The last two weeks of October saw ESMA publish its definitive Guidelines in relation to delayed disclosure of inside information which apply from 20 December 2016 and additional Questions and Answers on the Market Abuse Regulation (MAR).

Delaying disclosure Guidelines

The Guidelines were published were published on 20 October 2016 and are unchanged from those set out in ESMA’s Final Report of 13 July 2016. They apply from 20 December 2016 and state that “competent authorities and financial market participants must make every effort to comply with [ESMA’s] guidelines and recommendations”. Issuers are not required to report whether they have complied.

Article 17(4) MAR provides that an issuer may, on its own responsibility, delay disclosure to the public of inside information provided that all of three conditions are met:

  • immediate disclosure is likely to prejudice the legitimate interests of the issuer;
  • delay of disclosure is not likely to mislead the public; and
  • the issuer is able to ensure the confidentiality of the information.

Article 17(11) MAR requires ESMA to issue Guidelines to establish a non-exhaustive indicative list of the legitimate interests of issuers to delay disclosure and of situations in which delay of disclosure of inside information is likely to mislead the public.

Legitimate interest

ESMA states that cases where immediate disclosure of inside information is likely to prejudice the issuer’s legitimate interests could include but are not limited to the following circumstances:

  • negotiations where the outcome would likely be jeopardised by immediate public disclosure, such as mergers, acquisitions, splits and spin-offs, restructuring and reorganisations
  • its viability is in grave and immediate danger although not yet insolvent and immediate public disclosure would jeopardise negotiations designed to ensure financial recovery
  • approval of supervisory board required (only applicable for two-tier board and very restricted)
  • immediate disclosure is likely to jeopardise the intellectual property rights of a product or invention under development
  • immediate disclosure would likely jeopardise the implementation of a plan to buy or sell a major holding in another entity
  • a transaction previously announced is subject to a public authority’s approval, where disclosure of the conditions will likely effect the ability to meet them and so prevent the final success of the deal or transaction.

Delay of disclosure likely to mislead the public

ESMA states that these situations include at least the following circumstances, where the inside information:

  • is “materially different from the previous public announcement of the issuer on the matter to which the information refers”; or
  • “regards the fact that the issuer’s financial objectives are not likely to be met, where such objectives were previously public announced”; or
  • is “in contrast with the market’s expectations, where such expectations are based on signals the issuer has previously sent to the market, such as interviews, roadshows or any other type of communication organised by the issuer or with its approval”.

Commentary

ESMA’s consultation process when developing the Guidelines left a number of important questions unanswered, including what is meant by “as soon as possible”. If “as soon as possible” does not mean “immediately”, an issuer may be able to say that it has not delayed and so does not have to rely on Article 17(4). However, Article 17(4) is not helpful with its reference to “immediate disclosure”.

Where the FCA is the competent authority, it is unclear how far statements in the are still valid. Referring to the then DTR 2.5.1R (which copied out the equivalent provision to Article 17(4) in the Market Abuse Directive), paragraph 474 stated that any quoted company has a legitimate interest in the orderly disclosure of its financial results and that, unless there is some exceptional event or fact which requires immediate disclosure, the company can therefore justify delaying announcement of its financial results until the due reporting date.

In Primary Markets Bulletin 16 of June 2016, the FCA published proposed amendments to various UKLA Technical Notes to reflect MAR, whilst stating that once ESMA has published the Guidelines, the FCA may reconsider whether it is appropriate to consult on additional notes. There is no change of substance in the draft amended Technical Note UKLA/TN/506.2 which states that “MAR requires issuers to inform the public of any inside information, regardless of whether the circumstances that may constitute inside information have been formalised, unless the circumstances to delay the disclosure of inside information set out in Article 17(4) … apply”. The original July 2013 version of this note, which pre-dates Hannam, states that “in practice, disclosure of information that falls within the definition of inside information, including information about financial performance, cannot be delayed merely so that it can coincide with a scheduled announcement of a periodic financial report”. The UKLA are proposing to retain this wording.

Consultation on the amendments to the Technical Notes closed on 10 August 2016, but it is not clear when they will be published. Although prior to MAR, UKLA Technical Notes were only of relevance to Main Market issuers, the extended scope of MAR means that AIM and ISDX companies should also look closely at the relevant Technical Notes when finalised.

The FCA stated in PS16/13 of April 2016 that they will re-assess the status and continuance of the guidance in DTR 2.5 in the light of the ESMA Guidelines. Any change to DTR 2.5 will require consultation.

Questions and Answers PDMR/PCA transactions - Exchange rate for Article 19(8) EUR 5,000 threshold

ESMA issued updated Q&A on 26 October 2016. The purpose of the Q&A is both to ensure that the supervisory activities and actions of competent authorities are converging along the lines of the answers and to help issuers, investors and other market participants by providing clarity on the content of the market abuse rules, rather than creating an extra layer of requirements.

Section 2 (Managers’ transactions) includes a new question 1 on the exchange rate to be used to determine if the EUR 5,000 threshold has been crossed. Under Article 19(8) MAR, all transactions by a PDMR/PCA once a total of EUR 5,000 has been reached within a calendar year must be notified to the competent authority. ESMA states that if transactions are carried out in a currency which is not the EUR, the exchange rate to be used to determine if the threshold is reached is the official daily spot foreign exchange rate which is applicable at the end of the business day when the transaction is conducted. Where available, the daily euro foreign exchange reference rate published by the European Central Bank on its website should be used.