This briefing explains the new notification requirements which apply to dealings by persons discharging managerial responsibilities (PDMRs) and persons closely associated with them (PCAs) in securities of companies admitted to trading on AIM. PDMRs and PCAs must notify the AIM Company and the FCA using a prescribed form. This change results from the implementation of the Market Abuse Regulation (MAR) in the UK. MAR takes effect on 3 July 2016.
In addition, a new MAR closed period regime will be introduced. PDMRs must not, subject to limited exceptions, during a closed period conduct any transactions on their own account or for the account of a third party which, directly or indirectly, relate to the shares or debt instruments of the company or to derivatives or other linked financial instruments.
The MAR closed period is 30 days before the announcement of an interim financial report or a year-end report. The FCA has explained that in its view when an issuer announces preliminary results which contain all inside information expected to be included in the annual report, the closed period, where dealing is prohibited, is immediately before the preliminary results announcement.
Each AIM Company must identify its PDMRs and maintain a list of PDMRs. In turn PDMRs must identify their PCAs, inform them of their obligations in writing and keep a copy of that notification.
The Model Code which has previously served as a reference point for many AIM Companies is being deleted from the Listing Rules as it is not compliant with MAR. However the QCA, ICSA and GC100 have now published a dealing code and policy document to fill this vacuum.
The implementation of MAR in the UK is not affected by the vote to leave the EU.
Notification of dealings by PDMRs and PCAs and restrictions on dealings by PDMRs: the rules and guidance for AIM Companies
The following rules and guidance on dealings by PDMRs and PCAs now apply to AIM Companies:
- the AIM Rules
- Article 19 of MAR
- Commission Delegated Regulation 2016/522 dealing with permission for trading during closed periods and types of notifiable managers' transactions
- Commission Implementing Regulation 2016/523 laying down implementing technical standards with regard to the format and template for notification and public disclosure of managers' transactions in accordance with MAR
- the disclosure guidance published by the FCA (DTR 3).
Unfortunately these requirements are not contained in a single comprehensive standalone document. Further details on each of them are set out below.
AIM Rules: AIM Rule 21 (Dealing policy)
An AIM Company must have a reasonable and effective dealing policy which sets out the requirements and procedures for dealings by directors and applicable employees in its securities.
The policy must include the following:
- the AIM Company’s close periods during which directors and applicable employees cannot deal
- when a director or applicable employee must obtain clearance to deal in the AIM securities of the AIM Company
- an appropriate person(s) within the AIM Company to grant clearance requests
- procedures for obtaining clearance for dealing
- the appropriate timeframe for a director or applicable employee to deal once they have received clearance
- how the AIM Company will assess whether clearance to deal may be given
- procedures on how the AIM Company will notify deals required to be made public under MAR.
Employees who are PDMRs under MAR will also be applicable employees for the purposes of the AIM Rules.
AIM Companies will need to consider whether dealings outside the MAR closed periods should be restricted by their dealing policies and, if dealings are restricted, in what circumstances dealings outside MAR closed periods could be permitted by the company. This will be against the backdrop that PDMRs of listed companies will only be restricted from dealing in MAR closed periods and will not require clearance to deal outside those periods. However market practice in this area will emerge and a standard dealing code may be developed by market participants to cover the situation in which a company is not in a formal MAR closed period but is in possession of inside information.
The QCA, working alongside ICSA and GC100, has now published a dealing code and policy document for companies which are subject to MAR. This includes:
- a group-wide dealing policy
- a dealing code
- a dealing procedures manual.
PDMRs and PCAs must notify every transaction conducted on their own account relating to the shares or debt instruments of the AIM Company or to derivatives or other linked financial instruments to the AIM Company and the FCA (Article 19(1) MAR).
Transactions which must be notified
Every "transaction" conducted on the account of a PDMR or PCA must be notified under Article 19 (1).
Article 19 (7) notes that transactions which must be notified include:
- the pledging or lending of financial instruments by or on behalf of a PDMR or PCA
- transactions undertaken by third parties on behalf of a PDMR or PCA including where discretion is exercised by that third party (such as a private client broker appointed to act for the PDMR on a discretionary basis)
- transactions made under a life insurance policy which meets certain conditions (Article 19 (7) MAR).
Commission Delegated Regulation 2016/522 contains a lengthy non-exhaustive list of other types of transactions which must be notified by PDMRs and PCAs. Examples include gifts and donations made or received and inheritance received.
The PDMR Notification Form published by the FCA must be used for these disclosures. This reflects the requirements of Article 19 (6) MAR and of Commission Implementing Regulation 2016/523.
