AIM Companies will be subject to the EU Market Abuse Regulation (MAR) with effect from 3 July 2016. MAR introduces a number of significant changes for companies admitted to trading on AIM.
AIM Companies need to be aware of the new requirements relating to:
- the disclosure of inside information
- detailed record keeping if a decision is taken to delay the disclosure of inside information
- notifying the FCA that disclosure was delayed
- maintaining detailed insider lists
- the disclosure of dealings by PDMRs and PCAs
- closed periods during which PDMRs and PCAs cannot deal - where an AIM Company announces preliminary results this will typically be a period of 30 days immediately before the preliminary results announcement.
The AIM Rules for Companies will be updated to reflect the introduction of MAR. AIM Notice 45, published on 14 June 2016, confirmed that the revised AIM Rules for Companies will come into force on 3 July 2016 to coincide with MAR.
Disclosure of inside information
AIM Companies will need to comply with the MAR regime for the disclosure of inside information.
Under MAR, an AIM Company must, subject to some limited exceptions, inform the public as soon as possible of inside information which directly concerns that company (Article 17 MAR). The company must also ensure that all inside information which it has publicly disclosed is available on its website for a period of at least five years.
The company may delay disclosure to the public of inside information provided that all of the following conditions are met:
- immediate disclosure is likely to prejudice the legitimate interests of the company
- delay of disclosure is not likely to mislead the public
- the company is able to ensure the confidentiality of that information.
Some guidance on the nature of these legitimate interests should be available from the European Securities and Markets Authority in Q3 2016.
These disclosure obligations will be in addition to the requirements contained in AIM Rule 11. Although in general terms the requirements are similar, MAR contains additional requirements which apply if the AIM Company decides to delay disclosure.
Obligation to notify the FCA and detailed record keeping requirements
If an AIM Company is in possession of inside information and it decides to delay disclosure in the circumstances permitted by MAR, the AIM Company will need to comply with the following detailed requirements:
- the AIM Company must inform the FCA that disclosure was delayed – the FCA has published a standard form for use in this situation. The notification must include the following information:
- the identity of the issuer
- the identity of the person making the notification
- the contact details of the person making the notification
- identification of the publicly disclosed inside information that was subject to delayed disclosure
- date and time of the decision to delay the disclosure of inside information
- the identity of all persons with responsibilities for the decision of delaying the public disclosure of inside information.
- following a request from the FCA, the AIM Company must provide a written explanation of how the conditions which enabled the AIM Company to delay disclosure were satisfied
- the AIM Company must comply with the record keeping requirements applicable in these circumstances. These require an AIM Company to keep a record of the following:
- the dates and times when:
- the inside information first existed within the company
- the decision to delay the disclosure of inside information was made
- the company is likely to disclose the inside information
- the identity of the persons within the company responsible for
- deciding about the start of the delay and its likely end
- ensuring the on-going monitoring of the conditions for the delay
- deciding about the public disclosure of the inside information
- providing the requested information about the delay and the written explanation to the FCA.
- the dates and times when:
The detailed requirements will be set out in a Commission Implementing Regulation laying down implementing technical standards with regard to the technical means for appropriate public disclosure of inside information and for delaying the public disclosure of inside information according to MAR.
Keeping an insider list
AIM Companies will now be required to maintain an insider list (Article 18 MAR).
Under MAR an AIM Company must:
- draw up an insider list using the prescribed template
- maintain and update that list in accordance with MAR
- provide the insider list to the FCA on request.
AIM Companies must take all reasonable steps to ensure that any person on the insider list acknowledges in writing the legal and regulatory duties entailed and that he/she is aware of the sanctions applicable to insider dealing and unlawful disclosure of inside information.
Format of the insider list
An AIM Company must use one of the prescribed templates when creating and maintaining its insider list. The templates are set out in Annex I of Commission Implementing Regulation 2016/347 laying down implementing technical standards with regard to the precise format of insider lists and for updating insider lists in accordance with MAR.
Two templates have been provided. The first is a deal or event specific list. The second template allows a company to keep a permanent insiders section of the insiders list. This will include details of those people who have access at all times to inside information within the company.
The deal or event specific list must contain detailed information using the relevant prescribed format. The following information is required for a deal/event specific list: first name, surname, birth name if different, professional telephone numbers (work direct telephone line and work mobile numbers), company name and address, function and reason for being an insider, the date and time at which the person obtained access to the inside information, the date and time at which the person ceased to have access to the inside information, date of birth, national identification number (if applicable), personal telephone numbers (home and personal mobile telephone numbers) and personal full home address.
Dealings: PDMRs and PCAs
Dealings by directors of AIM Companies in its securities will now be covered by MAR rather than the AIM Rules for Companies.
Under MAR persons discharging managerial responsibilities (PDMRs), as well as persons closely associated with them (PCAs), must disclose to the AIM Company and the FCA 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 (Article 19(1) MAR) unless the total value of the transactions conducted by that person in any calendar year is less than €5,000. In practice we expect that AIM Companies will notify all dealings by PDMRs and PCAs.
