On 3 July 2016, the new Market Abuse Regulation (“MAR”)1 will become effective all across the EU, replacing the currently applicable regime on insider trading and market manipulation. It will not only affect banks, funds, and investment firms but also most EU issuers. Together with MiFID II2 & MiFIR3, the MAR is likely to significantly impact on current market practice, inter alia with regard to mandatory IT-infrastructures, the provision of research, and market soundings. Infringements of MAR will be subject to draconic sanctions and a harmonized regime of criminal offences.
ESMA submitted its final report on draft technical standards to the MAR on 28 September 2015 (“Final Report”) and its final report on technical advice on 3 February 2015. Some national governments/legislators already proposed transposition laws, such as, for example, in Germany. With only about 6 months remaining for implementation of the new rules by market participants, it is now about time to engage in (and/or readjust existing) regulatory change projects. Any such project needs to also take account the potentially delayed implementation of MiFID II / MiFIR.
This overview serves to evidence some of the effects the MAR will have on different market participants.
Impact on issuers, counterparties to derivatives, and commodity traders
Issuers of financial instruments in the EU need to assess if they fall within the expanded scope of the MAR, now covering financial instruments traded on all kinds of European trading venues, certain spot commodity transactions, and related financial instruments. In particular, issuers of open market (Freiverkehr) instruments in Germany will from 3 July 2016 be obliged to fully comply with ad hoc disclosure rules and need to maintain insider lists. Therefore, the treasury function in particular of large corporates needs to carefully review the MAR relevance of all instruments they deal in. Furthermore, special rules apply to information relating to certain benchmarks (such as indices) and to emission allowances.
Market participants subject to MAR need to establish / adjust their internal compliance framework, e.g. with regard to insider lists, notification obligations, directors’ dealings, and especially newly introduced trading prohibitions (“Closed Periods”). For example, ESMA has published templates specifying the format of insider lists to establish uniform data fields all across the EU. Those lists will inter alia contain personal data, such as personal phone numbers. Appropriate consents and storage needs to be assessed with a view to local data protection and labor laws.
Impact of MAR on investment banks
The MAR provides for various adjustments to insider rules, in particular it introduces a new regime on market soundings as a safe harbor provision. Investment firms providing placement / underwriting services should hence aim at establishing new internal policies and procedures to comply with the new safe harbor provision. This will require those firms to draw up detailed step plans to be followed by their personnel when conducting market soundings. With those new requirements to start applying shortly, there might be a need to reach out to potential investors early to inform them about upcoming changes to the way market soundings will be conducted in the future. Furthermore, MiFID II will require additional disclosure of conflicts of interest to issuers when conducing placement / underwriting services.
Both MAR and MiFID II will have a significant impact on the provision of research. MAR addresses mandatory disclosure requirements, e.g. with regard to conflicts of interest whereas MiFID II inter alia deals with the mandatory pricing of research. ESMA has indicated that research rendered by investment firms should not be available for free in the future anymore.
Other market participants, in particular banks and brokers, funds, and asset managers
The MAR is further likely to affect the financial industry in general, in particular as an IT project. To this end, anyone professionally arranging or executing transactions will be required to establish and to maintain effective arrangements, systems and procedures in place to detect and report suspicious transactions. They should also report suspicious orders and suspicious transactions that take place outside a trading venue.
Furthermore, the MAR will also have a special impact e.g. on funds and their portfolio managers insofar as they – under certain circumstances – need to take account of the Closed Periods applicable to their clients/investors. This will require additional documentation and monitoring of transactions as well as new procedures to be implemented.