The London Stock Exchange (LSE) is consulting on proposed changes to the AIM Rules for Companies (the AIM Rules) in advance of the Market Abuse Regulation (MAR) coming into effect on 3 July 2016. MAR is an EU Regulation which has direct effect in the UK and across all other member states. UK legislation is therefore not required to implement MAR. However, we will have to ensure that our existing laws and regulations are compatible with MAR. This includes the AIM Rules which will have to be amended if they contain anything that is covered by, or is inconsistent with, MAR.
The key disclosure obligations in MAR relate to the disclosure of inside information and disclosure of transactions by persons discharging managerial responsibilities (PDMR) and persons closely associated with them. MAR will also introduce mandatory close period rules.
In AIM Notice 44, the LSE has identified that the following areas of the AIM Rules will need revising:
- disclosure of price sensitive information (rule 11),
- directors’ dealings (rule 17), and
- restrictions on dealings (rule 21).
In addition, the LSE notes that when associated MAR guidance has been finalised by ESMA, it may be necessary to make further changes, notably in respect of the publication of preliminary results and whether these will end a close period.
The LSE is also proposing consequential changes to the AIM Rules for Nominated Advisers and the AIM note for Investing Companies as a result of the changes referred to above.
Some of the proposed changes would result in AIM companies being subject to the remit of both AIM Regulation and the FCA which could lead to a more onerous and confusing regulatory landscape.
Responses to the consultation should be submitted by 12 May 2016. To see a copy of the consultation click here, and to see the AIM Rules marked-up to show the proposed changes, click here. For more details on the proposals, read on.
Disclosure of price sensitive information (rule 11)
It is proposed that rule 11 which deals with the disclosure of price sensitive information be retained. The LSE notes that the purpose of the rule is to maintain a fair and orderly market and to ensure that all market users have simultaneous access to the same information to make investment decisions. It is proposing to amend the guidance notes to the rule to make reference to this purpose, and will signpost an AIM company’s separate obligation to also comply with Article 17 of MAR (public disclosure of inside information).
The proposed guidance will also make clear that rule 11 is not intended to replicate MAR disclosure obligations and that compliance with MAR does not mean that an AIM company will have satisfied its obligations under the AIM Rules and vice versa.
The LSE points out that failure by an AIM company to comply with rule 11 may result in the LSE taking disciplinary action in addition to its powers to suspend or cancel an admission of its AIM securities, regardless of whether or not the AIM company is in compliance with MAR.
The LSE notes that, as a result of retaining rule 11, AIM companies will be subject to the remit of both AIM Regulation (in respect of its AIM Rules disclosure obligations) and the FCA, as competent authority in the UK (in respect of MAR disclosure obligations). In recognition of this, it states that it intends to work closely with the FCA to coordinate its approach and to minimise duplication of activities.
Directors’ dealings (rule 17)
Rule 17 contains notification requirements of AIM companies in respect of directors’ dealings. Article 19 of MAR (PDMR transactions) includes notification requirements which apply to issuers, PDMRs (including directors) and their closely associated persons. In this regard, the European Commission has the power to adopt delegated acts under MAR to state which types of transactions will trigger the notification requirements. It also has the power to adopt implementing standards that specify the level of information that must be reported, as well as the forms which must be used for notifications.
Noting the remit of Article 19 of MAR, the LSE is proposing that the AIM Rules will cease to include the current rule 17 requirement to disclose directors’ dealings. It considers that Article 19 of MAR provides an appropriate level of transparency and it is expected that AIM companies, through their existing compliance with rule 17, should be able to transition to the new obligation under MAR. The LSE is proposing to include new guidance in respect of directors’ dealings which will signpost an AIM company’s obligations under Article 19 of MAR.
Restrictions on dealings (rule 21)
The purpose of rule 21 is to restrict directors and those close to the AIM company taking advantage of information received as a result of their position and thereby reduce any perception that they are able to do so. As MAR will provide a legal prohibition on trading during close periods and exemptions to those prohibitions, the LSE is proposing to remove the existing provisions of rule 21 along with the associated definitions of “deal” and “unpublished price sensitive information” contained in the glossary.
In its place, it is proposed to introduce a new rule that will require an AIM company to have a dealing policy. Whilst it is not intended to prescribe the detailed content of the policy, the LSE does propose to set out the minimum provisions that it would expect to be included. Existing AIM companies will be expected to update their policies to ensure compliance with the proposed new rule by 3 July 2016.
Preliminary statement of annual accounts
The LSE notes that, in the absence of further guidance from ESMA, it is not clear whether an issuer is able to end its close period through the publication of a preliminary statement of annual accounts under MAR. It will therefore consider making changes to the AIM Rules, or will issue further guidance if necessary, once the application of MAR in this regard is clarified. In the meantime, the LSE advises that any questions regarding preliminary statements and MAR should be directed to the FCA as the competent authority in the UK for MAR.
In line with the changes to rules 17 and 21 outlined above, the LSE is also proposing to amend AR5 of Schedule Three of the AIM Rules for Nominated Advisers (the Nomad Rules) as follows:
"Be satisfied that procedures within the company have been established to facilitate compliance with the AIM Rules for Companies, e.g. release of unpublished price sensitive information, rule 17 notifications, regulation of close periods and review the AIM company’s rule 21 dealing policy."
Other consequential changes will be made to the AIM Rules, the Nomad Rules and the AIM Note for Investing Companies where reference is made to rule 17 ‘directors dealings’ or rule 21 (or the terminology used for those rules).
The LSE states that it does not expect there to be any significant change to the approach of an AIM company and its Nominated Adviser to considering an AIM company’s disclosure obligations as a result of the amended rules. It also states that it will issue further guidance in Inside AIM, and that it intends to maintain a frequently asked questions section on its website.
However, as noted, the proposed changes to rule 11 will result in AIM companies being subject to the remit of both AIM Regulation and the FCA which may lead to a more complex regulatory landscape. For example:
- AIM companies will be subject to additional obligations over and above MAR (and therefore over and above the disclosure obligations which a premium listed company is subject to),
- the resultant regime could be potentially confusing as it could be possible for a piece of information to fall to be disclosed under MAR or rule 11 but not both, and
- there is no clear guidance from AIM as to when a piece of information would be "price sensitive information" under rule 11 but not "inside information" under MAR.
As a result, if amended as proposed, the revised Rules would mean that Nomads and AIM company lawyers would need to liaise closely to ensure that both AIM Rule and MAR obligations are complied with.
Responses to the consultation should be submitted by 12 May 2016. The LSE will confirm the results of the consultation as soon as possible after that date.
To see a copy of the consultation click here. To see a copy of the AIM Rules marked-up to show the proposed changes, click here.