The principal aim of the Market Abuse Regulation (MAR) is to expand and develop the EU market abuse regime under the Market Abuse Directive. As MAR is an EU Regulation, its provisions have direct effect in the UK without any national implementing measures.
The obligations covered by this note were effective from 3 July 2016 (unless otherwise stated) and apply to AIM companies as well as companies trading on the main market. The result of the June 2016 referendum on the UK's membership of the EU has no immediate impact on these obligations.
This note highlights how Articles 17, 18 and 19 of MAR will impact upon and interact with the AIM Rules for Companies (AIM Rules) which have been amended to take account of MAR.
This note will discuss:
- The interaction of MAR on the disclosure of inside information with AIM Rule 11 (general disclosure of price sensitive information) and when disclosure may be legitimately delayed in both instances.
- The requirement on AIM companies to keep and maintain insider lists under MAR, and the form and content of such lists.
- Who is a person discharging managerial responsibilities (PDMR), and when he and each person closely associated (PCA) with him may deal in an AIM company's shares.
- What share dealing policy AIM companies should be adopting.
This note does not cover:
- the market abuse offences of insider dealing under Article 14 of MAR;
- the market abuse offences of market manipulation under Article 15 of MAR; or
- the safe harbour from the offence of unlawful disclosure of inside information for market soundings (Article 11 of MAR), which is relevant to market soundings undertaken in relation to AIM companies; or
- the criminal offence of insider dealing which remains in the Criminal Justice Act 1993.
2. Inside or price sensitive information: two regimes and two regulators
AIM companies now have to comply with two obligations with regard to the disclosure of inside information or price sensitive information, enforced by two different regulators. An AIM company will have to comply with both:
- Article 17 of MAR to disclose inside information, regulated by the FCA.
- AIM Rule 11 to disclose price sensitive information, regulated by AIM Regulation of the London Stock Exchange plc (Exchange).
AIM Regulation has made it clear in its guidance notes that an AIM company's compliance with MAR will not of itself satisfy obligations under the AIM Rules and vice versa; each set of obligations should be considered separately. MAR is designed to protect investors from market abuse whereas the purpose AIM Rules is to maintain a "fair and orderly market in securities and to ensure that all market users have simultaneous access to the same information to make investment decisions".
The disclosure requirement under the AIM Rules is potentially wider in scope than under MAR, which arguably creates a more burdensome regime for AIM companies than that for fully listed companies; AIM Regulation even notes that the consideration of AIM Rule 11 should not be "too narrow or technical".
If there is confusion over whether information amounts to inside information and/or price sensitive information, an AIM company's nominated adviser must seek, at the same time, the views of both the FCA and AIM Regulation. AIM Regulation will continue to liaise with the nominated adviser regarding an AIM company's AIM Rule obligations and will provide the FCA with information about these discussions where relevant to MAR. AIM Regulation intends to work closely with the FCA to coordinate their approach and minimise any duplication but how this will work in practice remains to be seen.
3. Disclosure of inside information under MAR (Article 17, MAR)
An AIM company must inform the public as soon as possible of inside information that directly concerns that AIM company. (This is subject to certain exceptions, referred to below.)
What is inside information?
For the purposes of MAR, inside information is information of a precise nature that:
- Has not been made public.
- Relates, directly or indirectly, to one or more issuers or financial instruments.
- If it were made public, would be likely to have a significant effect on the price of those financial instruments or related derivative financial instruments (that is, it is information that a reasonable investor would be likely to use as part of the basis of their investment decisions).
How to disclose inside information to the public
A company is required to inform the public as soon as possible of inside information that directly concerns that company. This is essential to avoid insider dealing and to ensure investors are not misled.
A company must:
- Ensure that inside information is made public in a manner which enables fast access and a complete, correct and timely assessment of the information by the public.
- Not combine the disclosure of inside information to the public with the marketing of its activities. It is, therefore, important to keep the RNS notification separate from any related marketing or PR material.
- Post and maintain on its website, for a period of at least five years, all inside information it is required to disclose publicly. For an AIM company, this will be another item to include on its website in addition to complying with the requirements of AIM Rule 26 on website disclosures. The inside information should be located in an easily identifiable section of the company's website and be presented in chronological order, indicating the time and date of disclosure.
Selective disclosure of inside information is allowed when the company is delaying disclosure to the market but only where the recipient owes a duty of confidentiality to the company and requires the information to carry out its duties for the company.
If a company selectively discloses information to any person, it should prepare a holding announcement which can be released in the event of a leak.
