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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:
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:
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.
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
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:
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