Market Conduct & Market Abuse Policy

ISTAR CAPITAL LTD

  

1. Introduction

The Market Conduct Policy is a cornerstone of ISTAR CAPITAL LTD referred to as ‘the Firm’s commitment to maintaining the highest standards of integrity and compliance within the financial markets. This policy is designed to prevent market abuse, including insider dealing, unlawful disclosure of inside information, and market manipulation, in accordance with the UK Market Abuse Regulation (UK MAR) and the Financial Services and Markets Act 2000 (FSMA). The Firm’s operations, which include making arrangements with a view to transactions in investments and advising on investments, necessitate a robust framework to ensure compliance with these regulations.

The specific goals and objectives of this policy are to establish clear guidelines and procedures that prevent market abuse, protect the integrity of the financial markets, and ensure that all personnel act in accordance with legal and regulatory requirements. The policy also outlines the process for suspicious transaction and order reporting (STOR) to the Financial Conduct Authority (FCA) under UK MAR Article 16.

The rationale for implementing this policy is grounded in the need to uphold the Firm’s reputation, protect client interests, and comply with regulatory obligations. By adhering to the principles set out in this policy, the Firm not only meets its legal obligations but also fosters a culture of ethical conduct and accountability. This is essential for maintaining trust with clients and stakeholders and for ensuring the long-term success of the Firm.

 

2. Scope

The Market Conduct Policy applies to all personnel and entities within the Firm engaged in activities related to investment types specified under FCA permissions, including shares, debentures, warrants, rights to or interests in investments (security), and certificates representing certain securities. This policy encompasses all departments involved in agreeing to carry on regulated activities, making arrangements with a view to transactions in investments, arranging safeguarding and administration of assets, arranging deals in investments, and advising on investments, excluding pension transfers and opt-outs. The Firm’s activities must align with the limitations set forth in its FCA permissions, ensuring compliance with regulatory requirements and ethical standards.

The policy’s reach extends to all customer types, including retail (investment), professional, and eligible counterparties, with specific limitations on retail advice to corporate finance clients. The policy does not cover activities outside the scope of the Firm’s permissions or those not specified in this document

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3. Regulatory Framework

The Firm operates within a robust regulatory framework governed by the Financial Conduct Authority (FCA) in the United Kingdom. This framework mandates compliance with various legal provisions, primarily focusing on market conduct, to ensure fair and transparent operations in investment activities. The Firm’s permissions include agreeing to carry on regulated activities, making arrangements with a view to transactions in investments, arranging safeguarding and administration of assets, arranging deals in investments, and advising on investments, excluding pension transfers and opt-outs. These activities are subject to specific limitations and customer types, including retail (investment), professional, and eligible counterparties.

The Firm must adhere to the UK Market Abuse Regulation (UK MAR), which is crucial for preventing market abuse, including insider dealing, unlawful disclosure of inside information, and market manipulation. The Firm is required to establish insider lists, implement information barriers, and maintain personal account dealing controls. Trade surveillance systems must be in place to monitor and detect suspicious activities. The Firm must report any suspicious transactions or orders to the FCA under UK MAR Article 16, following the procedures outlined in the FCA MAR Sourcebook FCA MAR Sourcebook.

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4. Understanding Market Abuse

Market abuse encompasses a range of illicit activities that undermine the integrity of financial markets. The Firm must be vigilant in identifying and preventing these activities to comply with the UK Market Abuse Regulation (UK MAR) and maintain market confidence. Market abuse can manifest in several forms, including insider dealing, unlawful disclosure of inside information, and market manipulation.

Definitions

1. Insider Dealing: This occurs when personnel use confidential information to trade securities, thereby gaining an unfair advantage. Insider dealing is illegal and can lead to severe penalties under the Criminal Justice Act 1993.

2. Unlawful Disclosure: This involves sharing inside information with unauthorized parties, which can lead to market distortion. Personnel must ensure that sensitive information is only disclosed in compliance with regulatory requirements.

3. Market Manipulation: This refers to actions that artificially affect the price or volume of securities, such as spreading false information or conducting trades to mislead the market. Such activities are prohibited under UK MAR.

 

UK MAR Applicability

The UK MAR applies to all financial instruments admitted to trading on UK trading venues or where UK MAR is otherwise in scope. The Firm must adhere to the following obligations:

1. Insider Lists: Maintain accurate and up-to-date lists of personnel with access to inside information. This helps in monitoring and controlling the flow of sensitive data.