Short delays and holding announcements
Generally, a company must notify via an RIS all inside information in its possession as soon as possible. But where the issuer is faced with an unexpected and significant event, a short delay may be acceptable if necessary to clarify the situation.
The company should make a holding announcement where it believes there is a danger that inside information is likely to leak out before the facts and their impact can be confirmed. In such cases, the announcement should contain:
- As much detail of the subject matter as possible.
- The reasons why a fuller announcement could not be made.
- An undertaking to announce further details as soon as possible.
Where a company is unable or unwilling to make a holding announcement, trading of its financial instruments may be suspended until it is in a position to make such an announcement. The FCA should be consulted if there are any doubts about the timing of the company's obligations under MAR.
It may be prudent practice for a company to prepare a holding announcement once it is clear that it may have inside information.
When can the disclosure of inside information be delayed under MAR (Article 17(4), MAR)?
A company may delay the disclosure to the public of inside information where all of the following three conditions are satisfied:
- Immediate disclosure is likely to prejudice the legitimate interests of the company.
- The delay is not likely to mislead the public.
- The company is able to ensure the confidentiality of that information.
Where there is a protracted process that occurs in stages and is intended to bring about, or result in, a particular circumstance or a particular event, a company may delay the public disclosure of inside information relating to this process, subject to the three conditions listed in the bullets above.
Delays in disclosure of information are decided by the company itself and so companies are expected to have in place a minimum level of organisation and process to:
- Conduct a prior assessment of whether the information is inside information.
- Decide whether the disclosure needs to be delayed and for how long.
- Have a person(s) appointed within the company who are responsible for making these decisions and clearly identified as such and are given the necessary decision-making power. Before deciding to delay disclosure, these person(s) should conduct an assessment of whether the three conditions above are satisfied.
Where a company is delaying disclosure it should prepare a holding announcement to be released if and when any actual or likely breach of confidence occurs (see above).
Throughout the period of delay, the company should ensure that the conditions listed above are constantly satisfied, particularly the confidentiality condition.
Where disclosure is delayed but confidentiality is no longer ensured, and rumours
Where disclosure of inside information has been delayed and the confidentiality of that inside information is no longer ensured, the AIM company must disclose that inside information to the public as soon as possible. This includes situations where a rumour explicitly relates to inside information of which the disclosure has been delayed or where that rumour is sufficiently accurate to indicate that the confidentiality of that information is no longer ensured.
Where a company takes a decision to disclose in this context, it has to notify the FCA about the delay and where relevant provide a written explanation. Where there is press speculation or market rumour concerning a company, the company should assess whether its general obligation to announce has arisen. To do this the company needs to assess carefully whether the speculation or rumour has given rise to a situation where the company has inside information.
Knowledge that the press speculation or market rumour is false may not amount to inside information (but there is a possibility that the issuer's knowledge that a particular piece of information or story is false could, in very limited circumstances, amount to inside information) and even if it does, the FCA expects in most cases that an issuer would be able to delay disclosure.
The FCA is likely to contact an AIM company or its advisers if there are rumours relating to it in the media and will expect a full justification for the AIM company's proposed course of action and confirmation of the AIM company's true position so that it can monitor developments properly. However, AIM companies should not wait until they are contacted to consider whether inside information should be disclosed.
A company's legitimate interests to delay disclosure
In January 2016, ESMA issued a consultation paper on the draft guidelines establishing a nonexhaustive indicative list of the legitimate interests of issuers and of situations in which delay of disclosure of inside information is likely to mislead the public.
The proposed guidelines provide for the following six (non-exhaustive) cases where the legitimate interests of the company are likely to be prejudiced by immediate disclosure of inside information:
- Ongoing negotiations. It may be legitimate to delay disclosure where the company is conducting negotiations and the outcome of such negotiations would likely be jeopardised by immediate public disclosure of that information. M&A and certain other transactions would generally be considered to be covered by this.
- Financial viability of the company in grave and imminent danger. It may be legitimate to delay disclosure where the financial viability of the company is in grave and imminent danger, although not within the scope of applicable insolvency law, and immediate public disclosure of the inside information would seriously prejudice the interests of existing and potential shareholders, jeopardising the conclusion of the negotiations aimed at ensuring the financial recovery of the company.
- Management decisions requiring approval. It may be legitimate to delay disclosure where decisions are taken or contracts entered into by the management body of a company which need the approval of another body of the company in order to become effective. As UK companies have a unitary board structure, this legitimate interest is of little use to them.
