The FSC Sentinel

Page 4

Typical types of market abuse in the region, include

·          Price manipulation of stocks held by investment managers in Collective Investment Schemes (“CIS”) (or CIS type arrangements)

·           “Grey market” operators, i.e., salesmen of foreign companies selling unregistered foreign products (usually CIS)

·          Securities in the form of investment contracts offered by unregistered persons

·          Suppression of price sensitive information by registered issuers

Some of the challenges faced

·          Unwillingness of potential witnesses to testify (difficult to overcome but sting operations help to mitigate)

·          Cross border nature of market abuse, need for cooperation/collaboration with authorities in other jurisdictions (being addressed through Mutual Le

·          gal Assistance Treaties (“MLATs”) and potentially through bi-lateral Memorandum of Understandings (“MOUs”)

·          Resource constraints in terms of people and technology (addressed through cooperation with other authorities/specialists with requisite resources)

In developing nations, regulators are often constrained by financial considerations in acquiring sophisticated off the shelf state of the art market surveillance technology. 

A cost effective way to ameliorate this short-coming is the designing of effective programmes of investor and broker education to complement whatever electronic surveillance is carried out.  A market abuse regime can be an effective FSC tool to encourage and promote high standards within our markets in the future.

Brokers have to be made to              understand

·          That if through a weak control environment in their shops, market abuse is allowed to occur this will eventually lead

·          to an erosion in investor confidence (which when lost is hard to recover)

·          The ways in which they, as the first line of defence, can take steps to prevent market abuse (effective compliance units are key)

Brokers should also be made to        understand

·          That their Self Regulatory Organization (“SRO”) should shoulder most of the responsibility for educating brokers

·          Apex regulators will examine brokers to ensure that they have proper mechanisms in place to prevent instances of market abuse emanating from the brokers.

In developing strategies for     investor education                       regulators/SROs need to take into   account

·          Need to focus on “impact” rather than “output”

·          Capturing demographic information to help determine which strategies are likely to have greatest impact

·          Utilizing a variety of channels to disseminate messages and tailoring these to fit the target audience

·          Regulators/SROs also need to take into account:

Ø   That the core objective in any investor education program should be to build a critical mass of investors and potential investors who are sufficiently empowered to at least identify the crudest forms of market abuse

Ø   Effectiveness of establishing and publicizing toll free help-telephone lines and internet access.