The Market Abuse Regulation (MAR) comes into force on 3 July 2016 replacing our current market abuse regime. Whilst the text of the Regulation itself is settled, much of the detailed implementing measures are still in the process of being finalised. An important aspect of this concerns the amplification of provisions relating to inside information and insider dealing. In this respect, MAR tasked the European Securities and Markets Authority (ESMA) with developing guidelines:
- for persons receiving market soundings, and
- on legitimate interests of issuers to delay disclosure of inside information. ESMA has now published drafts of these guidelines and seeks feedback on them. The consultation closes on 31 March 2016.
MAR provides for a market sounding regime. A “market sounding” is described as a communication of information, prior to the announcement of a transaction, in order to gauge the interest of potential investors in a possible transaction and the conditions relating to it, such as its potential size or pricing, to one or more potential investors. As market soundings may contain inside information, detailed guidelines are required to govern both their dissemination and receipt.
The text of MAR itself focuses on the persons providing the sounding (referred to in MAR as a disclosing market participants (DMP)). Additionally, the Regulation tasks ESMA with developing technical standards to further regulate the conduct of DMPs. These were published in draft format on 28 September 2015.
In order to deal with how information contained in a market sounding is dealt with, ESMA has also been tasked with developing guidelines to govern the conduct of persons who are in receipt of them (a market sounding recipient or MSR).
ESMA has now published these guidelines in draft format and is seeking views on them.
Draft guidelines for the same purpose were previously the subject of an earlier consultation and discussion paper issued in November 2013. The current consultation summarises the feedback on that paper and which the current draft guidelines also take into account. Despite some revisions due to this feedback, the proposals remain substantively the same as proposed in 2013 other than for two new guidelines which ESMA has introduced. These relate to a requirement on MSRs to:
- establish and implement internal procedures and staff training, and
- maintain a list of staff who are in possession of information communicated in the course of market soundings.
Much of the feedback received in response to the 2013 paper noted that the proposals imposed quite a burden on MSRs and that, in some instances, this was disproportionate to the issue at hand. Whilst some of the original proposed guidelines have been withdrawn from the current daft, namely:
- the proposal that, where an MSR suspects improper disclosure of inside information, they shouldnotify the relevant competent authority, and
- the proposal for MSRs to ensure that certain telephone calls with a DMP be conducted on recorded telephone lines, many of the guidelines still impose obligations which are likely to increase the compliance burden on MSRs. In particular, most of the requirements are accompanied by an obligation to maintain written records and to retain these for five years.
Delaying disclosure of inside information
MAR contains broadly similar provisions to our existing market abuse regime in respect of the need for issuers to disclose inside information to the market. It also includes a similar regime for permitting such disclosures to be delayed (although it does impose new reporting and record keeping requirements).
Under MAR, disclosure may be delayed provided the following three conditions are satisfied:
- 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.
Additionally, MAR tasks ESMA with setting guidelines to establish a non-exhaustive and indicative list of:
- legitimate interests of the issuer that are likely to be prejudiced by immediate disclosure, and
- situations in which delay of disclosure is likely to mislead the public.
ESMA has now published these guidelines in draft format and is seeking views on them. As with the market soundings guidelines, a previous draft was consulted on in 2013, and the current draft takes into account feedback on that consultation as well as summarising comments received.
Whilst the guidelines will be helpful to issuers in understanding their obligations, ESMA is keen to point out that the lists are not exhaustive but are indicative only. Whilst it notes that it is for issuers to determine each situation on a case by case basis, it also makes it clear that, as the possibility of delaying the disclosure of inside information is the exception to the general rule of prompt disclosure under MAR, reasons to deviate from it should be narrowly interpreted. For this reason, it will be important to ensure that the settled guidance provides issuers with sufficient clarity to enable them to interpret situations correctly and comply with their obligations.
Comments on the consultation should be received by ESMA before 31 March 2016. ESMA intends to finalise the two sets of guidelines and publish a final report by early Q3 2016, around the entry into application of MAR. To read the consultation in full, click here.