The Market Abuse Regulation (MAR) replaced the previous EU market abuse regime on 3 July 2016. This will
be the first time standardised market abuse rules will apply
across all EU countries. Up to now the rules flowed from a
Directive which different EU states implemented in different
ways (the Market Abuse Directive - MAD).
The regime is a civil law and regulatory law regime,
ie sanctions under it are civil and regulatory sanctions not
criminal law sanctions. It does not, for example, change
the UK’s Criminal Justice Act insider dealing offences.
Some of the key aspects of MAR as distinct from MAD are
Extension of the scope of the legislation
The legislation will apply in relation to financial instruments
as defined in the second Markets in Financial Instruments
Directive (MIFID II) which is a widening of the sorts of
instruments covered compared to MAD. It will also apply to
instruments traded on a multilateral trading facility (MTF)
or an organised trading facility (OTF) – not just on a 'regulated market'. In the case of the OTF concept, however,
this is a concept currently found in MIFID II but not in MIFID
and as MIFID II will not be implemented until 3 January 2018
MAR will only apply to instruments traded on a regulated
market or an MTF from 3 July 2016 with the application to
OTFs coming in when MIFID II is implemented.
MAR also carries more extensive requirements relating to
commodities derivatives and their underlying commodities
by applying MAR to spot commodity contracts and to types
of financial instruments likely to have an effect on the price
or value of a spot commodity contract. This means that
unregulated commodities firms are much more at risk of
coming within the scope of MAR than they did under MAD
in the past – and consequently they should particularly check
whether they need to introduce, or upgrade, their systems
and controls for market abuse.
MAR also extends the market abuse regime to emission
allowances and emission allowance market participants who
similarly will have to check whether they have adequate
systems and controls in place to manage this.
There are some textual changes to the definition of inside
information. Notwithstanding this, however, the view the
FCA appear to be taking in their recent Policy Statement
on MAR implementation in the UK is that implementation is
not likely to significantly change how the definition of 'inside
information' is interpreted and applied by the FCA in the UK.
Under MAD, issuers were required to keep insider lists of
individuals who held inside information either in relation
to specific transactions or in relation to, for example, key
accounting/results information in closed periods (or at other
key points such as trading announcements). MAR continues
this requirement but there is to be a more standardised
approach to the information to be included in such lists –
with an EU prescribed electronic format.
Delaying disclosure of inside information
The general policy under MAD was that publication of inside
information should not be delayed but there could be delay if:
- the delay is not likely to mislead the public, and
- confidentiality of that information can be maintained.
In general terms this position continues under MAR but
ESMA will publish guidelines covering a range of issues
including the circumstances under which it is permissible
to delay. The ESMA guidelines are likely to be published in
June and are expected to take a more narrow view of the
circumstances permitting delay than was typically taken when
interpreting MAD up to now.
MAR will introduce new regulation around assessing possible
investor interest when, for example, raising funds – whether
debt or equity – where the securities are listed/traded.
A person disclosing information for the purposes of market
- assess whether there will be a disclosure of inside
- write a note of its conclusion and the reasoning behind its
- inform the recipient of the consequences of possessing
inside information (including the duty of confidentiality)
and obtain his or her consent to being made an insider
- make a record of the information given, the identity of the
recipient (entity and individual) and the date and time of
- notify the recipient when the information provided ceases
to be inside information, and
- retain the written records for a minimum of five years.
This is another area where ESMA guidelines will be published.
Buy-backs and stabilisation
The existing framework for conducting buy-back programmes
of shares by an issuer and stabilisation measures without
breaching the prohibitions on insider dealing, unlawful
disclosure of inside information and market manipulation is
also amended by MAR and will now be contained in Article 5
of MAR. There will continue to be exemptions from these
prohibitions for both buy-back programmes and stabilisation.
In relation to buy-back programmes for shares, the
exemption will apply where:
- the full details of the programme are disclosed prior to the
start of trading
- trades are reported as being part of the buy-back
programme to the competent authority of the trading
venue and subsequently disclosed to the public
- the prescribed limits with regard to price and volume are
complied with – ESMA in the draft RTS has indicated that
an issuer should not purchase at a price higher than the
highest price of the last independent trade and should not
purchase more than 25% of the average daily volume of
the shares traded over a period of reference, and
- it is carried out in accordance with the following objectives:
- to reduce the capital of the issuer
- to meet obligations under debt obligations
exchangeable into equity securities, or
- to meet obligations under employee or management
share schemes and meets the conditions to be set
out in the regulatory and technical standards to be
published by ESMA.
It should be noted that the exemption applies only to
buy-backs of shares and ESMA has indicated that it will not
extend this safe harbour to other securities.
In relation to stabilisation, the definition of stabilisation
is almost identical to that which previously applied in the
UK but for the purposes of section 137Q of the Financial
Services and Markets Act 2000 MAR will in effect bring in
new price stabilising rules. The draft ESMA RTS provides that
stabilisation activity for shares will be permitted for up to
30 calendar days from the date of commencement of trading
(or allotment in the case of secondary offers) and for bonds
will be permitted for a period to end no later than the earlier
of (i) 30 calendar days after the date on which the issuer
of the instruments received the proceeds of the issue or
(ii) 60 days after allotment of the securities. The stabilisation
manager will have to be publicly disclosed as will the
existence of any overallotment facilities.
In practical terms, documentation will need to be updated
to reflect the new rules and records will need to be kept to
comply with the relevant requirements in the final ESMA
RTS once published but legitimate buy-back programmes
and stabilisation activity will continue to benefit from a safe
Persons discharging managerial responsibilities
The obligations on persons discharging managerial
responsibilities (PDMRs) and persons closely associated
with them at an issuer of financial instruments is altered in a
number of ways.
In particular as MAR will apply to a wider range of financial
instruments traded on a wider range of platforms there will
be more issuers and PDMRs caught than previously.
The disclosure obligation will apply to more types of
transactions, including (i) transactions executed by a
third party under an asset/portfolio mandate on behalf
of PDMRs (ii) entering into contracts for differences
(iii) subscriptions to a debt instrument issuance.
MAR sets out the disclosure obligations of PDMRs for
transactions undertaken on their own account relating to the
instruments of the issuer to which they are linked.
In the UK, for listed companies, PDMR disclosure
requirements have, up to now, been set out in the Model
Code. The MAR disclosure obligations are not identical to
the Model Code requirements but the FCA has, rightly
in our view, come to the conclusion that the Model Code
is incompatible with the direct effect of the MAR PDMR
requirements. Consequently the Model Code is to be
withdrawn and will cease to exist after 3 July 2016. Instead
the PDMR requirements will apply to all PDMRs equally
and there will be no distinction, as there is at the present,
between the Model Code obligations of PDMRs of listed
issuers and the PDMR obligations of other issuers.
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