Capital Markets Law and Compliance: The Implications of MiFID »

Paul Nelson is a partner and Head of the Financial Markets Group at Linklaters, London. He is also Professor of Capital Markets Regulation and Compliance at the ICMA Centre, University of Reading.

A practical guide to, and an analysis and critique of, the regulation of capital markets.

Preface     xiii
List of acronyms     xiv
Evolution of capital markets regulation, FSA and the European single market     1
Introduction     3
FSMA and the single market     8
Evolution     8
Up to the 1930s     9
The secondary market and the London Stock Exchange     9
Primary market new issues     10
The Prevention of Fraud Acts     12
The Financial Services Act 1986     15
Reform of securities regulation     15
Self-regulation?     17
Rules and principles     19
A complete (functional) regulatory regime     22
FSMA     27
The statutory objectives     33
Conveyance structure     36
Annual report     37
Practitioner input and consultation     38
Enforcement     39
Complaints commissioner     43
Accountability to Treasury     44
The rulebook     45
European Union directives     53
Licensing and rule application     61
Licensing     63
Analysing the application of regulations     63
Regulated activities     64
'Investments'     65
'Investment activities'     79
Activities in and/or from a UK place of business     86
Activities into the UK and the overseas persons exclusion     86
Excluded activities     88
The ISD/MiFID override     90
By way of business     92
A licence is required     92
Process and criteria     94
Passporting     94
Non-EEA firms     96
The application of FSA MiFID rules     98
Methodology     98
Rules of application     98
The firm's infrastructure     111
Systems and controls     113
Evolution of FSA's approach     113
Systems and controls rules     117
Overall requirement     118
Apportionment of responsibility     121
Control functions     123
Employees     125
Outsourcing     128
Senior management responsibility     132
Registration as an Approved Person     132
Rule responsibilities     135
Approved Persons     139
Registration as an Approved Person     139
Rule responsibilities      140
Record-keeping     140
FSA's risk assessment methodology     142
Conflicts of interest     146
Differences in interests and conflicts of interest     146
The general law of fiduciaries     146
A fiduciary relationship     146
A conflict of interest     148
Solutions     153
Regulatory rules     158
The general rule     158
Inducements     166
Soft commission and bundling     171
Investment research     178
Corporate finance securities issues     189
Churning     191
Personal account dealing     191
Polarisation     193
Client property     194
Client assets and custody     194
Protecting the client's assets     194
Application of the custody rules     199
Procedures     203
Client money     208
Protecting the client's money     208
Defining client money     211
Procedures     216
Conduct of business     223
Client classification and client documentation     225
Regulatory policy      225
'Clients' for regulatory purposes     226
The definition of 'client'     226
Clients acting as agent     229
Client categorisation     230
Private customers and retail clients     231
Intermediate customers and professional clients     231
Market counterparties and eligible counterparties     239
Terms of business     241
The requirement     241
Content     243
Form     249
Amendments     249
Standard terms and exclusion clauses     250
Enforcement     251
One-way and two-way notifications     251
Principles of conduct     254
The FSA's 11 Principles     254
Policy     254
Application     257
Treating the customer fairly     259
The MiFID Principle     264
Marketing investments     265
The different regulatory regimes     265
Securities     265
Transferable securities     268
Offer to the public     268
Misleading etc marketing     270
Marketing by unlicensed persons     272
Marketing up to the end of the 20th century     272
The FSMA regime     276
Marketing by licensed persons     282
Full disclosure     282
Specific disclosures     289
Real-time promotions     293
Electronic Commerce Directive     293
Distance marketing     296
Collective investment schemes     298
Advising clients     306
General Law     306
The Regulated Activity     307
Execution-only services     318
Appropriateness     320
Margin Lending     324
Consumer Credit     324
Securities Regulation     324
Improper behaviour in dealing and executing orders     326
Introduction     326
Insider dealing     326
An individual     327
Territorial jurisdiction     327
Inside information     329
Connection     331
Dealing     332
Encouraging     332
Disclosure     333
Defences     333
Market manipulation     336
Act or course of conduct     336
False or misleading impression     337
In the UK     338
Purpose     339
Inducing     339
Reasonable belief     339
Defences     339
A principle of conduct and the need for an administrative remedy     343
An administrative offence     345
The burden of proof     345
Intention     346
Affected persons and certainty     347
Multiple jeopardy     347
The market abuse regime     347
'Behaviour' in relation to an exchange     349
Territorial ambit     350
Misuse of information     350
False or misleading impression     360
Distortion     364
The reasonable and regular user     371
Requiring or encouraging     373
Safe harbours     374
Mitigating factors     374
The Principle     375
The future     376
Dealing and executing orders     378
Transactions     378
Pre-transaction     378
The order to deal     378
The decision on how to deal     379
Executing transactions     380
Own account dealing     388
Best execution      391
Policy     391
When the best execution obligation applies     391
Achieving best execution     398
Systematic internalisers     407
Introduction     407
The Investment Services Directive     408
MiFID     409
Reporting     413
Trade reporting     413
Transaction reporting     415
Reporting to clients     417
Exchanges and MTFs     418
Regulated markets     418
Multi-lateral trading facilities (Alternative Trading Systems)     418
The need for separate regulation     418
Regulatory standards     419
Clearing services     422
Application of rules to particular businesses     423
Corporate finance     425
Regulatory status     425
Infrastructure rules     425
Conduct rules     426
Conduct rules     426
MiFID     427
Broker-dealers     429
Regulatory status     429
Infrastructure rules     429
Conduct rules     429
Securities and derivatives broking and dealing     429
Energy and oil markets     429
Stocklending     430
Asset managers     432
Portfolio managers     432
Regulatory status     432
Infrastructure rules     432
Conduct rules     432
Collective investment schemes     432
Trustees     434
Trustees of collective investment schemes     434
Custodians     434
Regulatory status     434
Infrastructure rules     434
Conduct rules     434
Other trustees     434
Regulatory status     434
Infrastructure rules     435
Pre-MiFID conduct rules     435
Retail intermediaries     438
Stockbrokers     438
Regulatory status     438
Infrastructure rules     438
Conduct rules     438
Packaged product intermediaries     438
Regulatory status     438
Infrastructure rules     438
Conduct rules     439
Bibliography     440
Index     441