- Intellectual property rights for product or invention. It may be legitimate to delay disclosure where the company has developed a product or an invention and the immediate public disclosure of such information may jeopardise the IP rights of the company.
- Major acquisitions or disposals of holdings. It may be legitimate to delay disclosure where the company is planning to buy or sell a major holding in another entity and the disclosure of such information would jeopardise the conclusion of the transaction.
- Public authority approval of previously announced transaction. It may be legitimate to delay disclosure where a transaction previously announced is subject to a public authority's approval, and such approval is conditional upon additional requirements, where the immediate disclosure of those requirements will likely affect the ability of the company to meet them and therefore prevent the final success of the deal or transaction.
The above cases are non-exhaustive and indicative only, so there may be other circumstances where it may properly be in the company's interest to delay disclosure of inside information. However, ESMA is of the view that cases where is it permitted to delay the disclosure of inside information under MAR are the exception to the general rule of disclosure to be made as soon as possible; interpretation should therefore be narrow. In addition, each situation, even one that fits into the non-exhaustive cases, should be assessed on a case-by-case basis.
ESMA states that, for example, a CEO's resignation is not a legitimate interest to delay disclosure; however, ESMA does accept that where a company is faced with an unexpected and significant event, a short delay may be acceptable if it is necessary to clarify the situation. The fact that the company has legitimate interests that are likely to be prejudiced by immediate disclosure of the inside information is not sufficient in itself to delay the disclosure of inside information; the three conditions in Article 17(4) must be satisfied.
The ESMA Draft Guidelines are unlikely to be finalised before September 2016.
When a delay of disclosure is likely to mislead the public
The ESMA Draft Guidelines also provide for three non-exhaustive examples where the delay of disclosure is likely to mislead the public. These are where the inside information that the issuer intends to delay disclosing:
- Is materially different from a previous public announcement of the issuer on the matter to which the inside information refers.
- Regards the fact that the issuer's financial objectives are likely not to be met, where such objectives were previously publicly announced.
- Is in contrast with the market's expectations, where such expectations are based on signals that the issuer has previously sent. For example, where the information the issuer intends to delay contrasts with the content of an interview with the issuer's CEO or information given by the issuer's management in a road-show.
In these examples, immediate and appropriate disclosure is necessary and mandatory. In assessing the market's expectation, companies should take into account market sentiment.
The ESMA Draft Guidelines are unlikely to be finalised before September 2016.
What to do after the delayed information is disclosed and how to notify the FCA
In a significant change from the previous regime, if a company delays disclosure in accordance with Article 17(4) of MAR, immediately after the information is disclosed to the public, it must:
- Inform the FCA of the delay.
- On request from the FCA, provide a written explanation about how these conditions were met.
When a particular piece of information subsequently ceases to be inside information, it would not be necessary to notify the FCA; but it is possible that, at some point, the FCA may still wish to look at the decision-making process around first treating the information as inside information and then determining that the information was no longer inside information.
4. Disclosing price sensitive information under AIM Rule 11
In addition to the obligation under MAR, AIM Rule 11 requires an AIM company to notify, without delay, any new developments which are not public knowledge which, if made public, would be likely to lead to a significant movement in the price of its AIM securities.
By way of example, this may include matters concerning a change in:
- Its financial condition.
- Its sphere of activity.
- The performance of its business.
- Its expectation of its performance.
AIM Rule 11 promotes prompt and fair disclosure of price sensitive information to the market. The guidance notes reflect the "reasonable investor" test which provides that information that would be likely to lead to a significant movement in the price of the AIM securities includes information that a reasonable investor would be likely to use as part of the basis of his investment decisions.
The guidance notes make it clear that this obligation is quite separate from any similar disclosure obligations under MAR and that any queries relating to MAR disclosure obligations should be made to the FCA and not the Exchange and the Exchange will not opine on MAR compliance. If the Exchange becomes aware of a possible breach of MAR, it will refer it to the FCA.
Delaying the disclosure of price sensitive information for impending confidential developments: AIM Rule 11 guidance notes
Unless disclosure is required under MAR, an AIM company may delay notifying information under AIM Rule 11, if it concerns an impending development or a matter in the course of negotiation, provided such information is kept confidential. The AIM company must ensure it has in place effective procedures and controls designed to ensure the confidentiality of such information to minimise a leak.
Where an AIM company is able to delay notifying information about impending developments and matters in the course of negotiation, it may give such information to the following categories of recipient:
- The AIM company's advisers and advisers of other persons involved or who may be involved in the development or matter in question.
