Part VIII – Market Offences
A. Market Offences and VARA’s Power to Stipulate Market Offences and Accepted Practices
1. For the purposes of these Regulations, Market Offences are any of the offences listed in Regulation VIII.A.2, with the exception of any Accepted Practice, when conducted in the Emirate or having an effect on the price of a Virtual Asset traded in the Emirate, whether conducted by one Entity alone or by two or more Entities jointly or in concert. 2. The following are Market Offences—
a. Insider Dealing; b. Unlawful Disclosure; and c. Market Manipulation.
3. VARA may, in its sole and absolute discretion, prescribe or otherwise classify any other behaviour as being a Market Offence in addition to those listed in Regulation VIII.A.1 above from time to time and/or for any specified period of time. 4. By way of exception to Regulations VIII.A.1-3 above, any behaviour that has been specified as an Accepted Practice either under any of Regulation VIII.B-H or by VARA specifying such behaviour as an Accepted Practice in its sole and absolute discretion for any specified period of time, shall not amount to a Market Offence.
B. Inside Information
1. Inside Information means information of a precise nature, which has not been made public, and which, if it were made public, would reasonably be expected to affect the price of a Virtual Asset or would affect the investment judgment of a reasonable individual in respect of a transaction involving that Virtual Asset. The information need not be the determining factor behind any given transaction, but should have a material impact on the decision of any reasonable investor as to whether to carry out such transaction [Inside Information]. 2. For the purposes of Regulation VIII.B.1, information shall be deemed to be of a precise nature if it indicates a set of circumstances which exists or which may reasonably be expected to come into existence, or an event which has occurred or which may reasonably be expected to occur, where it is specific enough to enable a conclusion to be drawn as to the possible effect of that set of circumstances or event on the price of a Virtual Asset. 3. An Entity may possess Inside Information as a result of, but not limited to—
a. being a member of the administrative, management or supervisory bodies of any Issuer; b. being an investor in any Issuer; c. having access to the Inside Information through any employment, profession, volunteering, contribution or duties; d. being involved in illegal or criminal activities; or e. any circumstances where the Entity knows or should reasonably have known that any information is Inside Information.
C. Insider Dealing
1. Insider Dealing arises where an Entity possesses Inside Information and uses that information by carrying out a transaction, for its own account or for the account of a third party, directly or indirectly, in relation to a Virtual Asset to which the Inside Information relates [Insider Dealing]. 2. The use of Inside Information by cancelling or amending a transaction or order concerning a Virtual Asset to which the Inside Information relates, where the transaction or order was started or placed before the Entity concerned possessed the Inside Information, shall also be Insider Dealing. 3. Recommending, counselling, procuring or otherwise facilitating another Entity to engage in Insider Dealing, or inducing another Entity to engage in Insider Dealing arises where the Entity possesses Inside Information and it recommends, counsels or procures on the basis of that Inside Information, that another Entity—
a. carry out a transaction in relation to the Virtual Asset to which that Inside Information relates, or induces that Entity to carry out such a transaction; or b. cancel or amend a transaction or order concerning a Virtual Asset to which that Inside Information relates, or induces that Entity to make such a cancellation or amendment.
D. Unlawful Disclosure
1. Unlawful disclosure of Inside Information arises where an Entity possesses Inside Information and discloses that Inside Information to any other Entity, except where the disclosure is made in the normal exercise of an employment, a profession or duties [Unlawful Disclosure]. 2. For the purposes of these Regulations, the onward disclosure of recommendations or inducements amounts to Unlawful Disclosure where the Entity disclosing the recommendation or inducement knew or ought to have known that it was based on Inside Information.
E. Prohibition of Insider Dealing and of Unlawful Disclosure
1. No Entity shall—
a. engage or attempt to engage in Insider Dealing; b. recommend that another Entity engage in Insider Dealing or induce or otherwise facilitate another Entity to engage in Insider Dealing; or c. engage or attempt to engage in Unlawful Disclosure.
F. Legitimate Behaviour of Treating Inside Information
1. For the purposes of Regulation VIII.E.1, where an Entity is a legal entity and not an individual, such Entity has not engaged in Insider Dealing on the basis of possessing Inside Information where that Entity—
a. has established, implemented and maintained adequate and effective internal arrangements and procedures to limit access to Inside Information and prevent Insider Dealing to effectively ensure that neither the individual who made the decision on the VASP’s behalf to carry out a transaction in relation to a Virtual Asset to which the Inside Information relates, nor another individual who may have had an influence on that decision, was in possession of the Inside Information; and b. has not encouraged, made a recommendation to, induced or otherwise influenced the individual who made the decision on its behalf to carry out a transaction in relation to a Virtual Asset to which the information relates.
