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  • CMC 9 Misuse of Information

    Article 61 of the Markets Law

    1. Article 61 of the Markets 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 58, 59 or 60………

    by using information which is not generally available to market participants…

    which, if available to a market participant, would be, or would be likely to be, regarded by him as relevant when deciding the terms on which transactions in Investments should be effected….and

    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.
    2. Article 61 applies to certain conduct that does not fall under Articles 58, 59 or 60. In particular, it is likely to cover misuse of information:
    (a) relating to Investments to which those Articles do not apply e.g. Commodity Derivatives; or
    (b) where the information is relevant and not generally available but nonetheless is not “Inside Information” (for example, because it is not yet sufficiently precise in nature).

    Information to which Article 61 applies

    3. The prohibition applies to information which is not generally available to market participants but which if it was available to a market participant would be likely to be regarded by him as relevant when deciding the terms on which transactions in Investments should be effected.

    When is information "generally available"?

    4. The factors set out in CMC section 6-2, paragraphs 3 to 5, relating to whether or not information is generally available for the purposes of the definition of Inside Information will also be relevant for the purposes of Article 61 when considering whether or not information is generally available to market participants.

    When is information "relevant"?

    5. In determining whether information, if available to a market participant, would be likely to be regarded by the market participant as relevant when deciding the terms on which transactions in an Investment should be effected, the DFSA is likely to take into account factors such as:
    (a) the extent to which the information is reliable, including how near the person providing the information is, or appears to be, to the original source of that information and the reliability of that source;
    (b) if the information differs from information which is generally available and can therefore be said to be new or fresh information;
    (c) if there is no other material information which is already generally available to inform participants on the market; and
    (d) in the case of information relating to possible future developments which are not currently required to be disclosed but which, if they occur, will lead to a disclosure being made to the market, whether the information provides grounds to conclude that the possible future developments will, in fact, occur.
    6. The following are examples of information that, in the DFSA's view, could be relevant information under Article 61:
    (a) information about possible future developments relating to a Reporting Entity, which is confidential but not yet sufficiently precise to be Inside Information;
    (b) information relating to a government or central monetary authority or fiscal authority which is to be the subject of an official announcement;
    (c) information that an issuer is to be added to an index or removed from the index or that the weighting of the issuer will change on the index; and
    (d) information about an unscheduled closure of a commodity processing facility due to maintenance issues.

    Failure to meet standards of behaviour expected by market participants

    7. Article 61 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.
    8. 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 Investments of the kind in question.
    9. In determining whether there has been a failure to meet the standards expected by market participants, the DFSA is likely to take into account factors such as:
    (a) the characteristics of the market in question, including the users and applicable rules and codes of conduct;
    (b) if the relevant information is of a kind that has to be disclosed to the market in accordance with any legal or regulatory requirement, such as under the Markets Law, the rules of the relevant market or takeover rules;
    (c) if the relevant information is routinely the subject of a public announcement although not subject to any formal disclosure requirement, such as:
    (i) information which is to be the subject of official announcement by governments, central monetary or fiscal authorities or a regulatory body (financial or otherwise, including exchanges);
    (ii) changes to published credit ratings of issuers of Investments; or
    (iii) changes to the constituents of a securities index; or
    (d) if conduct is based on information relating to possible future developments, if it is reasonable to believe that the information in question will subsequently become of a type within (b) or (c).

    Examples of misuse of information

    10. The following are specific examples of conduct that, in the DFSA's view, may contravene Article 61:
    (a) A, who is a director of a company (a Reporting Entity), has lunch with a friend, B. A tells B about a possible takeover of the company that may emerge. B uses that information to purchase shares in the company, based on the possibility that the takeover may proceed; and
    (b) A, an employee of a company (a Reporting Entity), is aware of contractual negotiations between the company and a customer. Business with that customer has generated a significant percentage of the company's turnover in the last five financial years. A knows that the customer has threatened to take its business elsewhere, and that the negotiations, while ongoing, are not proceeding well. A sells shares in the company based on the possibility that the customer will take his business elsewhere.
    In the above examples, the DFSAnotes that the information may not yet be sufficiently precise to be Inside Information (see the test in CMC section 6-2, paragraph 2). However, in the DFSA's view, if it is not Inside Information, then it would be information to which Article 61 applies.
    11. The following is another example of conduct that, in the DFSA's view, may contravene Article 61:

    A, an oil trader who is also a participant on a Commodity Derivatives Exchange, becomes aware of a discontinuity at a storage facility of his employer. This information is not public. A reverses his positions contrary to the normal hedging practice with the aim of profiting from any resulting market disruption caused by the problem.
    Derived from GM9/2014 (Made 1st January 2015). [VER1/01-15]