- Persons with whom the AIM company is negotiating, or intends to negotiate, any commercial, financial or investment transaction (including prospective underwriters or placees of its securities).
- Representatives of its employees or trade unions acting on their behalf.
- Any government department, the Bank of England, the Competition and Markets Authority or any other statutory or regulatory body or authority.
- The AIM company's lenders.
The AIM company must be satisfied that such recipients are bound by a duty of confidentiality and aware that they must not trade in the AIM securities before the relevant information has been notified. If the AIM company has reason to believe that a breach of confidence has occurred or is likely to occur and the matter is such that knowledge of it would be likely to lead to significant movement in the price of the AIM securities, it must without delay issue at least a warning notification to the effect that it expects shortly to release information regarding such matter.
Companies should consider preparing a holding announcement in these circumstances so that it is ready to be released as soon as needed. Where any such information has been made public, the AIM company must notify that information without delay.
It is hard to think of many practical situations where an AIM company will not be required to disclose under MAR but would be required to disclose under the AIM Rules or vice versa. Nevertheless, the board of an AIM company and its nominated adviser must continue to consider whether any inside information or price sensitive information could fall under Article 17 or AIM Rule 11. AIM Regulation has reiterated that an AIM company must seek the guidance of its nominated adviser in this regard and that it would not be a defence to a breach of the AIM Rules that the AIM company had received legal advice instead of consulting its nominated adviser.
5. Insider lists: MAR (Article 18, MAR)
AIM companies are required to draw up and update insider lists indicating the persons working for or on behalf of the company who have access to inside information. When MiFID II comes into force on 3 January 2018, there will be an exemption for insider lists for certain issuers whose financial instruments are admitted to trading on SME growth markets and it is hoped AIM would be designated as an SME growth market (see SME growth market issuer exemption below). However, until this date, all AIM companies must comply with the full requirements of MAR on insider lists.
If the company's nominated adviser or other adviser assumes the task of drawing up and updating the insider list, the company remains fully responsible for complying with MAR and the company must always retain a right of access to the insider list.
To ensure that there is uniformity on insider lists throughout the EU, ESMA has developed implementing technical standards on the precise format of insider lists and the process for updating them.
What is "access to inside information"?
"Access to inside information" is not defined in MAR or in related legislation. It is likely that it relates to actual access by a person in performance of his or her employment duties but the scope is so wide, it could potentially include secretarial, administrative and other support staff with access to inside information. Therefore, companies should:
- Have internal procedures dealing with accessibility of sensitive documents and should manage access to inside information by ensuring that it is not disclosed in internal publications to employees.
- Consider whether they need to adopt closed access and password requirements in their IT systems to restrict access as well as ensuring that systems for circulation and storage of hard copy documents are adequate.
Content of insider lists
As a minimum, insider lists must contain:
- The identity of each person with access to inside information.
- The reason why any such person is on the insider list.
- The date and time at which that person obtained access to inside information.
- The date on which the insider list was drawn up.
- The date and time of any change in the reason for including a person already on the insider list.
- The date and time when there is a new person who has access to inside information and needs to be added to the list.
- The date and time when a person ceases to have access to inside information.
To ensure that all companies produce insider lists with the same data fields, ESMA has produced a mandatory template for insider lists which includes the following:
- Name: first name, surname, birth surname (if different from surname) of the insider. This is necessary to ascertain the identity of the insider.
- Work direct line and work mobile telephone numbers. This is required to access communications traffic data to ascertain if there was contact between persons identified on an insider list and persons dealing in the securities. Such information is helpful for market abuse cases. Where these records show telephone numbers for regulated firms, the FCA may also be able to access the content of the calls: this information could be useful to eliminate a person from an investigation or for his or her defence if necessary.
- Company name and address. This is necessary to identify an individual and the capacity in which they may have worked on a deal. The address enables the FCA to identify the employee's precise location (such as the branch or office where the employee works).
- Function and reason for being insider. The reason for including the person on the list is specifically required by MAR. The FCA will want to know the capacity in which the individual has access to inside information to understand the level of information that person may hold. For example, a senior adviser would be likely to know more about a deal than an individual working in the control room.
- Date and time at which the person obtained access to inside information. This is specifically required by MAR.
- Date and time at which the person ceased to have access to inside information. This is specifically required by MAR.
- Date of birth. This is to identify a person where a National Identification Number is not available.