2. For the purposes of Regulation VIII.E.1, it shall not be deemed from the mere fact that an Entity is in possession of Inside Information that such Entity has used that Inside Information and has engaged in Insider Dealing on the basis of a transaction where that Entity—
a. for the Virtual Asset to which that Inside Information relates, is a market maker or an Entity authorised to act as a counterparty, and the transaction in relation to the Virtual Asset to which the Inside Information relates is made legitimately in the normal course of the exercise of its function as a market maker or as a counterparty for that Virtual Asset; or b. is authorised to execute orders on behalf of third parties, and the transaction in relation to the Virtual Assets to which the order relates, is made to carry out such an order legitimately in the normal course of the exercise of that Entity’s employment, profession or duties.
3. For the purposes of Regulation VIII.E.1, it shall not be deemed from the mere fact that an Entity is in possession of Inside Information that such Entity has engaged in Insider Dealing on the basis of a transaction where that Entity conducts a transaction and that transaction is carried out in the discharge of an obligation that has become due in good faith and not to circumvent the prohibition against Insider Dealing and—
a. that obligation results from an order placed or an agreement concluded before the Entity concerned possessed Inside Information; or b. that transaction is carried out to satisfy a legal or regulatory obligation that arose before the Entity concerned possessed Inside Information.
G. Market Sounding
1. Market Sounding comprises the communication of information, prior to the announcement of a transaction in Virtual Assets, in order to gauge the interest of potential investors in a possible transaction in Virtual Assets and the conditions relating to it such as its potential size or pricing, to one or more potential investors in those Virtual Assets by—
a. an Issuer; b. a secondary offeror of a Virtual Asset, in such quantity or value that the transaction is distinct from ordinary trading and involves a selling method based on the prior assessment of potential interest from potential investors; or c. a VASP or other third party acting on behalf or on the account of an Entity referred to in Regulation VIII.G.1.a or b [Market Sounding].
2. A disclosing Entity shall, prior to conducting the Market Sounding, specifically consider whether the Market Sounding will involve the disclosure of Inside Information. The disclosing Entity shall make a written record of its conclusion and the relevant reasons. It shall provide such written records to VARA upon request. This obligation shall apply to each disclosure of information throughout the course of the Market Sounding. The disclosing Entity shall keep the written records referred to in this Regulation VIII.G.2 up-to-date and in any event update them weekly. 3. A disclosing Entity shall, before making the disclosure—
a. obtain the consent of the Entity receiving the Market Sounding to receive the information; b. inform the Entity receiving the Market Sounding that it is prohibited from using that information, or attempting to use that information, by acquiring or disposing of, for its own account or for the account of a third party, directly or indirectly, Virtual Assets relating to that information; c. inform the Entity receiving the Market Sounding that it is prohibited from using that information, or attempting to use that information, by cancelling or amending an order which has already been placed concerning a Virtual Asset to which the information relates; and d. inform the Entity receiving the Market Sounding that by agreeing to receive the information it is obliged to keep the information confidential.
4. The disclosing Entity shall make and maintain a record of all information given to Entities receiving the Market Sounding, including the information given in accordance with Regulation VIII.G.3, and the identity of the potential investors to whom the information has been disclosed, including but not limited to the Entity and the date and time of each disclosure. The disclosing Entity shall provide such record to VARA upon request. 5. Where information that has been disclosed in the course of a Market Sounding ceases to be Inside Information according to the assessment of the disclosing Entity, the disclosing Entity shall inform the recipient accordingly, as soon as possible. 6. Any Entity receiving a Market Sounding shall assess for itself whether it is in possession of Inside Information or when it ceases to be in possession of Inside Information. 7. The disclosing Entity shall keep the records referred to in this Regulation VIII.G for a period of at least eight [8] years.
