and Disclosure of Conflicts of Interest) Regulations, 2005

Suppliment tal-Gazzetta tal-Gvern ta’ Malta, Nru. 17,753, 12 ta’ April, 2005

L.N. 106 of 2005

PREVENTION OF FINANCIAL MARKETS ABUSE ACT, 2005

(ACT NO IV OF 2005)

Prevention of Financial Markets Abuse

(Fair Presentation of Investment Recommendations

and Disclosure of Conflicts of Interest) Regulations, 2005

IN exercise of the powers conferred by article 25 of the Prevention

of Financial Markets Abuse Act, the Prime Minister and Minister of

Finance, after consultation with the Malta Financial Services Authority,

has made the following regulations>-

(1) These regulations may be cited as the Prevention of Citation and

commencement.

Financial Markets Abuse (Fair Presentation of Investment

Recommendations and Disclosure of Conflicts of Interest) Regulations,

2005. (2) These regulations shall come into force on the 1 st April,

2005.

In these regulations, unless the context otherwise requires –

Interpretation.

“the Act” means the Prevention of Financial Markets Abuse

Act<

“appropriate regulation” shall mean any regulation, including

self-regulation, in place in Member States as referred to in the

Market Abuse Directive<

“distribution channels” shall mean a channel through which

information is, or is likely to become, publicly available<

“implementing measures” means any acts and Directives

issued under the Market Abuse Directive and as amended from

time to time, including in particular, for the purpose of these

regulations, the provisions of Commission Directive 2003#125#EC

of 22 December 2003 implementing the Market Abuse Directive

as regards the fair presentation of investment recommendations

and the disclosure of conflicts of interest<

“likely to become publicly available information” shall mean

information to which a large number of persons have access<

“recommendation” means research or other information

recommending or suggesting an investment strategy, explicitly or

implicitly, concerning one or several financial instruments or the

issuers of financial instruments, including any opinion as to the

present or future value or price of such instruments, intended for

distribution channels or for the public<

“relevant person” means a natural or legal person producing

or disseminating recommendations in the exercise of his profession

or the conduct of his business<

“research or other information recommending or suggesting

investment strategy” means>

(a) information produced by an independent analyst,

an investment firm, a credit institution, any other person whose

main business is to produce recommendations or a natural

person working for them under a contract of employment or

otherwise, that, directly or indirectly, expresses a particular

investment recommendation in respect of a financial

instrument or an issuer of financial instruments< and

(b) information produced by persons other than the

persons referred to in paragraph (a) which directly

recommends a particular investment decision in respect of a

financial instrument.

(2) Words and expressions in these regulations which are

also used in the Act have the same meanings as in the Act.

The objective of these regulations is to facilitate the application

of article 12 of the Act and implement the relevant provisions of the

Market Abuse Directive and all related implementing measures and

these regulations shall be interpreted and applied accordingly.

PART I - PRODUCTION OF RECOMMENDATIONS

(1) Any person making a recommendation shall ensure that

such recommendation discloses clearly and prominently the identity of

the person responsible for its production, in particular>-

(a) the name and job title of the individual who prepared

the recommendation< and

(b) the name of the legal person responsible for its

production.

(2) Where the relevant person is an investment firm or a

credit institution, the identity of the relevant competent authority shall

also be disclosed. Where the relevant person is neither an investment

firm nor a credit institution, but is subject to self-regulatory standards

or codes of conduct, a reference to those standards or codes shall be

disclosed.

(3) In the case of non-written recommendations the

requirements laid down in sub-regulations (1) and (2) may be satisfied

by a reference to the place where such disclosures can be directly and

easily accessed by the public, such as an appropriate internet site of the

relevant person.

(4) The provisions of sub-regulations (1) and (2) here of

shall not apply to journalists subject to equivalent appropriate regulation,

including equivalent appropriate self regulation, if any, in Malta or in

any other Member State or EEA State, provided that such regulation

achieves similar effects as those of sub-regulations (1) and (2).

(1) All relevant persons shall take reasonable care to ensure General standard for

fair presentation of

that in any recommendation>

recommendations.

(a) facts are clearly distinguished from interpretations,

estimates, opinions and other types of non-factual information<

(b) all sources are reliable or, where there is any doubt as

to whether a source is reliable, this is clearly indicated< and

(c) all projections, forecasts and price targets are clearly

labelled as such and that the material assumptions made in

producing or using them are indicated.

(2) In the case of non-written recommendations the

requirements laid down in paragraphs (b) and (c) of sub-regulation (1)

hereof may be satisfied by a reference to the place where the indication

and, or information required in paragraphs (b) and (c) of sub-regulation

(1) hereof be directly and easily accessed by the public, such as an

appropriate internet site of the relevant person.

(3) In the case of both written and non-written

recommendations, all relevant persons shall take reasonable care to

ensure that any recommendation can be substantiated as reasonable,

upon request by the competent authorities.