- National Identification Number (where applicable in the concerned member state). Not all EU member states have a National Identification Number system; the UK does not. In the UK, many companies are therefore proposing to state the National Insurance Number in place of a National Identification Number.
- Personal home and personal mobile telephone numbers. One home and mobile number should suffice where the person has more than one.
- Personal full address: street name; street number; city; post/zip code; country.
An insider list may also include deal-specific/event-based sections.
If the company wishes, the insider list may include a supplementary section for permanent insiders. Permanent insiders should only be those persons who have access to all inside information at all times. If the company has prepared a permanent insider section as a supplementary section of the insider list, this must be in a particular format. It is unlikely that a nominated adviser would be a permanent insider as it might only be aware of a particular matter if informed of it by the AIM company. Permanent insiders must not also be included in each deal-specific/event-based section of an insider list.
Insider's written acknowledgement of legal and regulatory duties
Companies, or any person acting on their behalf or on their account, must take all reasonable steps to ensure that any person on the insider list:
- Acknowledges in writing the legal and regulatory duties entailed.
- Is aware of the sanctions applicable to insider dealing and unlawful disclosure of inside information.
Companies should consider training and/or the circulation of explanatory memoranda to their employees to deal with this requirement together with a written acknowledgement signed by the employee.
Maintenance of insider lists
An insider list must be promptly updated after someone gains or ceases to have access to inside information or there is any change in the reasons someone has access. The list should be reviewed at regular intervals to ensure the data are up to date. Each update must specify the date and time when the change triggering the update occurred.
Disclosure of insider list to FCA
An issuer or person acting on its behalf or on its account will be obliged under MAR to provide its insider lists to the FCA as soon as possible upon the FCA's request.
Where a company breaches its obligations under the MAR insider list requirements, the FCA may:
- By notice in writing, require the company to provide specified information and specified documents that the FCA reasonably requires for the purpose of exercising its functions under MAR. The FCA may also require the company producing such a document (or its directors or employees) to provide an explanation of the document. Failure to comply with this could mean that the person is in contempt and any person knowingly or recklessly providing false or misleading material is guilty of a criminal offence.
- Suspend trading in the UK of the company's financial instruments if it considers it necessary for the purpose of its functions under MAR.
- Impose a fine of such amount as it considers appropriate or publish a statement censuring the company.
- Temporarily prohibit an individual who has contravened MAR from managing an investment firm or dealing on his or her own account in financial instruments.
In less serious cases, the FCA may issue a private warning to an AIM company which can be taken into account in any future enforcement proceedings.
6. Transactions by PDMRs and their PCAs (Article 19, MAR)
Under MAR, persons discharging managerial responsibilities (PDMRs), as well as persons closely associated with them (PCAs) must notify both the AIM company and the FCA of every transaction conducted on their own account relating to:
- The shares or debt instruments of that company.
- Derivatives or other financial instruments linked to those shares or debt instruments.
The obligations are designed to provide valuable information for market participants and to constitute an additional means for competent authorities to supervise markets.
Who are PDMRs and PCAs?
A PDMR is a natural or legal person in a company who is either of the following:
- A member of the administrative, management or supervisory body of that entity (for example, a director of an English company).
- A senior executive who is not a member of the administrative, management or supervisory body of that entity, who has regular access to inside information relating directly or indirectly to that entity and power to make managerial decisions affecting the future developments and business prospects of that entity.
An individual may be a "senior executive" irrespective of the nature of any contractual arrangements between the individual and the issuer, or in the absence of such arrangements, provided the individual has both:
- Regular access to inside information relating, directly or indirectly, to the company.
- The power to make managerial decisions affecting the company's future development and business prospects.
Accordingly, a consultant could be a PDMR; the fact he or she has a consultancy agreement rather than a service agreement is not important, and his or her status would be determined by whether or not the individual concerned meets the two tests above.
In relation to a PDMR, a PCA is a:
- PDMR's spouse or a partner considered to be equivalent to a spouse in accordance with national law.
- Dependent child of the PDMR, in accordance with national law.
- Relative of the PDMR who has shared the same household for at least one year on the date of the transaction concerned.
- Legal person, trust or partnership, the managerial responsibilities of which are discharged by the PDMR or by a person referred to in any of the three bullet points above, where:
- it is directly or indirectly controlled by such a person;
- it is set up for the benefit of such a person; or
- its economic interests are substantially equivalent to those of such a person.
In the UK, in relation to PDMRs, the meaning of PCAs has been clarified so that:
- "Partner considered to be equivalent to a spouse" includes a civil partner.
