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Lord Fraser of Carmyllie: My Lords, the practice of indolent judges who cannot be bothered to prepare their own judgments is to say, "I concur in the judgment previously delivered". There is little in what the noble Lord, Lord Eatwell, has said that would not lead me to conclude that I could offer up the same view.

His words seem to be exceptionally apposite. They penetrated with great clarity of analysis exactly the problem about the market abuse provision that is allowed for in the Bill. I hope that the noble Lord on

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the Front Bench will not find some contentment in the idea that, if he is criticised from behind and from this side of the House, in some bizarre fashion he must have achieved an acceptable balance. This is a situation that he ought to acknowledge and understand as one that he should take away and reflect on carefully.

I do not have the advantage of being president of Queens' College, Cambridge. I greatly admire the position of the noble Lord, Lord Eatwell, and the opportunity that he has to consult such distinguished legal academics as are to be found in Cambridge. I certainly hope he talked to Dr Ferran, who contributed in such a distinguished fashion to the Joint Committee.

I hope that the Government understand that nobody is trying to attack what is being done about market abuse. We are still intent, one way or another, on achieving a regime that will be beyond challenge once it is put in place. I still have a grave concern that the provisions that are to be found in Clauses 115 and 116 simply do not mesh together. The outcome will not be a reduction of the abuse of the market that there is in London, in particular, and in the UK generally; but it will simply provide a field day for lawyers to work their way through these two sets of provisions and find that, far from being an advantage to those who wish to stamp out abuse, it will exacerbate the situation.

If the Minister looks back to such problems as there have been in relation to insider dealing--I acknowledge that his government were not in office at the time--he will realise that the one thing that all sides of the House must seek to achieve is a regime that is settled; one that is direct; and one that brings to account those who abuse the market.

I have been intrigued by this amendment. For my purpose, had the amendment been put within Clause 116, which requires the FSA expressly to put together descriptions of behaviour that amounts to market abuse, acting in the interests of the market as a whole, that might have been another route to the same objective. I am not trying to draft on my feet. I hope that those on the Government Front Bench do not regard this set of opinions as the opportunity to say that there is such a degree of division that we cannot come to an acceptable and satisfactory arrangement. We have the same objectives. I hope that the Minister will appreciate, even at this relatively late hour, that this is not a destructive approach to this part of the Bill; we want to improve it.

I am not entirely sure that my Front Bench will always agree with me. But I am not averse to the idea, as my later amendments will indicate, that the FSA should have a role in that. The only point with which I disagree in the approach of the noble Lords, Lord Eatwell and Lord Lipsey, is that I have difficulty in believing that the reasonable, regular user of the market--that objective creature--will be sharp enough to pick up the sort of abuse that may be emerging. It is important to understand that, if people wish to engage in financial services in the City and they are not sure whether or not what they propose is

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acceptable, as I understand Clause 116 and other provisions, they will have the right to go to the FSA and say, "This is what we propose to do. Is it acceptable?". If the FSA says that it is acceptable, they have their safe harbour.

In those circumstances, the FSA is in a far better position than anyone else to know about, to listen to, and to determine upon innovations in the City and then come to a conclusion as to whether or not specific innovations are acceptable. It can be spelt out there and then if it is an abuse. It follows from that that those who then pursue that innovation will suffer the penalties that flow from it. Alternatively, if the FSA regards it as being acceptable behaviour and an innovation it wishes to see continued in the City, that will not be trammelled in any way.

I have difficulty in believing that simply relying on this reasonable, regular user of the market, will provide a complete solution. I could continue to speak on this matter for a long time. It is not difficult to envisage a circumstance--there are some distinguished court practitioners in your Lordships' Chamber tonight who can also do this--when those who are reasonable, regular users of the market give evidence in the best of faith to a tribunal or other body but come to completely different conclusions. In such circumstances, what possible conclusion could the tribunal draw? The only definite view one could reach is that no decision is more obviously amenable to judicial review than that.

9.45 p.m.

Lord Newby: My Lords, these debates have been conducted on a theoretical plane and my question on the amendment is really for those who tabled it. My question relates to the more practical work that the FSA has been doing in terms of the code. As noble Lords will be aware, the authority has already gone some way towards drawing up a draft code. The matter was put out to consultation and received feedback, which was all published. What emerged and what, I suspect, the draft code will become--noble Lords will correct me if I am wrong--is the equivalent of the rules of the game, to continue the football analogy.

