Back Custom print Link Text Only Rich Text Print

  • MIE-A MIE-A Introduction

    • MIE-A.1 MIE-A.1 Purpose

      • Executive Summary

        • MIE-A.1.1

          The Central Bank of Bahrain’s (CBB) statutory regulatory objectives include maintaining and promoting the fairness, efficiency, competitiveness, transparency and orderliness of the securities markets in the Kingdom of Bahrain. The CBB believes that investor confidence in the fairness of markets enhances liquidity and efficiency of the markets and for this purpose, it is essential that the laws and standards governing the markets are rigorously and credibly enforced. In this respect, the CBB is making continuous efforts to ensure that the rules are strongly and fairly enforced, with proscribed behaviour clearly and unambiguously defined.

          Amended: July 2021

      • The CBB's Enforcement Responsibilities

        • MIE-A.1.2

          The CBB's key enforcement-related aims are to protect investors and maintain market integrity and confidence. The CBB's regulatory framework needs to address stray cases of non-compliance to ensure that such contraventions of relevant laws, rules and regulations:

          •  do not cause potential loss to the investing public;
          •  do not disrupt the financial sector in general and the capital market in particular;
          •  do not adversely impact the Kingdom's credibility as an international financial centre;
          •  do not encourage non-compliance or contravention of rules; and
          •  do not unfairly disadvantage the market participants who comply with all laws, rules and regulations.

        • MIE-A.1.3

          The Market Surveillance, Investigation and Enforcement Module (MIE Module) sets out the CBB's regulatory framework governing the mechanisms and proceedings relating to detection and investigation of breaches of laws, rules and regulations and the appropriate enforcement actions. The process of enforcing the laws and regulations generally involves three main steps:

          •  Market Surveillance: identifying that a potential breach of the relevant laws or regulations has taken place and identification of those responsible for the potential breach;
          •  Investigation: once there is a suspected case of a breach of relevant laws or standards, the CBB may conduct investigations or enquiries to find out what has happened, and whether there is any evidence of a breach; and
          •  Enforcement: taking necessary steps to protect the public interest and if appropriate, to punish those responsible for the breach.

      • The CBB's Approach to Enforcement

        • MIE-A.1.4

          The CBB's approach is to provide a strong and facilitative regulatory framework along with an effective enforcement of regulatory requirements. While the CBB favours an open and pragmatic approach to supervision within the boundaries set by the law and the CBB's regulations, it ensures effective enforcement of regulatory requirements.

        • MIE-A.1.5

          The CBB seeks to clearly lay down the rules that will be applied transparently and consistently to ensure that the bona fide investors and market participants are not inconvenienced in their normal course of business, by enabling them to take all reasonable precautions and exercise due diligence to avoid their engagement in prohibited market conducts.

        • MIE-A.1.6

          The CBB is guided by the following principles of regulation and enforcement:

          •  Firmness — firm and appropriate action against those who harm investors or damage market integrity, regardless of their position or status.
          •  Fairness — treat everyone fairly. The requirements of procedural fairness and natural justice are important in CBB's decision-making processes.
          •  Consistency — try to ensure that consistency is maintained in decisions or actions whilst having regard to the specific circumstances of each case.
          •  Proportionality — try to ensure that decisions or actions are proportionate, or balanced. For example, take tough action against serious misconduct but more lenient action against less serious conduct.

        • MIE-A.1.7

          The CBB's enforcement actions are aimed at achieving the following:

          •  Prevention — it is better to stop improper conduct before it happens. To achieve this, the CBB encourages market participants to foster a culture of compliance. The investing public can also help by learning how to look after their own rights and interests.
          •  Remedying what has happened — if a breach has already occurred, the CBB will take appropriate steps in terms of applicable laws, rules and regulations to remedy it and look at each situation in light of its particular circumstances and consider what might be appropriate courses of action. It is important to note that, although the CBB is required to act in the public interest, the CBB cannot seek compensation for those who have suffered loss as a result of a breach, or directly assist them in their attempts to seek compensation through the courts.
          •  Punishing wrongdoers and deterring others — in general, punishment is usually appropriate for those who engage in wrongdoing. Punishment serves a number of purposes. Firstly, it is an effective tool to deter wrongdoers from engaging in further wrongdoing. Punishment may also deter others from engaging in wrongdoing. Thus, it has a deterrent effect that minimises misconduct. To maximise the deterrent effect, the CBB generally publicises its enforcement sanctions wherever appropriate. Note that the CBB cannot represent or bind other authorities or regulators that may have an interest in the matter.
          •  Effectiveness of action — the CBB must set priorities and make the best use of the limited resources available. Therefore, the costs and benefits of any action that the CBB proposes to take must be considered.
          •  Cooperation with other regulators — the CBB cooperates with other domestic and overseas regulators in situations where it may be more appropriate for a regulatory body other than the CBB to take action.
          •  A balancing act — each of the CBB's enforcement actions involves a careful balancing of a number of complex issues. These issues will also vary from case-to-case. In balancing them and making a decision, the CBB will always endeavour to act firmly, fairly and impartially, keeping in mind at all times the CBB's principles of regulations and aims described under paragraphs MIE-A.1.6 and MIE-A.1.7.