- "Dependent child" means a child who is under the age of 18 years, is unmarried and does not have a civil partner.
- "Child" includes a stepchild.
Therefore, a live-in partner of a PDMR would not be PCA.
Making PDMRs and PCAs aware of their obligations
AIM companies to notify PDMRs of their obligations
Companies are required to:
- Notify, in writing, the PDMRs of their obligations under Article 19 of MAR.
- Draw up a list of all PDMRs and their PCAs.
PDMRs to notify PCAs of their obligations
PDMRs must notify, in writing, their PCAs of their obligations under MAR and keep a copy of this notification.
The types of transactions that should be notified under Article 19 include transactions conducted by PDMRs on their own account relating to the shares or debt instruments of the company or to derivatives or other financial instruments linked thereto.
Exception to managers' transaction notification requirement
The notification obligation under Article 19 of MAR does not apply to transactions in financial instruments linked to shares or to debt instruments of the issuer where, at the time of the transaction, any of the following conditions is met:
- The financial instrument is a unit or share in a collective investment undertaking in which the exposure to the issuer's shares or debt instruments does not exceed 20% of the assets held by the collective investment undertaking.
- The financial instrument provides exposure to a portfolio of assets in which the exposure to the issuer's shares or debt instruments does not exceed 20% of the portfolio's assets.
- The financial instrument is a unit or share in a collective investment undertaking or provides exposure to a portfolio of assets and the PDMR or PCA does not know, and could not know, the investment composition or exposure of such collective investment undertaking or portfolio of assets in relation to the issuer's shares or debt instruments, and furthermore there is no reason for that person to believe that the issuer's shares or debt instruments exceed certain thresholds.
If information regarding the investment composition of the collective investment undertaking or exposure to the portfolio of assets is available, then the PDMR or PCA must make all reasonable efforts to avail themselves of that information.
De minimis threshold of EUR5,000
The obligations in Article 19 of MAR only apply once transactions totalling EUR5,000 have been effected in a calendar year.
The EUR5,000 threshold is calculated by adding, without netting, all transactions that are within scope.
Issuers may prefer to disclose all transactions on a voluntary basis.
ESMA is considering how currency conversions from EUR to local currencies should work.
When to notify the FCA, AIM company and market
Notifications by the PDMR or PCA to the FCA and the company must be made promptly, and no later than three business days after the date of the transaction.
The company must then make that information public and promptly and no later than three business days after the transaction.
Given the deadline for notification to the company and the FCA is the same as for the company to notify the market, it may be prudent to require PDMRs to notify the company within one or two business days to give the company a grace period of one or two days to notify the market.
What must be notified?
The information that must notified includes:
- The name of the person and relevant company.
- The reason for the notification.
- A description and the identifier of the financial instrument.
- The nature of the transaction(s) (for example, acquisition or disposal), indicating whether it is linked to the exercise of share option programmes or to one of a number of specific examples.
- The date and place of the transaction(s).
- The price and volume of the transaction(s). In the case of a pledge of securities the terms of which provide for its value to change, this should be disclosed together with its value at the date of the pledge.
Template PDMR notification form
There is a single mandatory template to be used for notification to the AIM company and the FCA and for public disclosure to the market by the AIM company.
The FCA has produced a UK version of this template. We understand that this form is only for notifying the FCA and cannot also be used to notify the company and the market. Therefore, three separate notifications must be completed.
In outline, the PDMR Notification Form includes the following sections:
- Details of the PDMR/PCA. The name should be stated. For natural persons, this is the first name and the last name(s) and, for legal persons, the full name including legal form as provided for in the register where it is incorporated, if applicable.
- Reason for the notification. This includes:
- position/status. For PDMRs, this is the position occupied within the issuer (for example, CEO, CFO) and, for PCAs, an indication should be given that the notification concerns a PCA of a PDMR and the name and position of the relevant PDMR should be stated; and
- initial notification/amendment. This is an indication that the notification is an initial notification or an amendment to prior notifications. For amendments, there should be an explanation of the error that the notification is amending.
- Details of the issuer. This must include the full name of the entity and the Legal Entity Identifier code.
