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Jan 1 2015 onwards

CMC 5 False or Misleading Conduct and Distortion



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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 57 of the Markets Law

1. Article 57 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 does not fall under Articles 54, 55 or 56

that:
a) gives a false or misleading impression as to the supply of, or demand for, or to the price of one or more Investments; or
b) would distort, or would be likely to distort, the market for one or more Investments…
and is likely to be regarded by market participants as a failure on the part of the person concerned to observe the standards of behaviour reasonably expected of a person in his position in relation to the market.
2. The conduct referred to in Article 57 overlaps to a large extent with the conduct referred to in Article 54 relating to creating false or misleading impressions or an artificial price for an InvestmentG . It should be noted however that Article 57 has 'residual scope' i.e. it only applies to conduct that does not fall within Article 54 (fraud and market manipulation), Article 55 (false or misleading statements) or Article 56 (use of fictitious devices and other forms of deception).

Failure to observe standards expected by market participants

3. Article 57 requires that the activity or conduct in question is likely to be regarded by market participants as a failure on the part of the person concerned to observe the standard of behaviour reasonably expected of a person in his position in relation to the market.
4. This requirement imports an objective test into the assessment of whether the provision is contravened. In the DFSA's view, for the purposes of the test, the market participant is a hypothetical reasonable person who regularly deals in the Investments of the kind in question.
5. In determining if there has been a failure to meet the standards expected by market participants, the DFSAG is likely to take into account factors such as:
(a) the characteristics of the market in question, including the users and relevant rules and codes of conduct (including, if relevant, any statutory or regulatory obligation to disclose a holding or position);
(b) the position of the person in question and the standards reasonably to be expected of him in light of his experience, skill and knowledge; and
(c) if the conduct involved a transaction, whether it was executed in a way that complied with the rules of the relevant market about how such transactions are to be executed (including, for example, rules on reporting).

Examples of false or misleading conduct or distortion

6. The following are specific examples of conduct that, in the DFSA's view, may contravene Article 57:
(a) the movement of physical commodity stocks without any proper commercial purpose, which gives a misleading impression as to the supply of, or demand for, or price or value of, a commodity or the deliverable into a Commodity DerivativeG ; and
(b) the movement of an empty cargo ship, which gives a 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 DerivativeG .
Derived from GM9/2014 (Made 1st January 2015). [VER1/01-15]