The FCA recently published a policy statement, including amendments to the FCA handbook, reflecting the imminent implementation of the EU Market Abuse Regulation No 596/2014 (MAR), which will come into force on 3 July. Listed companies, including those on AIM, should consider now the implications of MAR on the operation of their employee share schemes.
The main points to note from an employee share scheme perspective are as follows:
- The Model Code is being abolished.
- PDMRs will be prohibited from dealing within a shortened 30 day closed period prior to certain announcements.
- There will be no requirement for PDMRs to seek clearance from the company for permission to deal, unless the company is in a closed period.
- There will no longer be a requirement on issuers to prevent PDMRs from dealing at a time, outside a closed period, when the company is aware that there is inside information regarding its shares. However an individual who deals when in possession of such information would of course still potentially commit market abuse the rules for which are also amended by MAR or insider dealing.
- The prohibition on dealing in closed periods contains what looks to be a broad exception for transactions made under, or related to, employee share schemes, subject to issuer consent. The detailed exceptions currently contained in the Model Code are effectively replaced by a non-exhaustive provision which allows an issuer to permit certain dealings in closed periods. For example, an issuer may:
- grant awards in accordance with a scheme which has already been approved and which does not contain discretion to vary the timing;
- permit the exercise of options which would otherwise lapse during the closed period, provided the option holder has given irrevocable notice of the decision to exercise at least four months before the lapse date;
- consent to the acquisition of shares pursuant to and on the existing terms of "an employee saving scheme"; or
- consent to transfers where the beneficial interest in the shares does not change (provided the transfer does not result in a change in the share price).
- The prohibition in the Listing Rules on an issuer company dealing in a closed (or prohibited) period is removed. In relation to grants to non-PDMRs therefore, there is no longer a requirement (previously contained in the Model Code) to show that the grant could not reasonably be made at another time and that failure to make it would be likely to indicate the company was in a prohibited period. However a company proposing to grant awards in those situations will still need to consider best practice, market perception and of course the rules on market abuse.
- The rules for reporting transactions entered into by PDMRs have also changed:
- PDMRs and their "closely associated persons" must notify the issuer of their dealings within three business days rather than four;
- they must also inform the FCA;
- there is a new format for reporting the information;
- the issuer will now have three days from the date of the transaction to notify the public (by RIS). Issuers are therefore likely to want to ensure their internal rules require PDMRs to notify them well within this period; and
- there is a new 5,000 de minimis, below which dealings need not be notified.
Companies will need to:
- Consider what changes they should make to their existing dealing code to reflect the new regime. Generally speaking the new regime is more permissive, but certain useful exemptions have gone (for example the carve outs for dealings in relation to all-employee
- schemes). Companies may of course wish to retain requirements such as the need to obtain clearance in order to ensure compliance with good practice.
- Ensure they have an up-to-date list of PDMRs and their "closely associated persons" and that they tell their PDMRs about these changes (as is expressly required by MAR).
- Review their procedures for reporting transactions in shares to ensure they are consistent with the new requirements.
- Consider whether the rules of any share schemes should be updated to reflect these changes.