- Details of the transaction(s): This section must be repeated for (i) each type of instrument; (ii) each type of transaction; (iii) each date; and (iv) each place where transactions have been conducted. This section includes:
- a description of the financial instrument (type of instrument), and identification code;
- the nature of the transaction. A description of the transaction type, specifying the types of transactions that trigger the equirement of notification (and whether the transaction is linked to the exercise of a share option programme should also be indicated);
- price(s) and volume(s). Where multiple transactions of the same nature on the same financial instrument are executed on the same day and at the same place of transaction, prices and volumes of these transactions must be reported in this field, in the two columns included in the template, inserting as many rows as needed;
- aggregated information;
- the date of the transaction. This is the date of the particular day of execution of the notified transaction; and
- the place of the transaction. The name and trading venue identification code should be indicated or if the transaction was not executed on a trading venue, "outside a trading venue" should be stated.
Means to notify
Secure electronic means should be used for notification of transactions by PDMRs and PCAs. The FCA is to publish on its website the appropriate means to be used in the UK.
Directors' dealings: AIM Rule 17 deleted
AIM Rule 17 used to include a requirement to disclose directors' dealings. However, this requirement has been deleted as the Exchange considers that MAR provides an appropriate level of transparency. Therefore, from 3 July 2016, an AIM company only has to comply with the requirements for PDMRs and PCAs under MAR, and any queries regarding these disclosure obligations should be directed to the FCA.
Closed periods and PDMR transactions
A PDMR within an AIM company must not conduct any transactions on his or her own account or for the account of a third party, directly or indirectly, relating to the shares or debt instruments of the AIM company or to derivatives or other financial instruments linked to them during a closed period. The closed period under MAR is 30 calendar days before the announcement of an interim financial report or a year-end report that the AIM company is obliged to make public according to either the AIM Rules or national law. Note that the restriction applies only to PDMRs. PCAs are free to deal in a closed period although it is thought that many companies will extend dealing restrictions during closed periods to PCAs.
In the UK, it has been common practice for a company's close period to end with the publication of its preliminary results rather than the publication of its annual report and accounts which can be much later. As MAR prescribes a closed period to be 30 calendar days before the announcement of an interim financial report or a year-end report, it was thought that AIM companies might be subjected to a further closed period of 30 calendar days before publication of the annual report and accounts. This would have lengthened the overall period during which PDMRs could not deal and potentially interfered with the vesting of share awards that had previously been granted to PDMRs after previous years' preliminary results.
On 26 May 2016, the FCA announced that, pending clarification from the European Commission and ESMA, it will continue to take the view that the closed period ends when the preliminary results are announced (assuming the preliminary results contain all inside information expected to be in the year-end report and that there is no other inside information). This means, for the time being, that there is, in effect, no requirement for issuers, which announce preliminary results, to impose a second closed period before publication of the annual report and accounts, provided that the announcement of preliminary results contains all of the inside information expected to be included in the annual report and accounts and that there is no other inside information.
Exceptional circumstances and employee share schemes
A company may allow a PDMR to trade on his or her own account or for the account of a third party during a closed period where either of the following apply:
- 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.
- 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.
Legislation connected with MAR provides rules on the circumstances under which trading during a closed period may be permitted by the AIM company.
Prior to any trading during a closed period, the PDMR must provide a reasoned written request to the AIM company for permission to sell during the closed period. The request must describe the envisaged transaction and explain why the sale is the only reasonable way to obtain the necessary financing.
Circumstances will be considered exceptional when they are extremely urgent, unforeseen and compelling, their cause is external to the PDMR and the PDMR has no control over them. With regard to transactions made under or related to employee share or saving schemes, qualification or entitlement of shares, or transactions where the beneficial interest does not change, the regulation sets out characteristics of trading which the AIM company may permit during a closed period.
For AIM companies, AIM Rule 21 used to prohibit dealing by directors and others during a close period but this has been deleted as the Exchange considers that the prohibition on trading during closed periods under MAR is sufficient and another similar obligation is unnecessary. AIM Rule 21 now requires an AIM company to have a reasonable and effective share dealing policy.
7. Share dealing policy: AIM Rule 21
Prior to MAR, most AIM companies adopted the Model Code, or a code derived from it, as a share dealing code. However, from 3 July 2016, the Model Code has been deleted.
Nevertheless, the AIM Rules require an AIM company to have a reasonable and effective dealing policy. Whilst the Exchange is not setting a prescribed or recommended dealing policy (like the Model Code) it is setting out, in the AIM Rules, the minimum provisions that it would expect to be included in such a policy. The policy should be considered in a meaningful way and take into account the company's needs; boilerplate templates which are not tailored to a company's circumstances should be avoided. Existing AIM companies should have had such a dealing policy in place by 3 July 2016.
