With the aim of enhancing both market integrity and investor protection, the new market abuse regime, effective throughout the EU from 3 July 2016, will usher in tougher and strengthened rules for issuers of securities listed or traded on EU markets.
The existing market abuse regime is concerned with market abuse (insider dealing and market manipulation) in relation to MiFID financial instruments (including investment fund securities that are admitted to trading on a regulated market in the EEA, or the value of which depends on a financial instrument admitted to such a regulated market). The new Market Abuse Regulation (MAR) extends the scope to financial instruments admitted to trading on a multilateral trading facility (MTF) (e.g. the Irish Stock Exchange's GEM or the London Stock Exchange's AIM) and, following the application of MiFID II on 3 January 2018, financial instruments traded on an organised trading facility (OTF). MAR also extends to financial instruments the price or value of which depends, or has an effect on the price or value of, a financial instrument traded on a regulated market, MTF or OTF (for example, credit default swaps and contracts for differences).
Apart from the extension of the types of financial instruments and the trading venues, other key changes to be introduced by MAR include:
- Introduction of offences of "attempted" insider dealing and market manipulation, including the requirement to report suspicious orders or transactions, even if orders are not executed
- Explicit prohibition on manipulating the calculation of benchmarks
- A broader definition of "inside information", which includes information that a reasonable investor would be likely to use in making investment decisions
- Greater requirements on issuers and their advisers to maintain insider lists in the forms prescribed by the European Securities and Markets Authority (ESMA)
- Obligation to explain to competent authorities the reasons for any delay in the disclosure of inside information
- Greater disclosure obligations for dealings in the issuer’s securities by persons discharging managerial responsibilities
- Prescriptive procedures to be followed when disclosing inside information for market soundings purposes
Obligation to detect and report market abuse
MAR extends the scope of the obligation to detect and report market abuse and attempted market abuse. This includes the requirement for those professionally arranging or executing transactions to establish and maintain effective arrangements, systems and procedures to detect and report suspicious orders and transactions. ESMA has clarified that "those professionally arranging or executing transactions" includes buy side firms, such as investment management firms (AIFs and UCITS managers), as well as proprietary traders.
Insider lists – more rigorous requirements
MAR imposes more rigorous requirements regarding the maintenance of insider lists. The key change is that the level of information that the issuer will be required to provide will be more burdensome. In this regard, the European Commission has adopted an implementing regulation to supplement MAR specifying the precise format of insider lists.
Insider lists are required to be prepared on a deal-specific/event-specific basis, and maintained in electronic format in accordance with a prescribed template. Furthermore, issuers are given the discretion to maintain a supplemental list of "permanent insiders" who, due to the nature of their function, have access at all times to inside information.
Under MAR, issuers or persons acting on their behalf must:
- Prepare a list of all those with access to inside information and who are working for them under a contract of employment, or otherwise performing tasks through which they have access to inside information, such as advisers, accountants, credit rating agencies. This would include the directors of the board, service providers and advisers.
- Maintain the insider list by updating it when required (for example, when an additional person accesses the inside information, or a person ceases to have such access).
- State the date and time when the change triggering the update occurred.
- Provide the insider list to the relevant competent authority (for example, the Central Bank of Ireland) as soon as possible upon its request.
- Retain the insider list for a period of at least 5 years after it has been drawn up or updated.
Issuers are also obliged to take all reasonable steps to ensure that all those with access to inside information acknowledge their duties in this regard and are aware of the applicable sanctions relating to insider dealing and the unlawful disclosure of inside information.
Disclosure of inside information
Like under the existing market abuse regime issuers must inform the public as soon as possible of inside information directly concerning that issuer. The inside information must be announced without delay and in a manner which allows fast access and a complete, correct and timely assessment of the information by the public. The issuer must post and maintain on its website the information for a period of at least five years. There are very limited circumstances under which the publication of inside information may be delayed. (See here for a more detailed article on this requirement).
Managers’ and issuers’ obligations to disclose transactions under MAR
MAR introduces a more robust, wide-ranging and prescriptive regime for the notification of managers’ transactions than currently applies.
Article 19 of MAR obliges persons discharging managerial responsibilities (PDMRs) and persons closely associated with them to notify both the issuer and the relevant competent authority of every transaction (conducted on these persons’ accounts) relating to the shares or debt instruments of that issuer, or to derivatives or other financial instruments linked thereto.
MAR and its related Directive for Criminal Sanctions for Insider Dealing and Market Manipulation (CSMAD) provide for both criminal and administrative sanctions. CSMAD is designed to complement, and ensure the effective implementation of MAR, by giving competent authorities increased investigative and sanctioning powers, including the imposition of criminal sanctions (carrying terms of imprisonment of at least 2-4 years depending on the nature of the offence). MAR also provides for significant administrative sanctions.
Irish implementation of the new Market Abuse Regime
As an EU Regulation, MAR is directly effective in all member states and applies from 3 July 2016. The existing Irish 2005 Regulations will be replaced by a statutory instrument to transpose CSMAD (and elements of MAR including certain EU delegated acts) into Irish law. In addition, the current Central Bank Market Abuse Rules will be updated to take account of the provisions of MAR.