F Market Surveillance and Forensics

MSCA Member State Competent Authority

MSR Market Sounding Recipient

MTF Multilateral Trading Facility

N2O Nitrous Oxide

NCAs National Competent Authorities

OTF Organised Trading Facility

PAN Permanent Account Number

PDMRs Persons Discharging Managerial Responsibilities

PFCs Petrofluorocarbons

PPAETs Persons Professionally Arranging or Executing Transactions

RM Regulated Market

RSO Reasonably Suspicious Orders

RTS Regulatory Technical Standards

SCC Spot Commodity Contracts

SCP Stabilisation Central Point

SEBI Securities and Exchange Board of India

SEC United States Securities and Exchange

SF5 Sulphur Hexafluoride

SIF Significant Influence Function

SMFG Sumitomo Mitsui Financial Group

SPV Special Purpose Vehicle

SSI Standard Set of Information

STORs Suspicious Transaction and Order Reports

STR Suspicious Transaction Report

STRs Suspicious Transaction Reports

SYSC Senior Management Arrangements Systems and Controls

TFEU Treaty on the Functioning of the European Union

TIOS Trading In Own Shares

TOB Transaction, Order or Behaviour

TOBB Transaction, Order, Bid or Behaviour

UK United Kingdom



Abbreviation Term

WHI W H Ireland



LIST OF RELEVANT DOCUMENTS

NO DATE ORGANISATION TITLE REF

1 14 November 2013 ESMA Discussion Paper: ESMA's policy orientations on possible implementing measures under the Market Abuse Regulation).

2013/1649

2 February 2015 FCA Asset management firms and the risk of market abuse.

TR15/1

3 July 2015 FCA Financial Benchmarks: Thematic review of oversight and controls.

TR15/11

4 November 2015 FCA Policy Proposals and Handbook changes related to the implementation of the Market Abuse Regulation (2014/596/EU).

CP15/35

5 November 2015 FCA Provisions to delay disclosure of inside information within the FCA's Disclosure and Transparency Rules.

CP15/38

6 December 2015 FCA Flows of Confidential and Inside Information.

TR15/13

7 28 January 2016 ESMA Consultation Paper Draft Guidelines on the Market Abuse Regulation (ESMA/2016/162).

8 April 2016 FCA Policy Statement: Implementation of the Market Abuse Regulation (2014/596/EU), including feedback on CP15/35 and CP15/38, and related amendments to the Handbook.

PS16/13

9 2016 HM Treasury The Financial Services and Markets Act 2000 (Market Abuse) Regulations 2016 (DRAFT).

2016 No 0000

s7c - mad 2 mar: operational compliance

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