The dealing policy must set out as a minimum:
- The AIM company's closed periods during which the directors and applicable employees cannot deal. "Applicable employees" is defined in the AIM Rules to be PDMRs other than directors.
- When a director or applicable employee must obtain clearance to deal in the shares of an AIM company.
- An appropriate person within the 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 an 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.
Nominated advisers must be satisfied that the AIM company has an appropriate share dealing policy in place to comply with the AIM Rules but there is no guidance as yet from the Exchange as to what they will consider to be a reasonable and effective share dealing policy.
Compliance with the AIM Rules does not mean that an AIM company will have satisfied its obligations under MAR and the Exchange will expect a company to consider its wider MAR obligations before granting clearance to deal. An appropriate individual of sufficient seniority should be appointed to grant clearance requests.
ICSA in conjunction with GC100 and the QCA has published a pro forma dealing code and dealing procedures manual which AIM companies may adopt as their share dealing code and procedures manual. The purpose of the manual and the dealing code is to assist companies in complying with the obligations under MAR and to ensure the company has the necessary systems and procedures in place to assist its PDMRs and other members of staff to comply with their obligations under MAR.
8. What AIM companies should do to prepare for MAR and the changes to the AIM Rules
Inside information/price sensitive information
- Implement procedures to comply with the new requirements, including to assess whether information is inside information, whether its announcement should be delayed, and if so, for how long.
- Record any reasons why disclosure of inside information was delayed and, if requested by the FCA, explain the reasons for the delay, using the FCA notification form.
- Ensure the nominated adviser liaises with both the FCA and the Exchange on the disclosure of any inside/price sensitive information. Compliance with the AIM Rules will not satisfy the requirements of MAR and vice versa.
- Update any directors' memorandum on obligations and responsibilities to reflect new requirements under MAR and their interaction with the AIM Rules.
- All announcements of inside information must be maintained on the AIM company's website for 5 years. It can be with the other AIM Rule 26 disclosures but it must be clearly identified as an announcement of information which was previously inside information.
- Draw up full insider lists using the template and ensure the insider lists are updated whenever necessary.
- Collate the requisite details on persons who work for or on behalf of the AIM company and may have access to inside information and update these regularly.
- Consider who will have access to inside information. Is it possible to reduce the possible number of recipients by secure IT systems, password protection or encrypted access only?
- Keep insider list for at least 5 years. Develop good practices and processes to maintain and keep such information secure.
- Advisers will usually keep their own insider lists when exposed to inside information from the company. If the AIM company is relying on an insider list maintained by a third party, ensure the AIM company has access to that insider list; for example, perhaps include an obligation to keep, maintain and disclose insider lists in any engagement letter with advisers.
- Train and/or circulate an explanatory memorandum to persons on insider lists on the legal and regulatory duties, together with details on the applicable sanctions and obtain acknowledgement from each insider that he or she understands the duties entailed and is aware of the sanctions.
- Draw up a list of all PDMRs and their PCAs. PDMRs could extend beyond the board of directors to senior executives, such as members of any executive committee. Given the definition of a PDMR, care should be taken not to include too many individuals.
- Notify PDMRs in writing of their obligations under MAR.
- Ensure PDMRs brief their PCAs of their obligations under MAR and keep a copy of such notification. Get written confirmation that this has been done by each PDMR. Use standard form letters if possible.
- Put procedures in place to ensure PDMRs and their PCAs notify the AIM company and the FCA of any notifiable transaction within three business days and that the AIM company then immediately notifies the market. Perhaps also put a procedure in place that PDMRs notify the AIM company and the FCA within 24 or 48 hours of the transaction to give the AIM company time to notify the market before the expiry of the three business days.
- Decide whether PDMRs need only notify transactions over the de minimis threshold of EUR5,000 or all transactions.
- Consider whether PDMRs and their PCAs need assistance to complete FCA notification forms.
- Decide whether to prohibit PDMRs from dealing at other times outside the 30 day MAR closed periods.
- Update directors' memorandum to reflect PDMR dealings and obligations and consider training other managers who may fall within the PDMR definition but are not directors on their responsibilities.
- Consider whether share schemes accord with MAR.
Share dealing policy
- Adopt a share dealing policy that complies with the AIM Rules.
- Appoint an individual of sufficient seniority to grant clearance requests, most probably the Company Secretary, but have an alternative available where the Company Secretary is not independent in relation to the clearance request.
- Refer to new dealing policy in service contracts of directors, employee handbook and any memorandum for directors.