Market Watch 75, published by the FCA, provides insights on the market soundings regime under the UK Market Abuse Regulation (UK MAR).
Market soundings are interactions between issuers and investors that help determine interest in a financial transaction before its announcement. These interactions are crucial for proper market functioning and price discovery. The UK MAR market soundings regime provides formal rules for disclosing inside information during market soundings. Additionally, it offers protocols for issuers and their advisors, who function as Disclosing Market Participants (DMPs), to lawfully disclose inside information when such disclosure aligns with a person's regular employment, professional responsibilities, or duties.
One key point highlighted in Market Watch 75 is that Market Sounding Recipients (MSRs) must independently assess whether they possess inside information from the DMP, and if they are prohibited from using this information for trading or not. Recent observations have shown cases where MSRs traded financial instruments before receiving inside information, possibly due to their ability to identify the instruments using other information available to them from different sources. This raises concerns about insider trading.
To minimize the risks of insider dealing and unlawful disclosure, DMPs should be cautious when creating market soundings, particularly for financial instruments with few actors. They should tailor the information provided to MSRs to avoid unintentional disclosure of inside information. MSRs should consider implementing "Gatekeeper" arrangements, appoint specific teams to handle market soundings, and ensure staff are properly trained in relevant procedures and prohibitions.
The FCA can request a wide range of information for reviewing trades and communications related to soundings, and they will intervene if there is behavior detrimental to market confidence and fairness.
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