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Lord Fraser of Carmyllie: There is some validity in the worry about the assumption that a regular user of a market--simply by reason of the frequency with which he uses the market--is a non-abusing and honourable member of that market. That assumption requires detailed consideration. Indeed, I can think of one circumstance where the difficulty was not that the abuser was an infrequent user of the market but that he used it too frequently and caused big problems.

What troubles me most is that if one envisages a circumstance where a market abuse is being investigated and the case goes before a tribunal to determine whether it is indeed market abuse, it would not be difficult to contemplate a set of circumstances where all manner of people are paraded before the tribunal to say, "I am a regular user of the market and, in my view, what is going on is perfectly acceptable. It is certainly something that has been prevalent for the 10 years in which I have been using the market". So, in those circumstances, it would seem a rather curious test to apply unless one improves it in some way--possibly along the lines suggested by the noble Lords, Lord Eatwell and Lord Lipsey. I am not entirely sure that I buy into their amendment, but I understand the intention behind it and the drift of it.

My other difficulty in regard to the issue of the importance of examining the reaction of a regular user of a market to determine whether or not there has been an act of market abuse, is the relationship between Clauses 110, 111 and 112 in regard to the code. As I understand it, this issue is causing the Financial Services Authority some alarm as well.

As I read the provisions in Clause 110, the authority must prepare and issue a code--it has no option--and, among other things, that code has to specify descriptions of behaviour that, in the opinion of the authority, amount to market abuse. It is not clear whether, in those circumstances, the authority has to make investigations to discover whether the conduct is of a kind that a regular user of the market would regard as not misleading or giving a false impression. There is absolutely no tie-up between the two. Furthermore, Clause 112(2) states:


In the way that these two sets of provisions lie alongside each other, it seems to me that there are, in a sense, two market abuses. One is a pattern of behaviour covered by Clause 109, where one examines the behaviour in the context of a regular user of the market; and the other is when the FSA looks at that conduct, regards it as being an abuse of the market, and spells it out clearly for everyone to see, saying, "If you do this, we shall regard it as market abuse". That is how Clause 112 seems to tie in. Then Clause 113

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states that in those circumstances it would be open to the Financial Services Authority to prosecute for market abuse.

Clearly both propositions cannot be right. I agree with other noble Lords who have said that this is not something that we can hope to resolve tonight, but I do hope that the issue will be more carefully re-examined before Report stage in order to avoid any concern or suspicion that there may be two sets of provisions. The risk may be that if the provisions to be found in Clause 109 are to reign supreme, the FSA may as well avoid wasting its time and put out nothing. If it does not square what is already within Clause 109, it does not seem that it can expand the ambit of market abuse--which, whether or not I like it, was certainly what I understood was intended by the Bill.

Having spelt out my concerns--which I believe are shared by a number of other noble Lords--I hope that we can return to this issue on Report. Like my noble friend on the Front Bench, I am bound to say that many of the difficulties that we are now confronting would have been much more easily resolved if the criminal law on which this should be based was more clearly stated.

Lord Grabiner: Perhaps I may put forward a suggestion which is not consistent with a point made by a number of noble Lords. Clause 109(1)(c) is drafted in entirely objective terms; it is not subjective at all. I emphasise the words in the first line of page 51, which states:


    "which is likely to be regarded by a regular user".

That does not mean the person who is, so to speak, being charged with market abuse on a particular occasion; it concerns "a regular user"--the nominal person; the anthropomorphic version of the human being we are concerned with. In the third line, the paragraph goes on to say:


    "the standard of behaviour reasonably expected of a person in his or their position".

In my view, the key to this is to be found in Clause 109(11)--to which no one has yet referred--where one finds a definition of the expression "regular user". That definition provides:


    "in relation to a particular market, means a reasonable person who regularly deals on that market in investments of the kind in question".