(4) Sub-regulations (1) and (3) shall not apply to journalists

subject to equivalent appropriate regulation including equivalent

appropriate self regulation, if any, in Malta or in any other Member

State or EEA State, provided that such regulation achieves similar effects

as those of sub-regulations (1) and (3).

(1) In addition to the obligations laid down in regulation 5

where the relevant person is an independent analyst, an investment firm,

a credit institution, any related legal person, any other relevant person

whose main business is to produce recommendations, or a natural person

working for them under a contract of employment or otherwise, such

person shall take reasonable care to ensure that at least>-

(a) all substantially material sources are indicated, as

appropriate, including the relevant issuer, together with the fact

whether the recommendation has been disclosed to that issuer and

amended following this disclosure before its dissemination<

(b) any basis of valuation or methodology used to evaluate

a financial instrument or an issuer of a financial instrument, or to

set a price target for a financial instrument, is adequately

summarised<

(c) the meaning of any recommendation made, such as buy,

sell or hold, which may include the time horizon of the investment

to which the recommendation relates, is adequately explained and

any appropriate risk warning, including a sensitivity analysis of

the relevant assumptions, indicated<

(d) reference is made to the planned frequency, if any, of

updates of the recommendation and to any major changes in the

coverage policy previously announced<

(e) the date at which the recommendation was first released

for distribution is indicated clearly and prominently, as well as the

relevant date and time for any financial instrument price mentioned<

and

(f) where a recommendation differs from a recommendation

concerning the same financial instrument or issuer, issued during

the twelve-month period immediately preceding its release, this

change and the date of the earlier recommendation are indicated

clearly and prominently.

(2) Where the requirements laid down in paragraphs (a),

(b) or (c) of sub-regulation (1) would be disproportionate in relation to

the length of the recommendation distributed, it shall suffice to make

clear and prominent reference in the recommendation itself to the place

where the required information can be directly and easily accessed by

the public, such as a direct internet link to that information on an

appropriate internet site of the relevant person, provided that there has

been no change in the methodology or basis of valuation used.

(3) In the case of non-written recommendations the

requirements laid down sub-regulation (1) may be satisfied by a

reference to the place where such information can be freely, directly

and easily accessed by the public, such as an appropriate internet site of

the relevant person.

(1) Relevant persons shall disclose all relationships and General standard for

disclosure of

circumstances that may reasonably be expected to impair the objectivity interests and

of a recommendation, in particular where relevant persons have a conflicts of interest.

significant financial interest in one or more of the financial instruments

which are the subject of the recommendation, or a significant conflict

of interest with respect to an issuer to which the recommendation relates.

(2) Where the relevant person is a legal person, the

requirement as provided in sub-regulation (1) shall apply also to any

legal or natural person working for it, under a contract of employment

or otherwise, who was involved in preparing the recommendation.

(3) Where the relevant person is a legal person, the

information to be disclosed in accordance with sub-regulation (1) shall

at least include the following>

(a) any interests or conflicts of interest of the relevant person

or of related legal persons that are accessible or reasonably expected

to be accessible to the persons involved in the preparation of the

recommendation<

(b) any interests or conflicts of interest of the relevant person

or of related legal persons known to persons who, although not

involved in the preparation of the recommendation, had or could

reasonably be expected to have access to the recommendation prior

to its dissemination to customers or the public.

(4) The recommendation itself shall include the disclosures

provided for in sub-regulations (1) and (3). Where such disclosures

would be disproportionate in relation to the length of the

recommendation distributed, it shall suffice to make clear and prominent

reference in the recommendation itself to the place where such

disclosures can be directly and easily accessed by the public, such as a

direct internet link to the disclosure on an appropriate internet site of

the relevant person.

(5) In the case of non-written recommendations the

requirements laid down in sub-regulation (1) may be satisfied by a

reference to the place where such disclosures can be directly and easily

accessed by the public, such as an appropriate internet site of the relevant

person.

(6) Sub-regulations (1) to (4) shall not apply to journalists

subject to equivalent appropriate regulation, including equivalent

appropriate self-regulation, if any, in Malta or in any other Member

State or EEA State, provided that such regulation achieves similar effects

as those of sub-regulations (1) to (4).