H. Market Manipulation
1. Market Manipulation shall comprise the following activities, with the exception of any Accepted Practice—
a. entering into a transaction, placing an order to trade or any other behaviour which—
i. gives, or is likely to give, false or misleading signals as to the supply of, demand for or price of a Virtual Asset; or ii. secures, or is likely to secure, the price of one or several Virtual Assets at an abnormal or artificial level;
b. entering into a transaction, placing an order to trade or any other activity or behaviour which affects or is likely to affect the price of one or several Virtual Assets, which employs a fictitious device or any other form of deception or contrivance; c. disseminating information through the media, which gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of a Virtual Asset, or is likely to secure the price of one or several Virtual Assets at an abnormal or artificial level, including the dissemination of rumours where the Entity who made the dissemination knew, or ought to have known, that the information was false or misleading; d. transmitting false or misleading information or providing false or misleading inputs in relation to a benchmark where the Entity who made the transmission or provided the input knew or ought to have known that it was false or misleading, or any other behaviour which manipulates the calculation of a benchmark; e. the conduct by an Entity, or Entities acting in collaboration, to inflate the price of a Virtual Asset by securing a dominant position over the supply of or demand for a Virtual Asset; f. the buying or selling of Virtual Assets at a particular point in time in the trading or settlement cycle of any given Virtual Asset so as to have the effect of misleading investors acting on the basis of the prices displayed; g. the placing of orders on a trading venue operated by a VASP providing Exchange Services or other organised market for Virtual Assets, including any cancellation or modification thereof, by any available means of trading, including by electronic means, which has one of the effects referred to in this Regulation VIII.H.1—
i. disrupting or delaying the functioning of the trading system of the trading venue or being likely to do so; ii. making it more difficult for other Entities to identify genuine orders on the trading system of the trading venue or being likely to do so, including by entering orders which result in the overloading or destabilisation of the order book; or iii. creating or being likely to create a false or misleading signal about the supply of, or demand for, or price of, a Virtual Asset, in particular by entering orders to initiate or exacerbate a trend;
h. taking advantage of occasional or regular access to the traditional or electronic media by voicing an opinion about a Virtual Asset [or indirectly about its Issuer] whilst having previously taken positions on that Virtual Asset and profiting subsequently from the impact of the opinions voiced on the price of that Virtual Asset without having simultaneously disclosed that conflict of interest to the public in a proper and effective way; i. omission or failure to take any action which would correct any activities listed in Regulations VIII.H.1.a-h; and j. distributing, maintaining, or otherwise making available to others any software, algorithm, or other computer programme designed to carry out any of the activities listed in Regulations VIII.H.1.a-h with the exception of any Accepted Practice [Market Manipulation].
2. Where the Entity referred to in Regulation VIII.H.1 is a legal entity, the Regulation shall also apply to the individual[s] who participate in the decision to carry out activities for the account of the legal entity concerned. 3. By way of exception to Regulation VIII.H.1, Accepted Practices shall include, but not be limited to, the following, which shall not amount to Market Manipulation—
a. entering into a lending, borrowing, repurchase or reverse repurchase transaction in respect of a Virtual Asset for legitimate trading purposes which does not disrupt the fair and orderly functioning of any market involving Virtual Assets and without any intention to do so; b. entering into a transaction involving the provision of a Virtual Asset as collateral that is not designed to have any of the effects described in Regulation VIII.H.1.g; c. entering into a transaction in a Virtual Asset for the purposes of satisfying a prior legal or regulatory obligation, provided that [where that commitment was created under contract] the obligation entered into does not disrupt the fair and orderly functioning of any market involving Virtual Assets and without any intention to do so; and d. use of an algorithmic or high-frequency trading strategy that is not designed to have any of the effects described in Regulation VIII.H.1.g and which has been designed and implemented in such a way as to not disrupt the fair and orderly functioning of any market involving Virtual Assets and without any intention to do so.
I. Prohibition of Market Manipulation
1. No Entity shall engage in or attempt to engage in Market Manipulation in the Emirate.
J. Prevention and Detection of Market Offences
1. VASPs shall establish and maintain effective arrangements, systems and procedures aimed at preventing and detecting Market Offences or attempted Market Offences. 2. VASPs shall report transactions, orders or activities to the UAE FIU and to VARA where the VASP has a reasonable suspicion that such transactions, orders or activities in any Virtual Asset, whether placed or executed on or outside a trading venue operated by a VASP providing Exchange Services or other organised market for Virtual Assets, could constitute a Market Offence, an attempted Market Offence or any other unfair practice detrimental to the fair and orderly functioning of any market involving Virtual Assets. 3. When reporting suspicious transactions, orders or activities, VASPs shall include—
a. the name of the Virtual Asset that may be impacted by suspicious transactions, orders or activities; b. the identity of any Entities involved; c. specific dates and times of the suspicious transactions, orders or activities; d. an explanation of reasons for believing that a Market Offence or any other unfair practice has been committed; e. all other information required by the UAE FIU; and f. all additional information reasonably requested by VARA, or the UAE FIU, in order to make an accurate assessment.
4. VASPs shall make all relevant data in their possession available to VARA for inspection on request.