      • Legal Basis

        • MIE-A.1.8

          Article 38 (a) of Chapter 8 of Part 1 of the CBB Law mandates the Governor of the CBB to issue necessary directives to ensure the implementation of the CBB Law and regulations and the achievement of the objectives of the CBB. Article 38 (b) provides the CBB with the power to issue necessary directives to ensure the implementation of CBB laws and regulations that aim to formulate the understanding and implementation of the CBB Law and regulations.

          Amended: July 2021

        • MIE-A.1.9

          Article 96 of Chapter 2 of Part 4 of the CBB Law states that: "Subject to the rules and laws of evidence and electronic transactions, any computer data, electronic files, recorded telephone calls, telex and facsimile correspondence may be used as evidence in disputes relating to securities".

          Amended: July 2021

        • MIE-A.1.10

          Chapter 1 of Part 5 of the CBB Law (Articles 97-105) defines insiders, inside information and market information, prohibits abuse of inside information, and provides defences. Particularly, Article 99 provides the CBB with the power to issue regulations concerning the necessary procedures and controls of publishing market information. Article 100 states that: "A person who is in possession of inside information, as an insider shall not use such information to:

          (1) Deal in any securities to which that information relates.
          (2) Encourage any person to deal in any securities to which that information relates.
          (3) Disclose inside information to any other person, otherwise than in the proper performance of the functions of his employment, office or profession.
          (4) Violate the rules governing the publishing of market information."
          Amended: July 2021

        • MIE-A.1.11

          Chapter 2 of Part 5 of the CBB Law (Articles 106 and 107) deals with Violation of Market Dealings. Article 106 states that: "In the application of this law a person is guilty of market manipulation if he:

          (1) Is engaged, or encourages others to engage, in any conduct that may give a false or misleading impression as to the supply of or demand for, or the price or value of any securities.
          (2) Is engaged, or encourages others, to engage in any conduct that may give an unrealistic picture of the market regarding the volume and prices of any securities."
          Amended: July 2021

        • MIE-A.1.12

          Chapter 1 of Part 7 of the CBB Law (Articles 111-115) provides the CBB with the power to obtain information and reports, conduct inspections and to participate in judicial investigations with the Ministry of Justice and Islamic Affairs.

          Amended: July 2021

        • MIE-A.1.13

          Part 8 of the CBB Law (Articles 116-120) provides for restrictions on disclosure of confidential information.

        • MIE-A.1.14

          Part 9 of the CBB Law (Articles 121-132) provides for the appointment of investigators, obtaining information, documents and explanations in possession of a third party, entering and inspecting specific premises to obtain relevant information, documents and explanations, retaining the information, penalties and administrative proceedings, and assistance in investigations by overseas authorities.

        • MIE-A.1.15

          Part 11 of the CBB Law (Articles 160-172) provides for penalties for various contraventions and violations of the provisions of the CBB Law.

        • MIE-A.1.16

          Article 167 of Part 11 of the CBB Law specifically provides penalty for the offence of abuse of inside information and states that "Without prejudice to any greater penalty prescribed in the Penal Code or under any law, a person who contravenes Article 100 of this Law, while he is fully aware, shall be liable to imprisonment for a term not exceeding six months and a fine not exceeding Bahraini Dinars (10,000), or either penalty".

          Amended: July 2021

        • MIE-A.1.17

          Article 168 of Part 11 of the CBB Law specifically provides penalty for the offence of market manipulation and states that: "Without prejudice to any greater penalty prescribed under the Penal Code or any other law, a person who contravenes Article 106 of this law is guilty of an offence of market manipulation and shall be liable to imprisonment for a term not exceeding six months and a fine not exceeding Bahraini Dinars ten thousand (10,000), or either penalty".

          Amended: July 2021

        • MIE-A.1.18

          Article 175 of Part 12 of the CBB Law provides that neither the CBB nor any of its employees shall be responsible for any procedure, action or forbearance that resulted in inflicting damages to others if such procedure, action or forbearance was performed in good faith in the course of execution of the duties and responsibilities of the CBB and within its authorities as specified in the Law and the regulations and by-laws issued in implementing it.

