5-7 Defences

(1) Some general examples of conduct that may be considered by the Regulator as a defence to Market Abuse include:
(a) the person is participating in a liquidity scheme which is operated by a Recognised Investment Exchange;
(b) despite possessing the Inside Information, the person has established, implemented and maintained adequate and effective internal arrangements and procedures that effectively ensure that the person engaging in Market Abuse was not in possession of the Inside Information;
(c) the person establishes that he reasonably believed that the Inside Information had been disclosed to the market in accordance with the FSMR or the Markets Rules;
(d) the dealing occurred in the legitimate performance of an underwriting agreement for the Financial Instruments or Related Instruments in question;
(e) the dealing occurred in the legitimate performance of his functions as a liquidator or receiver;
(f) the dealing is undertaken solely in the course of the legitimate performance of his functions as a market maker;
(g) the person executes an unsolicited Client order in Financial Instruments or Related Instruments while in possession of Inside Information without contravening section 92(3) (providing Inside Information) or otherwise advising or encouraging the Client in relation to the transaction;
(h) the dealing is undertaken legitimately and solely in the context of that person's public Takeover bid for the purpose of gaining control of that Authorised Person or a proposed merger with that Authorised Person; or
(i) the sole purpose of the Authorised Person acquiring its own Shares was to satisfy a legitimate reduction of share capital or to redeem Shares in accordance with the Rules.

Further guidance setting out the Regulator's views on some, but not all, of these defences is set out below.
Market making
(2) Dealing undertaken by a person solely in the course of the legitimate performance of his functions as a market maker on his own account will not contravene section 92(2) (Insider Dealing).
(3) In the Regulator's view, the following factors are likely to indicate that a person's dealing in a Financial Instrument is in the course of the legitimate performance of his functions as a market maker:
(a) if the person holds himself out as willing and able to enter into transactions for the sale and purchase of Financial Instruments of that description at prices determined by him generally and continuously rather than in respect of a particular transaction;
(b) if the dealing is in the course of the provision of the services referred to in (a) or is in order to hedge a risk arising from such a dealing; and
(c) if Inside Information held by the person or persons who make the decision to deal is limited to Trading Information.
(4) In the Regulator's view, if the person acted in Contravention of a regulatory requirement or a requirement of the relevant market, that is a factor that indicates that the person's dealing is not in the legitimate performance of his functions as a market maker.

Other general examples of conduct that may amount to defences to section 92(2) (Insider Dealing) in the Regulator's view include the following:

Underwriting
(5) A dealing by a person that occurs in the legitimate performance of an underwriting agreement for the Financial Instruments or Related Instruments in question.
(6) In the Regulator's view, an underwriting agreement is an agreement under which a party agrees to buy, before issue, a specific quantity of Financial Instruments in an issue of Financial Instruments on a given date at a given price, if no other party has purchased or acquired them.
(7) In the Regulator's view, if the person acted in Contravention of a relevant regulatory requirement or a requirement of the relevant market, that is a factor that indicates that the person's dealing is not in the legitimate performance of his functions under an underwriting agreement.

Execution of Client orders
(8) The execution of an unsolicited Client order in Financial Instruments or Related Instruments while in possession of Inside Information if the person executing the order has not:
(a) contravened section 92(3) i.e. disclosed Inside Information to the Client or procured the Client to deal in the Financial Instruments or Related Instruments for which the person executing the order has Inside Information (see Rule 6 of the RMC); or
(b) otherwise advised or encouraged the Client in relation to the transaction.
(9) In the Regulator's view, the following factors are likely to indicate that the person's dealing is the execution of an unsolicited Client order:
(a) if the dealing is initiated by the Client;
(b) if the person has agreed with their Client that it will act in a particular way when carrying out or arranging the carrying out of the order;
(c) if the person's Behaviour was with a view to facilitating or ensuring the effective carrying out of the order;
(d) if the person's Behaviour was reasonable by the proper standards of conduct of the market, and proportional to any risk undertaken by that person;
(e) if the relevant trading by that person on behalf of the Client order either has no impact on the price, or there has been adequate disclosure to the Client that trading will take place without objection from the Client; and
(f) if the person has complied with any applicable conduct of business obligations relating to the execution of the order for the Client.
(10) In the Regulator's view, if the Inside Information is not limited to Trading Information, that is a factor which indicates that the person's dealing does not amount to a dutiful execution of an unsolicited Client order.

Takeovers and mergers
(11) A dealing undertaken legitimately and solely in the context of a person's public Takeover bid for the purpose of gaining control of the Authorised Person or a proposed merger with the Authorised Person.
(12) There are two categories of Inside Information potentially relevant to a Takeover or merger:
(a) information that an Offeror or potential Offeror is going to make, or is considering making, an Offer for the target; and
(b) information that an Offeror or potential Offeror may obtain through due diligence.
(13) In determining whether or not the dealing is undertaken legitimately and solely in the context of a Takeover bid or merger, the Regulator is likely to take into account factors such as:
(a) whether the transactions concerned are in the target Company's Shares;
(b) whether the transactions concerned are for the sole purpose of gaining control or effecting the merger; and
(c) whether the person has complied with applicable regulatory requirements relating to the Takeover or merger.
Chinese walls
(14) A person may also be regarding as not contravening the Market Abuse provisions by dealing in Financial Instruments if:
(a) it had in operation at that time an effective information barrier which could reasonably be expected to ensure that the Inside Information was not communicated to the person or persons who made the decision to deal and that no advice with respect to the transaction or agreement was given to that person or any of those persons by an Insider; and
(b) the information was not communicated and no such advice was given.

For example, if Inside Information is held behind an effective information barrier, from the individuals who make the decision to deal, the dealing by the person may not contravene section 92(2).
(15) In the Regulator's view, to rely on this defence, the person must not only have in place information barriers which could reasonably be expected to prevent the communication of the Inside Information, but must also be able to show that the information was not in fact communicated to the person who made the decision to deal.