2. Information Barriers: Implement robust barriers to prevent the unauthorized exchange of confidential information between departments.

3. Personal Account Dealing Controls: Establish controls to monitor and restrict personal trading activities by personnel to prevent conflicts of interest.

4. Trade Surveillance: Conduct regular surveillance of trading activities to detect and prevent market abuse. This includes monitoring for suspicious transactions and orders.

5. Suspicious Transaction and Order Reporting (STOR): Personnel must report any suspicious transactions or orders to the FCA promptly, as outlined in UK MAR Art. 16.

By understanding and adhering to these principles, the Firm can effectively mitigate the risk of market abuse and uphold its commitment to ethical market conduct.

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5. Insider Dealing

To effectively manage insider information and prevent insider dealing, the Firm must implement robust controls and procedures in line with the UK Market Abuse Regulation (UK MAR) and the Financial Services and Markets Act 2000. Insider dealing involves trading based on material, non-public information, which undermines market integrity and investor confidence. The Firm’s approach to managing insider information includes restricting access, maintaining a restricted list, and implementing disclosure controls.

Restricting Access

1. Access Limitation: The Firm must ensure that access to insider information is strictly limited to personnel who require it for their roles. This involves:

   1. Identifying and categorizing insider information.

   2. Implementing secure information barriers, such as physical and electronic access controls.

   3. Regularly reviewing access permissions to ensure they remain appropriate.

2. Training and Awareness: Personnel must receive regular training on the importance of maintaining confidentiality and the legal implications of insider dealing. This training should cover:

   1. Definitions and examples of insider dealing.

   2. The Firm’s policies and procedures for handling insider information.

   3. The consequences of non-compliance, including potential criminal sanctions.

   4. Ensuring that any changes in insider information are promptly reflected.

Record Keeping: The Firm must maintain the records in the relevant compliance register. The record must include minimum retention period as per the applicable regulatory framework.

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6. Market Abuse Prevention

To prevent market abuse, the Firm must implement robust procedures in compliance with the UK Market Abuse Regulation (UK MAR) and the Financial Services and Markets Act 2000 (FSMA). These procedures are essential to mitigate risks associated with insider dealing, unlawful disclosure of inside information, and other forms of market abuse.

Insider Dealing Prevention

1. Establish Insider Lists: The Firm must maintain insider lists to track individuals with access to inside information. These lists should be updated regularly and include details such as the identity of insiders, the date they gained access, and the nature of the information.

2. Information Barriers: Implement information barriers, also known as Chinese walls, to prevent the flow of inside information between departments. This includes physical and electronic barriers to ensure that sensitive information is only accessible to authorized personnel.

3. Personal Account Dealing Controls: Personnel must seek pre-approval for personal trades in securities handled by the Firm. This control helps prevent conflicts of interest and potential insider trading.

Unlawful Disclosure Avoidance

1. Confidentiality Agreements: Require all personnel and third parties with access to inside information to sign confidentiality agreements. This ensures that sensitive information is not disclosed unlawfully.

2. Training and Awareness: Conduct annual training sessions to educate personnel on the importance of maintaining confidentiality and the legal implications of unlawful disclosure. This training should cover the identification of inside information and the appropriate handling procedures.

3. Monitoring and Surveillance: Implement a monitoring system to detect and report any suspicious activities that may indicate unlawful disclosure. This system should be capable of identifying unusual trading patterns and other red flags.

Compliance with UK MAR

1. Suspicious Transaction and Order Reporting (STOR): The Firm must establish a process for identifying and reporting suspicious transactions to the FCA. This includes maintaining a STOR register and ensuring timely submission of reports.

2. Regular Audits: Conduct quarterly audits to assess the effectiveness of market abuse prevention measures. These audits should evaluate compliance with UK MAR and identify areas for improvement.
    

7. Market Manipulation Prevention

Preventive Measures

The Firm must implement robust preventive measures to mitigate the risk of market manipulation, which is defined as any action that artificially affects the price or volume of financial instruments. These measures are essential to ensure compliance with the UK Market Abuse Regulation (UK MAR) and the Financial Services and Markets Act 2000 (FSMA). The Firm must:

1. Establish clear policies and procedures to prevent market manipulation, including guidelines for trading practices and communication protocols.

2. Implement information barriers to prevent the misuse of confidential information that could lead to market manipulation.

3. Conduct regular training sessions for personnel to ensure awareness of market manipulation risks and compliance obligations under UK MAR.

