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  • CMC 1 Introduction

    Purpose

    1. The purpose of the Code of Market Conduct is to provide Guidance on the Market Abuse provisions in Part 6 of the Markets Law.
    2. The Code is intended to:
    (a) help persons to determine whether or not conduct is Market Abuse;
    (b) assist persons such as Authorised Persons who may be subject to obligations to monitor for, prevent or report Market Abuse to comply with their obligations; and
    (c) clarify that certain market practices do not, in the DFSA's view, ordinarily amount to Market Abuse.
    3. The Code is relevant to any person to whom Part 6 of the Markets Law applies. Part 6 applies to persons generally, that is:
    (a) whether an individual, Body Corporate or body unincorporated; and
    (b) whether regulated by the DFSA (such as an Authorised Person) or unregulated.

    Status

    4. The information in the Code is made and issued as Guidance on the provisions in Part 6 of the Markets Law and as such is indicative and non-binding. This Guidance is issued by the DFSA Board of Directors under Article 20(2)(c) of the Regulatory Law.
    5. In the Code, the DFSA sometimes sets out its views on the interpretation of provisions in Part 6 of the Markets Law. These views are not intended to be exhaustive or definitive and interpretation of the Markets Law is ultimately a matter for the Court. If you have any doubt about your obligations under a provision, you should seek appropriate legal advice.

    Structure

    6. The chapters in the Code generally set out for each type of Market Abuse:
    (a) the text of the prohibition and relevant definitions;
    (b) the DFSA's interpretation of elements of the prohibition (including factors it may take into account in determining whether or not there has been a contravention);
    (c) general or specific examples of conduct that in the DFSA's view may contravene the prohibition; and
    (d) where relevant, defences in the Markets Law.
    Where the Code sets out the text of a prohibition, definition or defence, it sometimes does so in abbreviated form to assist the reader. For the precise terms, readers should refer to the Markets Law itself.

    Terminology

    7. Defined terms are identified throughout the Code by the capitalisation of the initial letter of a word or each word of a phrase and are defined in the Glossary module (GLO) of the DFSA Rulebook. Unless the context otherwise requires, where capitalisation of the initial letter is not used, an expression has its natural meaning.
    8. Unless the context otherwise requires, where the Code refers to:
    (a) the Law, the reference is to the Markets Law;
    (b) Part 6, the reference is to Part 6 of the Markets Law;
    (c) an Article, the reference is to an Article in the Markets Law;
    (d) a prohibition, the reference is to an Article in Chapter 1 of Part 6 of the Markets Law that prohibits specified conduct;
    (e) Market Abuse, the reference is to conduct which contravenes a provision in Chapter 1 of Part 6 of the Markets Law; and
    (f) Trading Information, the reference is to information referred to in CMC section 6-2 paragraph 7.

    Code not exhaustive

    9. The Code does not try to exhaustively describe or list:
    (a) all examples of Market Abuse, setting out only a few of the many possible examples; or
    (b) all factors that the DFSA may take into account in deciding whether or not conduct amounts to Market Abuse.

    Conduct may contravene different Articles

    10. Market Abuse prohibitions overlap in some circumstances so that conduct by a person may potentially contravene more than one Article. For example:
    (a) if a person engages in conduct that contravenes Article 54(a) (creating a false or misleading impression as to the supply or demand or price of an Investment) that conduct may also contravene Article 54(b) (creating an artificial price for an Investment), and vice versa; and
    (b) if a person disseminates information about an Investment that is false or misleading this could, depending on the circumstances, contravene both Article 55 (false or misleading statements) and Article 60 (inducing persons to deal).
    11. A number of prohibitions are expressed to have residual scope (i.e. to apply to specified conduct only if it does not fall under other prohibitions). For example:
    (a) Article 57 (false or misleading conduct and distortion) applies to conduct that does not fall under Articles 54, 55 or 56; and
    (b) Article 61 (misuse of information) applies to conduct that does not fall under Articles 58, 59 or 60.

