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Jan 1 2015 onwards

CMC 4 Use of Fictitious Devices and Other Forms of Deception

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The definitive version of DFSA handbook text is the PDF version as that is the text of the instrument as made and published by the DFSA.

Article 56 of the Markets Law

1. Article 56 of the Law provides that:

A person shall not, in the DIFC or elsewhere, engage in any activity or conduct in relation to Investments…

which consists of effecting transactions or orders to trade….

which employ fictitious devices or any other form of deception or contrivance.
2. Under Article 56 it is necessary for there to be a transaction or order to trade. The transaction or order to trade must either itself or in conjunction with other factors create an effect that is fictitious, deceptive or a contrivance. The Markets Law does not define what is meant by a “fictitious device” or “any other form of deception or contrivance”. In the DFSA's view, these terms have a potentially broad meaning. This Article would, for example, in the DFSA's view, cover situations where the transaction or order to trade when viewed in the context of other related conduct (such as dissemination of information) has an overall effect that is fictitious or deceptive.

Examples of fictitious devices etc

3. The following are examples of conduct that, in the DFSA's view, may contravene Article 56:
a) voicing misleading opinions through the media — a person with access to the media (such as a newspaper columnist) enters into a transaction to buy an InvestmentG and then voices an opinion in the media about the InvestmentG (or its IssuerG ) which results or is likely to result in the moving of the price of the InvestmentG in a direction favourable to the position held by the person. The person does not disclose his conflict of interest when voicing the opinion;
(b) concealing ownership — a person enters into a transaction or series of transactions that are designed to conceal the ownership of an InvestmentG , by holding the InvestmentG in the name of a colluding party, with the result that disclosures are misleading in respect of the true identity or value of the underlying holding.
(c) trash and cash schemes — for example, a trader takes a short position in InvestmentsG in a company and then begins spreading false rumours that the company is facing funding difficulties and is in serious financial difficulty in order to drive down the price of the InvestmentG ; and
(d) pump and dump schemes — this is the opposite of 'trash and cash': for example, a person takes a long position in an InvestmentG and then disseminates misleading positive information about the InvestmentG with a view to increasing its price. As a result of his conduct the person is able to sell his InvestmentsG at an inflated price.
The DFSAG notes that some of the above examples may also breach other Articles such as Article 55 (false or misleading statements) or Article 60 (inducing persons to deal).
Derived from GM9/2014 (Made 1st January 2015). [VER1/01-15]