          Amended: July 2021

    • MIE-A.2 MIE-A.2 Module History

      • Evolution of Module

        • MIE-A.2.1

          This Module was first issued in October 2009. Any material changes that are subsequently made to this Module are annotated with the calendar quarter date in which the change is made; Chapter UG-3 provides further details on Rulebook maintenance and version control.

        • MIE-A.2.2

          [This Paragraph has been deleted in July 2021].

          Deleted: July 2021

        • MIE-A.2.3

          [This Paragraph has been deleted in July 2021].

          Deleted: July 2021

        • MIE-A.2.4

          [This Paragraph has been deleted in July 2021].

          Deleted: July 2021

        • MIE-A.2.5

          [This Paragraph has been deleted in July 2021].

          Deleted: July 2021

      • Superseded Requirements

        • MIE-A.2.6

          This Module supersedes the following provisions contained in circulars or other regulatory instruments:

          Circular/ other references Provision Subject
               
               
               
               
               
               
               

    • MIE-A.3 MIE-A.3 Interaction with Other Modules

      • MIE-A.3.1

        All market participants must comply with all the other Modules in Volume 6 in addition to other applicable laws, rules and regulations.

    • MIE-A.4 MIE-A.4 Division of Responsibilities

      • MIE-A.4.1

        While dealing with cases relating to contravention of the CBB Law, rules and regulations, or other applicable laws, rules and regulations, a clear division of responsibilities between the CBB as the securities regulator and the licensed exchanges or the licensed market operators as a self-regulatory organization (SRO) is required:

        (a) To achieve greater efficiency and transparency in the enforcement of the laws, rules and regulations;
        (b) To maximise the regulatory effectiveness;
        (c) To permit flexibility to the licensed exchanges or the licensed market operators in their functioning;
        (d) To minimise the regulatory cost; and
        (e) To maintain market integrity and investor confidence.
        Amended: July 2021

      • MIE-A.4.2

        As a regulator, CBB's role is as follows:

        (a) Regulatory supervision, including the licensing, inspection, investigation and enforcement and regulatory oversight on the licensed exchanges, licensed market operators, licensed clearing houses and depositories and other SROs and other capital market service providers;
        (b) Maintaining and promoting fairness, efficiency and transparency within the capital market;
        (c) Acting as an enforcement agency with powers to investigate and take administrative, civil or criminal actions as it may deem appropriate;
        (d) Approving the rules, by-laws and business rules of the licensed exchanges or the licensed market operators, licensed clearing houses or depositories, whereby any change in the rules, by-laws and regulations of the SROs would need prior approval of the CBB; and
        (e) Ensuring that the licensed exchanges and licensed market operators, licensed clearing houses and depositories, members of SROs and other capital market service providers have appropriate systems and procedures for detection of unlawful transactions and contraventions of the CBB Law, rules and regulations and report the same to the CBB at the earliest stage possible.
        Amended: July 2021

      • MIE-A.4.3

        The licensed exchange or the licensed market operator or licensed clearing house or central depository established as an SRO must comply with the requirements laid down under the CBB Law, rules and regulations, this Module and the other applicable laws and regulations.

      • MIE-A.4.4

        As an SRO, the main objective of the exchange or the operator or the clearing house would be to:

        (a) Actively perform market surveillance as a front-line regulator;
        (b) Promote fairness and investor protection;
        (c) Promote fair access to market facilities and information;
        (d) Promote the provision of timely and accessible market information;
        (e) Promote the efficient regulation of its members;
        (f) Maintain fairness of price discovery mechanism and ensure prices are determined by the genuine forces of supply and demand;
        (g) Monitor the trading and market on a continuous basis;
        (h) Report any irregular transactions or irregular market behaviour or suspected cases of market abuse or market manipulation, or any contravention of the CBB Law, rules and regulations;
        (i) Identify irregular transactions and take appropriate enforcement actions;
        (j) Take disciplinary action for contraventions by market participants and listed companies through an SRO's Disciplinary Action Committee(s).

      • MIE-A.4.5

        Apart from the obligations of the licensed exchanges and market operators under the Markets & Exchanges (MAE) Module, and the obligations of the licensed clearing houses and depositories under the Clearing, Settlement and Central Depository (CSD) Module, these SROs shall:

        (a) Provide such assistance to the CBB in the manner required by the CBB for the purposes of the CBB's market surveillance, investigation and enforcement functions;
        (b) Provide such reports as the CBB may require for the purposes of this Module;
        (c) Conduct inspections or investigations as the CBB may require the SRO to do and submit its Inspection and Investigation Report, along with the facts, documents and evidence supporting the outcome of such inspection or investigation;
        (d) Implement the decisions or measures or actions decided by the CBB, both at the market level and at the level of the individual security or issuer, or member or market participant level in the manner required by the CBB;
        (e) Promptly implement such enforcement actions determined by the CBB against the members and issuers, through the SROs Disciplinary Action Committees.

