Following the implementation of the Market Abuse Regulation (MAR) in July, this alert discusses its impact on AIM listed companies, changes to the AIM Rules and what actions AIM listed companies need to consider.
What caused the changes to be made?
3 July 2016 saw the Europe-wide implementation of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (the Market Abuse Regulation or MAR). MAR was implemented in order to harmonise the various existing regimes on market abuse across the EU, establishing a common regulatory framework on insider dealing, the unlawful disclosure of inside information and market manipulation. Measures were also introduced to prevent market abuse, to help to ensure the integrity of financial markets and to enhance investor protection and confidence in those markets.
What changes were made?
The AIM Rules in place prior to July 2016 covered a number of areas which MAR, following its implementation, would also provide for. As a result, the London Stock Exchange proposed several changes to the AIM Rules in order to avoid the duplication of obligations on companies. Following a consultation period, AIM Notice 45 confirmed the changes that would be made. These changes can be summarised as follows:
- AIM Rule 11 – Article 17 of MAR imposes a requirement that all inside information which directly concerns an issuer is announced to the market as soon as possible. Inside information is defined as “information of a precise nature, which has not been made public, relating, directly or indirectly, to one or more issuers or to one or more financial instruments, and which, if it were made public, would be likely to have a significant effect on the prices of those financial instruments or on the price of related derivative financial instruments”. On the other hand, AIM Rule 11 imposes an obligation on AIM companies to disclose “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” to the market without delay.
In spite of the difficulties which may arise in complying with two similar, but slightly different rules, the decision was taken for AIM Rule 11 to be retained alongside Article 17 of MAR. It was considered that the two rules are aimed at slightly different objectives: AIM Rule 11 at ensuring a fair and orderly market where all users of the market have simultaneous access to the same information to make investment decisions and Article 17 of MAR at minimising the risk of insider dealing and avoiding companies misleading the market by failing to release information. The MAR requirements were also considered to relate potentially to a wider concept of inside information than the AIM Rules. AIM-listed companies are therefore required to comply with both provisions. AIM Regulation have made it clear that compliance with Article 17 of MAR will not mean that a company has complied with AIM Rule 11, and vice versa, and the onus is on the company to ensure that it complies with both rules.
- AIM Rule 17 – the AIM Rule 17 requirement that directors’ dealings be notified to the market without delay was deleted on 3 July 2016, as it was considered that Article 19 of MAR would provide an appropriate level of transparency for the market. Article 19 of MAR imposes an obligation on persons discharging managerial responsibility (PDMRs), as well as persons closely associated with them (CAPs), to notify the company and the competent authority (in the UK, the Financial Conduct Authority) of every transaction conducted on their own account relating to the shares or other securities held by the PDMR or CAP in that company above a certain threshold (currently €5,000). Such a notification must be made promptly and no later than three business days after the date of the transaction. The issuer is required to ensure that the information that is notified by a PDMR or CAP in accordance with Article 19 is made public promptly and no later than three business days after the transaction is completed.
- AIM Rule 21 – AIM Rule 21 previously imposed a requirement on AIM companies to ensure that, except in certain limited circumstances, directors and applicable employees did not deal in the company’s securities during a close period. A close period was defined as the period of 60 days immediately prior to the release of the company’s annual accounts, the period from the relevant financial period end up to and including the time of the publication of half-yearly results (if relevant) and 30 days prior to the release of quarterly results (if relevant), as well as any other time that the company was in possession of unpublished price sensitive information.
As a result of the implementation of MAR, AIM Rule 21 was replaced by a requirement for AIM-listed companies to implement a share dealing policy which complies with a set of minimum requirements. The definition of a close period (redefined as a ‘closed period’) was also amended to be the 30 days prior to the release of financial results. The restrictions on dealing while in possession of unpublished price sensitive information remain.
AIM companies are required to establish appropriate closed periods (which may be more than the prescribed 30 days prior to the release of financial information) during which directors and applicable employees are restricted from dealing in the company’s shares, and create and implement procedures that directors and applicable employees are required to comply with prior to conducting any transactions in the company’s shares, in order to obtain clearance to deal. Finally, there should also be a procedure in place requiring notifications of dealings in the company’s shares to be disclosed to the company in order that the company can notify transactions which are required to be made public.
What do AIM listed companies need to do?
To assist the company and the directors to comply with the changes to the AIM Rules following the implementation of MAR, AIM companies should consider taking the following actions:
- put in place robust policies and procedures to establish whether information on the company is inside information and/or price sensitive information and thus whether it needs to be released to the market in compliance with MAR and/or the AIM Rules. Perhaps consider setting up a disclosure committee whose role it is to consider these questions;
- ensure that the company’s share dealing policy is up-to-date and adequately reflects the requirements imposed by MAR, including noting the obligatory 30 day closed period. Ensure that this is circulated to, and read and understood by, the relevant people within the company;
- consider who within the company should be classified as a PDMR or a CAP under MAR and ensure that they are aware of their obligations in relation to trading in the company’s shares and the requisite notifications. Also appoint a contact person (a director or member of the senior management team) whose role it is to deal with queries on disclosures and ensure compliance with notification requirements by both PDMRs and the company; and
- consider whether the company should require all dealings in the company’s securities to be disclosed, or whether this should only apply to dealings above the €5,000 threshold required by MAR (and if so, consider how to monitor compliance with this).