(1) In addition to the obligations laid down in regulation 7,

any recommendation produced by an independent analyst, an investment

firm, a credit institution, any related legal person, or any other relevant

interests or conflicts

person whose main business is to produce recommendations, shall

disclose clearly and prominently the following information on their

interests and conflicts of interest>-

(a) major shareholdings that exist between the relevant

person or any related legal person on the one hand and the issuer

on the other hand. These major shareholdings include at least the

following instances>

(i) when shareholdings exceeding five per cent of the

total issued share capital in the issuer are held by the relevant

person or any related legal person, or

(ii) when shareholdings exceeding five per cent of the

total issued share capital of the relevant person or any related

legal person are held by the issuer>

Provided that the competent authority may issue rules

to provide for lower thresholds than the five per cent threshold

as provided for in these two instances above<

(b) other significant financial interests held by the relevant

person or any related legal person in relation to the issuer<

(c) where applicable, a statement that the relevant person

or any related legal person is a market maker or liquidity provider

in the financial instruments of the issuer<

(d) where applicable, a statement that the relevant person

or any related legal person has been lead manager or co-lead

manager over the previous twelve months of any publicly disclosed

offer of financial instruments of the issuer<

(e) where applicable, a statement that the relevant person

or any related legal person is party to any other agreement with

the issuer relating to the provision of investment banking services,

provided that this would not entail the disclosure of any confidential

commercial information and that the agreement has been in effect

over the previous twelve months or has given rise during the same

period to the payment of a compensation or to the promise to get a

compensation paid<

(f) where applicable, a statement that the relevant person

or any related legal person is party to an agreement with the issuer

relating to the production of the recommendation.

(2) Investment firms and credit institutions shall provide

the competent authority upon its request and in prescribed form with

any information regarding the effective organisational and administrative

arrangements set up within such investment firm or the credit institution

for the prevention and avoidance of conflicts of interest with respect to

recommendations, including information barriers.

(3) In the case of a natural or legal persons working for an

investment firm or a credit institution, under a contract of employment

or otherwise, and who were involved in preparing the recommendation,

the requirement under sub-regulation (2) of regulation 7 shall include,

in particular, disclosure of whether the remuneration of such persons is

tied to investment banking transactions performed by the investment

firm or credit institution or any related legal person. Where those natural

persons receive or purchase the shares of the issuers prior to a public

offering of such shares, the price at which the shares were acquired and

the date of acquisition shall also be disclosed.

(4) Investment firms and credit institutions shall disclose,

on a quarterly basis, the proportion of all recommendations that are

“buy”, “hold”, “sell” or equivalent terms, as well as the proportion of

issuers corresponding to each of these categories to which the investment

firm or the credit institution has supplied material investment banking

services over the previous twelve months.

(5) Any recommendation shall itself include the disclosures

required by sub-regulations (1) to (4), however, where the requirements

under sub-regulations (1) to (4) would be disproportionate in relation

to the length of the recommendation distributed, it shall suffice to make

clear and prominent reference in the recommendation itself to the place

where such disclosure can be directly and easily accessed by the public,

such as a direct internet link to the disclosure on an appropriate internet

site of the investment firm or credit institution.

(6) In the case of non-written recommendations the

requirements laid down in sub-regulation (1) may be satisfied by a

reference to the place where the information on the relevant interests

and conflicts can be directly and easily accessed by the public, such as

an appropriate internet site of the relevant person.

PART II - DISSEMINATION OF RECOMMENDATIONS

PRODUCED BY THIRD PARTIES

Whenever a relevant person under his own responsibility

disseminates a recommendation produced by a third party, the

recommendation shall indicate clearly and prominently the identity of

that relevant person.

(1) Whenever a recommendation produced by a third party

General standard for

is substantially altered within disseminated information, that information

shall clearly indicate the substantial alteration in detail. Whenever the

substantial alteration consists of a change of the direction of the

recommendation (such as changing a “buy” recommendation into a

“hold” or “sell” recommendation or vice versa), the requirements laid

down in regulations 4 to 7 on producers shall be met by the disseminator,

to the extent of the substantial alteration.

(2) In addition, relevant legal persons who themselves, or

through natural persons, disseminate a substantially altered

recommendation shall have a formal written policy so that the persons

receiving the information may be directed to where they can have access

to the identity of the producer of the recommendation, the

recommendation itself and the disclosure of the producer’s interests or

conflicts of interest, provided that these elements are publicly available.

(3) The provisions of sub-regulations (1) and (2) do not

apply to news reporting on recommendations produced by a third party

where the substance of the recommendation is not altered.

(4) In case of dissemination of a summary of a

recommendation produced by a third party, the relevant persons

disseminating such summary shall ensure that the summary is clear and

not misleading, mentioning the source document and where the

disclosures related to the source document can be directly and easily

accessed by the public provided that they are publicly available.

In addition to the obligations laid down in regulations 9 and Additional

obligations for

10 whenever the relevant person is an investment firm, a credit institution investment firms

or a natural person working for such persons under a contract of and credit

institutions.

employment or otherwise, and disseminates recommendations produced

by a third party, the following shall be required>-

(a) the name of the competent authority of the investment

firm or credit institution is clearly and prominently indicated<

(b) if the producer of the recommendation has not already

disseminated it through a distribution channel, the requirements

laid down in regulation 8 on producers are met by the disseminator<

and

(c) if the investment firm or credit institution has

substantially altered the recommendation, the requirements laid

down in regulations 4 to 8 on producers are met.

Mitbug[ fl-Istamperija tal-Gvern – Printed at the Government Printing Press