      • Role of Other Capital Market Service Providers

        • MIE-A.4.6

          All capital market service providers in general, and members of the SROs in particular, must have the necessary infrastructure and systems to identify and report any irregular transactions or suspected cases of market abuse or market manipulation, or suspected cases of contravention of the CBB Law, rules and regulations, or any other relevant laws, rules and regulations, which they come across in the normal course of business, to the CBB in the format given in paragraph MIE-A.4.7. This reporting shall be done immediately on becoming aware of such incidences or contraventions, or suspected cases.

      • Reporting of Irregular Transactions

        • MIE-A.4.7

          Persons subject to the obligations to report irregular transactions to the Capital Markets Supervision Directorate (CMSD) shall report in the following standard format:

          Description of the transaction(s)
          Details of the securities, including the code of the security (ISIN Number); the market(s) concerned; the original order's entry date/time, price and size; the times and sizes of the transaction(s); the type and characteristics of the order, etc.
          Reasons for Suspicion
          Reasons for suspecting that the transaction(s) might constitute insider dealing/market abuse/ market manipulation
          Identities of persons carrying out transaction(s)
          Names, addresses, telephone number, location, account number, client identification code used by the firm, etc.
          Identities of any other persons known to be involved in the transaction(s)
          Names, addresses, telephone number, location, relation to person carrying out transaction, position held, role played, etc.
          Capacity in which the person performing the transaction(s) acts
          e.g. broker, underwriter, agent, investment/fund manager, auditor, insider.
          The ownership of securities before and after the execution of the transaction (of the concerned parties carrying out the transactions).
          Any information which may be of significance (along with a list of any accompanying documents/evidence)
          Details of the person making notification
          Name of person, name of firm, position held within firm, contact details, etc.
          Signed ........... (person making report)

          Dated ........... (date of report)
          Amended: July 2021

        • MIE-A.4.8

          Where the information specified to be reported is not available at the time of reporting, the report shall include at least the reasons why the reporting persons suspect that the transactions might constitute contravention of the CBB Law, rules and regulations. All remaining information shall be provided to the CMSD as soon as it becomes available.

          Persons making reports therefore, do not need to have all the required information before reporting to the CMSD. If the case is one which (the persons subject to the reporting obligation consider) needs to be brought to the attention of the CMSD urgently, then the person(s) concerned shall make the first contact quickly. This can be done by telephone if appropriate, giving the basic details and reasons for suspicion, followed by written confirmation. The other information may be supplied subsequently.

      • Records of Telephone Conversations and Electronic Communications

        • MIE-A.4.9

          In addition to meeting the book-keeping and record-keeping requirements as per the applicable laws, rules and regulations, all capital market service providers must maintain records of telephone conversations and electronic communications, including facsimile, email and other instant messaging devices relating to their activities in the securities market and particularly the following activities:

          (a) Receiving client orders;
          (b) Executing client orders;
          (c) Arranging for client orders to be executed;
          (d) Carrying out transactions on behalf of the capital market service provider, or another person in the capital market service provider group, and which are part of the capital market service provider's trading activities, or the trading activities of another person in the capital market service provider group;
          (e) Executing orders that result from decisions by the capital market service provider to deal on behalf of its client;
          (f) Placing orders with other entities for execution that result from decisions by the capital market service provider to deal on behalf of its client;

          that are required to be maintained by the capital market service provider as per the CBB rules, regulations and directives.

          Amended: July 2021

        • MIE-A.4.10

          All capital market service providers must take reasonable steps to retain and protect the records referred to in rule MIE-A.4.9:

          (a) Apart from complying with various requirements relating to record keeping, as per CBB Law, rules and regulations and other applicable laws, rules and regulations, the recordings of telephone conversations and electronic communications, including facsimile, email and other instant messaging devices relating to their activities in the securities market must be retained for a period of at least twelve months from the date the record was created;
          (b) [This subparagraph was deleted in July 2021];
          (c) In a medium that allows the storage of the information in a way accessible for future reference by the CBB, and so that the following conditions are met:
          (i) The CBB must be able to access the records readily and take copies;
          (ii) It must be possible for any corrections or other amendments, and the contents of the records prior to such corrections and amendments to be easily ascertained;
          (iii) It must not be possible for the records to be otherwise manipulated or altered.
          Amended: July 2021