    Application to Investments and related investments

    12. The Market Abuse provisions apply to certain activities or conduct related to Investments. An “Investment” is defined in GEN App 2.1 to mean:
    (a) a Security such as a Share, a Debenture, a Warrant, a Certificate, a Unit or a Structured Product;
    (b) a Derivative such as an Option or Future (including a Commodity Derivative);
    (c) a right or interest in a Security or Derivative; and
    (d) any instrument declared by the DFSA to be a Security or Derivative under GEN App 2.1.
    13. For the purposes of Article 58 (insider dealing) an Investment is defined not to include a Commodity Derivative.
    14. Articles 58 (insider dealing) and 59(2) (procuring another person to deal) also apply to a “related investment”, which is defined in Article 63(6) as meaning:

    “…. in relation to an Investment (the “First Investment”), a “related investment” means another Investment whose price or value depends, in whole or in part, on the price or value of the First Investment”.

    For example, if an Insider has Inside Information relating to an Issuer, A, of an Investment, then a “related investment” could include a Derivative relating to the Investments of A or another Investment in a member of A's group, if the price or value of that other Investment depends, in whole or in part, on the price or value of Investments of A.
    15. The Market Abuse provisions apply to Investments whether or not the Investments are admitted to an Official List of Securities or admitted to trading on a market in the DIFC. As a result the Market Abuse provisions have a potentially broad application to Investments in the DIFC or affecting DIFC markets.

    Application to conduct outside the DIFC

    16. The Market Abuse prohibitions are expressed to apply whether the relevant conduct occurs in the DIFC or elsewhere. However, Article 62 provides that if the conduct occurs outside the DIFC, the prohibitions do not apply unless the conduct affects the DIFC markets or users of the DIFC markets.
    17. The following are examples of conduct which occurs outside the DIFC that, in the DFSA's view may, depending on other factors such as the state of knowledge of the person concerned, fall within the scope of the Market Abuse provisions:
    (a) a person outside the DIFC places an order to trade that creates, or is likely to create, an artificial price for an Investment traded on an Exchange in the DIFC;
    (b) a person engages in conduct outside the DIFC that manipulates the price of a benchmark or Investment and affects the price of a Derivativeadmitted to trading in the DIFC that is referenced to that benchmark or Investment;
    (c) a person who has Inside Information relating to an Issuer that has Investments traded on an Exchange in the DIFC discloses that information outside the DIFC to another person (other than in the necessary course of business of the person making the disclosure); and
    (d) a person outside the DIFC contacts potential investors in the DIFC and makes statements that are misleading, false or deceptive in order to induce those investors to buy an Investment.

    Intention to commit Market Abuse

    18. The Market Abuse prohibitions generally do not require that the person engaging in the relevant conduct intended to commit Market Abuse. However, a number of Articles require that the person knew or reasonably ought to have known of a certain matter e.g. that conduct would have a certain effect or that information is false or misleading (see, for example, Article 54 (fraud and market manipulation), Article 55 (false or misleading statements) and Article 60 (inducing persons to deal)).

    Systems and controls to prevent market abuse

    19. An Authorised Person is required under GEN Rule 5.3.20 to establish and maintain systems and controls that ensure, as far as reasonably practical, that the Authorised Person and its Employees do not engage in conduct, or facilitate others to engage in conduct, which may constitute market abuse, whether in the DIFC or elsewhere. If an Authorised Firm or Recognised Member suspects on reasonable grounds that an order from a Client, or a transaction it arranges or executes with or for a Client, may constitute Market Abuse under the Markets Law, it must notify the DFSA immediately of that fact (see GEN Rule 11.10.12A and REC Rule 3.4.5).

    Other provisions that apply to Prospectuses and Reporting Entities

    20. If a misleading or deceptive statement or a material omission occurs in a Prospectus, then separate and specific prohibitions and defences are likely to apply. These are set out in Articles 20 to 25 of the Markets Law and in Articles 56 to 58 of the Collective Investment Law.
    21. If a Reporting Entity fails to make a timely disclosure of information to the market then Article 41 of the Markets Law is likely to apply. However, if a Reporting Entity discloses information to the market which is false or misleading (and knows or could reasonably be expected to know that it is false or misleading) then the Market Abuse provisions may apply.
    Derived from GM9/2014 (Made 1st January 2015). [VER1/01-15]
    [Amended] by GM10/2016 (Made 7th December 2016). [VER2/02-17]