4. Develop a code of conduct that outlines acceptable trading practices and prohibits manipulative behaviors.

5. Ensure that all trading activities are monitored and reviewed regularly to detect any unusual patterns that may indicate manipulation.
    

8. Suspicious Activity Reporting

The Firm must establish robust procedures for detecting and reporting suspicious activities related to market abuse, in compliance with UK MAR Art. 16. Personnel responsible for arranging or executing transactions must promptly report any orders or transactions suspected of constituting market abuse to the FCA through the Suspicious Transaction and Order Reporting (STOR) mechanism.

Reporting Guidelines

1. Detection: Personnel must employ effective monitoring systems to identify suspicious activities. This includes unusual trading patterns, discrepancies in transaction details, or any activity that may indicate insider dealing or market manipulation.

2. Documentation: All STOR submissions must be thoroughly documented, detailing the nature of the suspicion, the instruments involved, and any relevant transaction data. The Firm must maintain these records in the compliance register. The record must include minimum retention period as per the applicable regulatory framework.

3. Confidentiality: Ensure confidentiality in reporting to prevent tipping-off. Information regarding STOR submissions must be restricted to authorized personnel only.

4. Escalation: Establish clear escalation paths from portfolio managers to compliance officers. Compliance officers must review and validate suspicions before submission to the FCA.

5. Timeliness: STORs must be submitted without undue delay upon reasonable suspicion of market abuse. Prompt reporting is crucial to mitigate potential harm and uphold market integrity.

Timely Detection

Personnel must be trained to recognize indicators of market abuse and understand the importance of timely reporting. Regular training sessions should be conducted to ensure awareness of the latest regulatory requirements and best practices.

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9. Market Sounding

Market soundings are a critical component of the Firm’s compliance with the UK Market Abuse Regulation (UK MAR). The Firm must adhere to specific procedures when conducting market soundings to ensure compliance and prevent market abuse.

1. Disclosure Procedures:

   1. The Compliance Officer must ensure that any disclosure of inside information during market soundings is conducted in accordance with UK MAR Art. 11.

   2. Prior to disclosure, the Firm must assess whether the information constitutes inside information and document this assessment.

   3. The recipient of the information must be informed that they are receiving inside information and the obligations that come with it.

2. Safeguards Against Leaks:

   1. The Firm must implement robust information barriers to prevent unauthorized access to inside information.

   2. All personnel involved in market soundings must be trained on the importance of confidentiality and the legal implications of unlawful disclosure.

   3. The Firm must maintain a record of all market soundings, including the nature of the information disclosed, the identity of the recipients, and the date and time of the disclosure. This record must be maintained in the compliance register and include the minimum retention period as per the applicable regulatory framework.

By adhering to these procedures, the Firm ensures compliance with regulatory obligations and mitigates the risk of market abuse.

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10. Criminal Offences

Criminal offences related to market conduct, particularly insider dealing, are governed by the Criminal Justice Act 1993 and the Financial Services and Markets Act 2000. Insider dealing involves trading based on non-public, price-sensitive information, which is illegal and subject to severe penalties. The Firm must ensure compliance with these laws to prevent criminal liability.

Possible Sanctions

1. Imprisonment: Individuals found guilty of insider dealing may face imprisonment for up to seven years, as stipulated under the Criminal Justice Act 1993.

2. Fines: The Firm and its personnel may incur substantial fines if convicted of insider dealing. The amount is determined by the court based on the severity of the offence.

3. Disqualification: Convicted individuals may be disqualified from holding directorships or senior management positions within the Firm or other financial institutions.

Legal Defenses

1. Public Information: A defense may be available if the information was already public at the time of the transaction.

2. No Influence: Personnel may argue that the inside information did not influence their decision to trade.

3. Reasonable Belief: If personnel reasonably believed the information was not price-sensitive, this may serve as a defense.

The Firm must implement robust compliance measures to mitigate the risk of insider dealing. This includes maintaining insider lists, enforcing information barriers, and conducting regular training sessions to ensure personnel understand their obligations under the UK MAR and the Criminal Justice Act 1993. Additionally, the Firm must establish procedures for reporting suspicious transactions to the FCA, as detailed in Suspicious Activity Reporting.

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11. Training and Awareness

The Firm is committed to ensuring that all personnel are equipped with the necessary knowledge and skills to comply with the Market Conduct Policy and relevant regulatory requirements. Training and awareness programs are integral to fostering a culture of compliance and ethical conduct within the Firm.