The next generation of market abuse Alix Boberg Richard Sims Emma Sutcliffe Jochen Kindermann Wednesday 05 & Thursday 06 October 2016
Market abuse: an outline UK criminal and civil enforcement Perspectives from the United States and Germany Implementation of MAR The FCA s credible deterrence agenda The next generation of market abuse 1 / L_LIVE_EMEA1:34525784v7
The criminal record: insider dealing 60 2009 2016 Operation Tabernula 50 Months imprisonment 40 30 20 10 0 2 / L_LIVE_EMEA1:34525784v7
Operation Tabernula: a timeline 2010 Dawn raids and arrests 2013/14 Milsom, Shelley and Rifat plead guilty 2016 Dodgson and Hind convicted 3 / L_LIVE_EMEA1:34525784v7
Civil enforcement: insider trading Three notable cases in 2015 and 2016 Kenneth Carver 35,212 Insider dealing for profit of 18,206.70 Reduced penalty: cooperation, settlement and hardship Mark Taylor 36,285 Insider dealing for profit of 3,498 by financial adviser Reduced penalty: cooperation, settlement and hardship Prohibition Order for two years Gavin Breeze 59,557 Insider dealing by shareholder and improper disclosure Loss avoidance of 1,900 (but potentially up to 242,000) Restitution of 1,850 and public censure 4 / L_LIVE_EMEA1:34525784v7
Civil enforcement: market manipulation Three cases to date July 2013 January 2014 August 2015 2016 597,993 Michael Coscia for layering on ICE 8,000,000 Swift Trade Inc. for layering on LSE from 2007-2008 7,570,000 Da Vinci Invest Ltd, Mineworld Ltd, and three individuals for layering on LSE and MTFs? 5 / L_LIVE_EMEA1:34525784v7
The US perspective: the conviction of Coscia August October 2011 Michael Coscia trades on futures markets using algorithm, earning US$1.6m in trading profits July 2013 Coscia settles with the FCA, CFTC and exchanges October 2014 Coscia is indicted on six counts of spoofing and six counts of commodities fraud November 2015 Coscia is found guilty of all charges at a seven day trial in US federal court July 2016 Coscia is sentenced to three years imprisonment 6 / L_LIVE_EMEA1:34525784v7
The US perspective: the conviction of Coscia Layered orders External evidence of intent Large orders relative to market The case for the prosecution Market movement High cancellation rates Flashing orders 7 / L_LIVE_EMEA1:34525784v7
The US perspective: Sarao appealing extradition 8 / L_LIVE_EMEA1:34525784v7
Germany: highest overall fines on companies executable order (sec. 4 WpHG) reporting requirements (sec. 9 WpHG) 12,500 24,000 Ad-hoc-publicity (sec. 15 WpHG) 215,000 Directors' Dealings (sec. 15a WpHG) 15,000 market manipulation (sec. 20a WpHG) 160,000 notification requirements (sec. 21, 25 f. WpHG) 3,25 Mio. publication obligations (sec. 26 f. WpHG) information obligations (sec. 30b ff. WpHG) uncovered short sales (sec. 30h WpHG) Code of Conduct WpDU financial reports (sec. 37v ff. WpHG) takeover (WpÜG) prospectus (WpPG) 32,000 50,000 130,000 10,000 100,000 112,000 30,000 9 / L_LIVE_EMEA1:34525784v7
Germany: highest fines for market manipulation 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 10 / L_LIVE_EMEA1:34525784v7
Eurex: sanction example Time Volume Limit Type 15:06:38.636315 2312 130,57 Bid Other orders 15:06:41.704186 Cancellations 15:06:41.704284 Cancellations 15:06:41.704309 1500 130,58 Ask Z Bid Volume Bid Price Ask Price Ask Volume Z 88% 2312 2633 130,57 130,58 3407 1094 32% 24% 384 1595 130,56 130,59 3185 1500 47% 0% 0 1391 130,55 130,6 2228 0 0% 11 / L_LIVE_EMEA1:34525784v7
The Market Abuse Regulation: what s changed? In force since 3 July 2016 Extended Scope: To financial instruments traded on MTFs, OTFs and certain OTC activities Insider dealing: Offences similar to previously applicable civil regime in UK Issuers can delay disclosing inside information (but must inform the FCA) A new offence of attempted market manipulation 12 / L_LIVE_EMEA1:34525784v7
FCA and market abuse: a credible deterrence agenda Ensuring market integrity is one of our key objectives. Addressing market abuse is essential to achieving that objective. Identification of potential market abuse Suspicious Transaction and Order Reports (replaced STRs) MiFID transaction reports Strong pipeline of public outcomes A thematic approach Tough penalties Education and engagement Implementation of MAR Technology 13 / L_LIVE_EMEA1:34525784v7
The next generation of market abuse Increased scrutiny of algorithms Areas of ambiguity Technological advances Use of criminal sanctions Mifid II 14 / L_LIVE_EMEA1:34525784v7
Contact details Alix Boberg Associate Litigation T +44 20 7825 4173 E alix.boberg@simmons-simmons.com Richard Sims Partner Financial Markets Litigation T +44 20 7825 3924 E richard.sims@simmons-simmons.com Emma Sutcliffe Partner Financial Markets Litigation T +44 20 7825 4250 E emma.sutcliffe@simmons-simmons.com Jochen Kindermann Partner Financial Markets Litigation T +49 69 907454 43 E jochen.kindermann@simmons-simmons.com 15 / L_LIVE_EMEA1:34525784v7
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