Market Abuse, Disclosure and Insider Dealing
This domain tests inside information, tipping, manipulation and issuer disclosure. The exam rewards precise analysis of who is an insider and when information becomes public.
Prohibitions
- Insider dealing, tipping, market manipulation, false trading, misleading statements and creating a false market are prohibited under the Capital Markets Act and market-abuse regulations.
- Inside information is precise, non-public and price-sensitive. It is not limited to directors: employees, advisers, tippers and tippees can be liable.
- Issuers must disclose price-sensitive information promptly; selective disclosure to analysts or favoured investors is prohibited; directors' dealings must be notified.
- CMA investigates and can impose sanctions; criminal liability may also arise.
Worked example
A director learns of an imminent takeover and tells a friend, who buys shares. The director has tipped and the friend has traded while in possession of inside information; both breach market-abuse rules. The company must consider immediate announcement once confidentiality is lost. The friend's profit can be disgorged and penalties imposed. The reasoning: liability follows possession and use of inside information, not only seniority.
Traps
Thinking only directors can be insiders; treating rumours as public information; delaying disclosure without a valid basis; ignoring manipulation through order-book activity; assuming a tipper escapes liability if they did not trade.