It seems to me that there are already equivalent provisions within the code against shirt pulling. Indeed, there are provisions against the Maradona method of scoring goals. If rules are drawn up in consultation with practitioners--that is to say, the regular users--which command broad support not just in the market place but also among the other audiences, including Members of this place, who have a chance to study such documents, I believe that we shall then have, arguably, a series of rules that will avoid many of the theoretical concerns expressed by noble Lords.

The key final point is the fact that the FSA is the referee. Indeed, if the authority were a good referee at the moment, it would, like all good referees, be penalising people who were shirt pulling; and would, equally, be penalising the Maradona. I would welcome any comments from noble Lords opposite explaining

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why, in their view, this procedure and the drawing up of the code gives them such concern about the proper avoidance of the abuse that everyone is keen to stamp out.

Lord McIntosh of Haringey: My Lords, the amendment would provide that the reasonable regular user, when considering the behaviour engaged in by person X, would look at whether that person had failed to observe the standard of behaviour reasonably expected of a person who was,

    "acting in the interests of the market as a whole".

I am grateful for one thing that has emerged from this debate; namely, that my noble friend has promised not to use football analogies any more. As he knows, I am out of my depth in that respect. My noble friend the Chief Whip tells me that shirt pulling in the penalty area would immediately attract a penalty kick against the person responsible. So perhaps the analogy is not perfect. But at least we can leave that and talk in properly theoretical and metaphysical terms.

It is a fact of life that people who engage in transactions in the market do not do so because it is in the interests of the market as a whole; they do so because it is in their own interests or in those of their clients. Therefore, if we were to insert the words,

    "acting in the interests of the market as a whole",

it would raise all sorts of questions about what acting in the best interests of the market meant in an individual case. Indeed, it would introduce a new standard into this area.

Let us suppose, for example, that the market is going through a volatile period. Would selling shares during that time be something that would represent acting in the interests of the market as a whole? Arguably, it might not be, but clearly we do not want to stop people selling shares during a volatile period. Perhaps another such example might help to illustrate the difficulties with this approach. I may, for example, be about to sell a large holding of shares. To minimise the impact on the market, and thus the price I can get, let us suppose that I decide to sell off those shares in small parcels. It is possible that my doing so might give a mistaken impression of supply and demand. There would be nothing wrong with what I was doing and clearly it would not fail to meet expected standards, but what if the provision were amended so that the regular user was considering my action against what he would expect from a person who is acting in,

    "the interests of the market as a whole"?

If I am acting in the interests of the market, should I, or should I not, tell people that I am selling off a large number of shares? I am afraid that it is not clear that the phrase which this amendment would add to the Bill relates to what happens in financial markets even when people are not doing anything which by anyone's standards--those of the noble Lords, Lord Eatwell and Lord Lipsey, of the noble and learned Lord, Lord Fraser, or my own--is wrong in itself.

However, while people who engage in transactions in the market act in their own interest, that does not mean that anything they do in their own interest is, by

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definition, acceptable behaviour. Whether someone has committed market abuse or not depends on whether he has failed to observe expected standards. Of course markets depend upon those who use them having confidence in their fairness and efficiency. It follows, therefore, that the standard of behaviour which is reasonably to be expected of persons using such markets will be one which takes into account the need for the market as a whole to operate fairly and efficiently, which is in the interests of all users. That is implicit in the test for which Clause 115(1)(c) makes provision and it does not need to be further stated.

My noble friend drew an analogy with a tax lawyer. That analogy does not hold good because a reasonable person would expect a tax barrister to use the arguments most favourable to his client's case. That is his job as an advocate. The reasonable user test is based on an objective and disinterested view of what is appropriate behaviour.

I was asked about the role of the code and whether we should use the FSA to raise or set standards. The regime rests on the definitions in Clause 115. Clause 115(2) specifically picks out three elements of behaviour: insider trading; false or misleading impression of supply or demand for investments; and distortion of the market. In constructing the code, the FSA can set down its opinion of what constitutes market abuse, but, to be abuse, market behaviour has to fail to meet expected standards. The FSA should reflect those standards. It is not for the FSA to say what the expected standards are; otherwise we could get rid of all the definitions in Clause 115 and say that market abuse is what the FSA says it is. That is not what we are doing here.

The noble Lord, Lord Lipsey, mentioned a similar point. The statute book would be several times the length it is if unnecessary words were inserted in order to make things clear which in our view are already clear. I assure noble Lords that the effect of these provisions is not to allow the worst standard of conduct which might prevail to prevail but neither is it to allow the FSA to determine what is best for markets.

As I said, on the basis that the standard of behaviour which is reasonably to be expected of persons using such markets will be one which takes into account the need for the market as a whole to operate fairly and efficiently, which is in the interests of all users, I invite my noble friend not to press the amendment.

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