Notifications must be made promptly and no later than three business days after the date of the transaction. The AIM Company is then required to announce that information to the market promptly and no later than three business days after the transaction.
The PDMR Notification Form published by the FCA must be used for these disclosures. This reflects the requirements of 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.
Closed period for AIM Companies
Under MAR 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 calendar days before the announcement of an interim financial report or 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.
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) which triggers the notification obligation. This could in theory result in a curious position in which a transaction is only prohibited during a closed period if it falls within the narrower definition of transaction. A transaction which came within the extended definition but was not a transaction within the scope of Article 19 (11) could still proceed and would simply need to be notified. It seems unlikely that this was the regulatory objective and it will be interesting to see how market participants approach this issue.
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).
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 persons closely associated (PCAs) with PDMRs. This is similar to the definition of "family" contained in the AIM Rules for Companies.
Changes to the AIM Rules for Companies
Currently AIM Companies must comply with the AIM Rules for Companies and in particular AIM Rule 11 (General disclosure of price sensitive information) and AIM Rule 21 (Restriction on deals). However the Market Abuse Directive and Chapter 2 (Disclosure and control of inside information by issuers) and Chapter 3 (Transactions by persons discharging managerial responsibilities and their connected persons) of the Disclosure and Transparency Rules (DTRs) do not apply to AIM Companies.
AIM Companies will, with effect from 3 July 2016, need to comply with the detailed requirements of MAR. AIM Rule 11 will be retained. AIM Rule 21 will be deleted as will the relevant paragraph of AIM Rule 17 (Disclosure of miscellaneous information) which requires notification of any deals by directors. Instead dealings by directors and other persons discharging managerial responsibilities will be covered by MAR.
The LSE has consulted on the impact of MAR on the AIM Rules for Companies. AIM Notice 44 contained details of its proposed approach. AIM Notice 45, published on 14 June 2016, confirmed that the rule changes proposed in AIM Notice 44 will be implemented in full (save for certain consequential changes relating to the definition of applicable employee and guidance to rule 21) and will come into force on 3 July 2016 to coincide with MAR. AIM Regulation has also confirmed it will keep the operation of the AIM Rules for Companies under review and monitor how they work in practice following the implementation of MAR. The material changes to the AIM Rules for Companies are covered below.
AIM Regulation 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 under the AIM Rules.
AIM Rule 11
The LSE intends to retain AIM Rule 11 covering the disclosure of price sensitive information. The guidance notes to that rule will be amended to explain that the purpose of that rule is to maintain a fair and orderly market and to ensure that all users of the market have simultaneous access to the same information to make investment decisions. The guidance notes will also signpost an AIM company’s separate obligation to comply with MAR.
The guidance will explain that AIM 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.
Failure by an AIM Company to comply with AIM 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.
AIM Rule 17
The provisions of AIM Rule 17 dealing with the disclosure of directors' dealings will be removed. A signpost to the relevant article of MAR will be included in the guidance notes.
AIM Rule 21
AIM Rule 21 (Restriction on deals) and the definitions of close period and deal will be deleted.
Instead an AIM Company will be required to have a dealing policy which sets out the requirements and procedures for dealings by directors and applicable employees in its securities. The AIM Rules for Companies will set out the minimum requirements for that dealing policy. These requirements are likely to 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.
AIM and SME Growth Markets: does AIM benefit from a reduced regulatory burden?
Although MAR does contain a slightly less onerous regime for companies admitted to trading on an SME growth market, this will not be available to AIM Companies in the short term. The relevant provisions of MAR and the underlying implementing regulations which apply to SME Growth Markets will not take effect until 3 January 2018. In addition, AIM will need to become an SME Growth Market if AIM Companies are to benefit from the alternative regime as AIM does not currently have that status.
An AIM Company should:
Disclosure of inside information
- review its existing processes for the identification of inside information in light of these new requirements
- consider who decides whether an obligation to announce inside information has arisen and whether the AIM Company can delay disclosure
- identify who will be responsible for the new record keeping requirements if disclosure is delayed
- identify who will be named in the form which is submitted to the FCA notifying them of the delayed disclosure of inside information.
- identify who is responsible for deciding that an insider list is required
- identify who is responsible for maintaining and updating that insider list
- review its arrangements with its advisers to ensure that they are maintaining separate insider lists in accordance with the requirements of MAR.
Dealings: PDMRs and PCAs
- identify the individuals who will be PDMRs under the new regime and notify them of their obligations
- ensure that a list of PDMRs and their PCAs is maintained
- take steps to ensure that all PDMRs have notified their PCAs of their obligations in writing and retain a copy of the notification
- identify who is responsible for maintaining and updating the company's list of PDMRs and PCAs
- review the current dealing code and consider what amendments are required.
- brief directors and senior management of the AIM Company on the new requirements
- discuss the new requirements with its nominated adviser.