This year will see an overhaul of the market abuse regime across the EU with the implementation of the new Market Abuse Regulation (MAR) under the latest Market Abuse Directive (MAD II).
MAR comes into force on 3 July 2016 alongside the Directive on criminal sanctions for market abuse (CSMAD) from which the UK has opted out. The new regime aims to enhance market integrity and investor protection.
As a regulation, MAR will have direct effect in all member states and will supersede the UK's current market abuse regime contained in the Financial Conduct Authority (FCA) handbook and Financial Services and Markets Act 2000 (FSMA). The FCA is currently conducting a consultation on updating the FCA handbook and FSMA to reflect the impending changes.
Whilst the current UK regime is super-equivalent to what is required under EU law and as such much of the market abuse regime will remain broadly unchanged, there are a number of important changes. The changes include, amongst others:
- Inside information and disclosures
The definition of inside information has been widened and will capture information relating to spot commodity contracts.
The obligation to disclose information to the market has been extended to include some Emission Allowance Market Participants (EAMPs), although they will not be affected until January 2017 as part of staged implementation. In relation to the Alternative Investment Market (AIM), the London Stock Exchange has issued specific guidance and you can read more about the impact of MAR on the AIM Rules of disclosure here.
- Inside dealing and unlawful disclosures
The rules on dealing and unlawful disclosures will not change a great deal but there is to be a clarification that use of inside information to cancel or amend an order is deemed insider dealing. Similarly, inducing someone else to engage in such activity is insider dealing.
The regime has been extended so that it will catch attempted manipulation of the market, misuse of benchmarks and certain behaviour in relation to spot commodities. Acting in collaboration with others to secure a dominant trading position will be caught under the new regime.
There will also be updated rules in respect of insider lists, suspicious transactions reports and whistleblowing.
MAR will apply to financial instruments trading on any market, multilateral trading platforms (such as AIM), recognised organised trading platforms, and instruments which depend on or affect the price of an underlying instrument, i.e. a credit default swaps or contracts for difference. EAMPs will also be subject to MAR.
The new regulation should bring about a more harmonised approach to market abuse across the EU and this should be welcomed. The increased coverage of abusive behaviours and manipulative conduct creates a fairer market both at a UK level and hopefully across the single European market. However, many professional advisers will need to think carefully about their current processes in light of the wider scope of MAR and how they handle market sensitive information going forward. Advisers, investors and institutions will all need to be aware of what instruments are subject to MAR and where the line between inside and public information lies. Anyone brought 'over the wall' will need to treat relevant information they hold very carefully.