New EU legislation for preventing market abuse is nearly finalised and will most likely enter into effect by mid-2016. But how will this new market abuse regime impact financial market regulation in the Netherlands?

The European Parliament recently approved the European Commission’s proposal for adirective to ensure that insider dealing and market manipulation are criminal offences subject to sanctions. Under the new Directive, insider dealing in the EU will, for example, carry a maximum prison term of at least four years. Criminal sanctions will also have to be imposed for other serious types of financial fraud, such as market manipulation. Member states have the option to set higher maximum sanctions than the Directive provides for. The Directive is expected to be published in June 2014. Member states will then have two years to implement it into national law.

This new Directive complements a separate proposal for a Market Abuse Regulation, which was endorsed by the Parliament in September 2013. Shortly before its endorsement, in June 2013, the Regulation had been amended to include benchmark manipulation, as a consequence of manipulation of Libor.

The background of the new Directive and the Regulation, revising the current market abuse regime, arose from the general desire to strengthen the integrity of the financial markets and protect investors against market manipulation and the use of insider information. The Regulation is the modernisation of the current Market Abuse Directive on the latest legislative, market and technological developments. The Commission chose a regulation since it, unlike a directive, does not require separate implementation by the member states and will have direct effect. The Regulation will secure the same market abuse rules throughout the EU. The Regulation is expected to come into force in early 2016.

Not all changes proposed in the new legislation will have significant impact in the Netherlands, as a number of the proposed measures have already been legislated. The prohibitions on insider dealing and market manipulation are, for example, already subject to criminal sanctions. Changes that are expected to have certain impact in the Netherlands include the following:

  • the extension of the scope of the market abuse rules to also include trading on OTFs, commodities and related markets, and the claims market
  • the application of the market abuse rules to the manipulation of benchmarks such as Libor and Euribor
  • if an issuer delays the disclosure of insider information, it must inform the AFM of that delay when making that insider information public
  • transactions by persons in managerial positions will have to be notified to the AFM and the issuing institution. In addition to transactions in “own shares” and corresponding derivative financial instruments, these persons will also have to notify transactions in debt instruments issued by the company