The FSA published two issues of its Market Watch newsletter during June 2008.

Market Watch No. 27

Market Watch 27 was published on 5 June 2008. It provides an update of work undertaken by the FSA since July 2007 when it published Market Watch No. 21 which set out the findings of its thematic review of controls over inside information relating to public takeovers. The following areas are covered in Market Watch No. 27:

• Actions taken by FSA regulated firms – In July 2007 the FSA wrote to more than 60 firms to share the findings of its thematic review and to ask them to review their own systems and controls. Market Watch No. 27 identifies a number of areas where regulated firms have improved their systems and controls as a result of reviewing Market Watch No. 21.
• The 'need to know' concept and the number of insiders – The FSA reports on discussions it has had with firms regarding the large numbers of insiders on many M&A deals. While the FSA accepts that it is a challenge to manage numbers on deals and is encouraged by the fact that some firms have reduced the number of insiders, it considers that more could still be done.
• Leak enquiries – To assist firms in developing leak enquiry policies, the FSA sets out its views in relation to the circumstances in which they would consider it appropriate for a firm to begin an internal review following a leak of inside information on an M&A deal. Market Watch No.27 contains a summary of factors a firm might consider when developing a leak enquiry policy.
• Principles of good practice for handling inside information – In Market Watch No. 21 the FSA indicated that it was considering the desirability of having a statement of good practice for handling inside information for market participants that are not either regulated by the FSA or subject to the Disclosure and Transparency Rules. An industry working group, sponsored by the FSA, has produced a document headed "Principles of good practice for handling inside information" which is attached to Market Watch No. 27. Intended to assist organisations that are not FSA-regulated to develop their own policies and practices for handling inside information, the document sets out six general principles and various examples of good practice for organisations to consider in developing their own procedures and controls. The following is a summary of the six principles of good practice for handling inside information:
  1. Policies and procedures – policies and procedures for the use and control of inside information should be established and reviewed from time to time; 
  2. Awareness and training – appropriate measures should be taken, including training, to assist staff in understanding the importance of keeping information secret and the implications of improper disclosure; 
  3. "Need to know" and other information controls – reasonable steps should be taken to limit the number of those with access to inside information and where practicable a "need to know" policy should be applied; 
  4. Passing price sensitive information to third parties – reasonable care should be taken to ensure that where inside information is provided to a third party, the third party is aware of its obligations in relation to the use and control of the information; 
  5. Information technology security – appropriate consideration should be given to the security of and access to inside information on IT systems, including the implementation of controls to limit access; and 
  6. Personal dealing policies – reasonable consideration should be given to establishing personal account dealing policies and such policies should be made clear to staff along with the civil and criminal penalties for dealing on the basis of inside information or for enabling such dealing.

For the full text of Market Watch No. 27, please click here.

Market Watch No. 28

Market Watch 28 was published on 19 June 2008. It deals with the following areas, namely: how the FSA may ask firms to retain recordings of conversations for longer than six months; the FSA's discussions regarding market abuse systems and controls with firms operating in the commodities markets; the systems and controls in place in firms to control interaction between the public and private side in debt capital markets businesses; and transaction reporting.

Private placings and client categorisation under COBS

Market Watch No. 28 also clarifies the FSA's views regarding client categorisation under the Conduct of Business Sourcebook (COBS) in the context of private placings. The FSA explains where, in its view, the client relationship generally lies in such transactions. The FSA states that a firm's client for the purposes of a placing will be the issuer and not the underlying investor. Generally, an underlying investor will fall within the definition of "corporate finance contact" and will therefore not be considered to be a client for the wider purposes of COBS. A corporate finance contact could, however, be a client of a firm if the firm was providing other investment services to it or if the conditions for a corporate finance contact were not met. As noted in Market Watch No. 28, firms also need to bear in mind the categorisation provisions that apply for the purposes of the financial promotion rules set out in COBS 4.

For the full text of Market Watch No. 28, please click here.

30 June 2008

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