This is a Stanley Matthews clause; it is not a Diego Maradona clause. The point about "a reasonable person" is that he does not pull people's shirts in or near the penalty area or handle the ball; he is concerned to comply with the rules of the game. The concept of the "reasonable person" is someone who complies with the rules; someone who is ethical; someone who is by definition reasonable. For those reasons I have difficulty in supporting the suggested amendments of my noble friends Lord Lipsey and Lord Eatwell. The position is adequately covered by the language of the existing drafting.

Leaving that issue aside, perhaps I may say something about "intent", a point made by the noble Lord, Lord Kingsland, in his opening remarks. It is

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obvious that the introduction of a subjective intent test would significantly weaken the quality of the clause in terms of the position of the authority and the protection of the market place. I readily accept that "weaken" is not appropriate when looked at from the point of view of the person being charged with wrongdoing.

However, one has to bear in mind that the conditions for the operation of Clause 109 are spelt out very clearly in Clause 109(2). We know the kinds of circumstances where this problem could conceivably arise. They are defined very precisely. If one or other of the conditions in subsection (2) are not present, one does not get into the clause at all. The context in subsection (2)(a) is effectively inside information--information that is not generally known to the market-place; and in paragraph (b) it is a "false or misleading impression" given in the market-place; in paragraph (c), distorting the market. One of those situations must be in play before there is any risk of being made the subject of an abuse charge under these provisions.

The effect of that is that someone who behaves ex hypothesi in that context in a way which engages the risk that his behaviour may be thought to offend against the legislation is someone who ought to know the consequences of his actions. It is rather like my six year-old son throwing a cricket ball in the general direction of the conservatory window. When the ball hits the window and goes through it, he protests loudly, "But, Dad, I didn't mean to do it". In those circumstances I do not have a debate with him about whether he ought to have appreciated that if he threw the ball in that direction it might go through the window and that that was indeed likely.

I suggest that in the kind of market-place with which we are concerned here, given the very specific circumstances in which such a liability could arise, the strength of the clause as drafted is that it would oblige people, where appropriate, to err on the side of caution. It means: "If there is a risk that your conduct may be likely to produce the result that you fall foul of the abuse provisions, you had better beware". We are dealing here with sophisticated people; we are not dealing with my six year-old son. In those circumstances, I have great difficulty in understanding any justification for saying to those grown-up, sophisticated people that nothing short of intention will do--in other words, "You are off the hook, notwithstanding the fact that you will be able to say, 'I did not intend to do it', but notwithstanding the fact that it would have been likely to happen had you really given your mind to the circumstances in which you found yourself that you would in fact have fallen foul of these provisions". In those circumstances, I certainly do not support such of the amendments as are inconsistent with anything that I have just said.

7 p.m.

Baroness O'Cathain: I am now very confused about all this. I suppose that that is not surprising. There is one thing about which I am extremely confused. It took me many years in this House to learn what a Henry VIII clause was. Now, I shall have to learn what

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a "Diego Maradona clause" is, and a "Stanley Matthews clause"--and the last one is the "cricket ball through the conservatory window clause". I really do not know where I shall be!

My noble friend made the point that in Clause 109 paragraphs (a) and (b) of subsection (1) were fairly specific, whereas the provision in paragraph (c) was subjective. The noble Lord, Lord Grabiner, has just said that he does not believe that paragraph (c) is subjective. I have given the matter some thought, and I believe that it is. The phrase used is:


    "which is likely to be regarded by".

I am not talking about a "regular user"; we have a definition of that, and that is fine. But this provision is likely to be regarded as subjective. If it is not to be so regarded, surely it should read, "which would be regarded by a regular user as". There is further reference to,


    "the standard of behaviour reasonably expected of a person in his or their position in relation to the market".

For the provision to be firm, as in paragraphs (a) and (b), surely the paragraph should read, "to observe the standard of behaviour expected of a person in his or their position in relation to the market". I still support my noble friend on this point. The provision is quite subjective and opens up an element of doubt.


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