The template is available at: www.fca.org.uk/your-fca/documents/forms/pdmr-notification-form
Timing for notifications to the AIM Company and the FCA
Notifications must be made promptly and no later than three business days after the date of the transaction.
The AIM Company is required to announce that information to the market promptly and no later than three business days after the transaction.
Since the time period for the company to disclose the dealing to the market is not linked to receipt of notification from the PDMR or PCA, the company may find that it is unable to comply with this aspect of MAR. The FCA may issue guidance on this point given the issues which are likely to be created in practice as a result of both notification periods starting by reference to the date on which the transaction occurred.
Threshold for notifications
The notification requirement only applies if the total value of the transactions conducted by that person in a calendar year is €5,000 or more. The threshold of €5,000 must be calculated without netting (Article 19(8) MAR).
In practice we expect that all dealings by PDMRs and PCAs will be notified as this will be simpler for AIM Companies to administer. It will also avoid the need to consider which exchange rate should be used. The FCA is considering a number of technical issues arising from this threshold and may issue guidance.
Making PDMRs aware of their obligations
Each AIM Company must:
- notify its PDMRs of their obligations under Article 19 in writing
- prepare a list of all PDMRs and PCAs.
Making PCAs aware of their obligations
- notify their PCAs of their obligations under Article 19 in writing
- keep a copy of that notification.
Prohibition on transactions by PDMRs during closed period
A PDMR must not, subject to limited exceptions, conduct any transactions on his own account or for the account of a third party which, directly or indirectly, relate to the shares or debt instruments of the company or to derivatives or other linked financial instruments during a closed period of 30 days before the announcement of:
- an interim financial report
- a year-end report (Article 19 (11) MAR).
This is shorter than the period of two months currently set out in the AIM Rules for Companies.
MAR Closed periods and preliminary results announcements
There was some confusion in the market given the UK practice of announcing preliminary results ahead of the publication of the annual report. Market participants were concerned that closed periods needed to be imposed either before the preliminary results, before publication of the annual report or both.
The FCA has now explained that in its view when an issuer announces preliminary results which contain all inside information expected to be included in the annual report, the closed period, where dealing is prohibited, is immediately before the preliminary results announcement(see Closed periods and preliminary results under MAR which is available on the FCA's website).
When is trading in a MAR closed period permitted?
A company may allow a PDMR to trade on his own account or for the account of a third party during a closed period either:
- on a case-by-case basis due to the existence of exceptional circumstances, such as severe financial difficulty, which require the immediate sale of shares; or
- due to the characteristics of the trading involved for transactions made under, or related to, an employee share or saving scheme, qualification or entitlement of shares, or transactions where the beneficial interest in the relevant security does not change (Article 19 (12) MAR).
Commission Delegated Regulation 2016/522 contains some more detailed requirements which must be satisfied before any dealing during a closed period can proceed in reliance on exceptional circumstances.
AIM Companies should note that AIM Regulation does not have any ability to permit PDMRs to trade in a MAR closed period. This may have implications for the ability of directors to participate in a secondary fundraising which is being announced alongside the publication of interim or preliminary results.
AIM Companies should review their current share dealing codes as a result of these changes. In particular, given the limited circumstances in which a dealing can take place in a MAR closed period, any provisions which provide that certain dealings in a closed period are not subject to the provisions of the code should be checked for compliance with MAR.
Scope of the prohibition on transactions by PDMRs during closed period
There is a technical concern around the transactions which will be covered by Article 19 (11). This is because the definition of what constitutes a transaction for the purpose of Article 19 (11) is narrower than the definition of transaction used in Article 19 (1) and extended by Article 19 (7) and Article 10 of Commission Delegated Regulation 2016/522 which triggers the notification requirement. In addition, it seems likely that the prohibition on dealing by PDMRs during a closed period only applies if it is the PDMR who conducts the transaction. However this view has not been confirmed by the FCA or by ESMA. Until then any transactions during MAR closed periods which involve PDMRs will need to be considered carefully whether or not the transaction was conducted by the PDMR or is one in which the PDMR was only a passive participant.
A PDMR is a person within an AIM Company who is:
- a member of the administrative, management or supervisory body of that company
- a senior executive who is not a member of the bodies referred to above but who has regular access to inside information relating directly or indirectly to that company and power to take managerial decisions affecting the future developments and business prospects of that company (Article 3 MAR).
The key point to note is that this is not restricted to directors.
MAR also contains a detailed definition of PCAS with PDMRS. This is similar to the definition of "family" contained in the AIM Rules for Companies.