Issuers of debt securities need to prepare for the imminent application of the new European Market Abuse Regulation 596/2014 ("MAR").
MAR comes into force in all member states on 3 July 2016. By that date, debt issuers whose securities are admitted to trading on regulated markets or on a multilateral trading facility ("MTF") will need to have put in place the necessary measures to ensure their full compliance with, in particular, the new requirements on:
- the public disclosure of inside information;
- insider lists; and
- the disclosure of managers' transactions by persons discharging managerial responsibilities within an issuer ("PDMRs") and persons closely associated with them ("PCAs").
While this note is prepared only with the issuers of debt securities in mind, MAR is also relevant to other persons such as those who deal in securities and related instruments.
Issuers affected by MAR
Issuers with securities admitted to trading on an MTF including the Irish Stock Exchange's Global Exchange Market ("GEM"), will be particularly affected as they are not subject to the existing market abuse regime.
However, an issuer with securities admitted to trading on a regulated market, such as the Irish Stock Exchange's Main Securities Market ("MSM") also needs to ensure that it updates its existing policies and procedures to ensure compliance with the new requirements. See further below.
The Current Market Abuse Rules
In Ireland, the existing rules on market abuse are set out in the Market Abuse (Directive 2003/6/EC) Regulations 2005, which implement Directive 2003/6/EC on insider dealing and market manipulation ("MAD") into Irish law. MAD is supplemented by a number of implementing measures, as well as by guidance.
The existing rules apply to financial instruments admitted to trading on an EU regulated market. Among other things, they require issuers, to:
- identify and disclose to the public inside information which directly concerns the issuer;
- maintain a list of all persons with access to inside information concerning the issuer; and
- notify the Central Bank of Ireland of dealings by PDMRs and PCAs in the issuers' financial instruments, including debt instruments.
MAR Key Changes
From 3 July 2016 MAD and its implementing legislation will be completely replaced by MAR.
MAR considerably expands the scope of the existing market abuse rules in terms of the markets and products covered. MAR is complemented by the Criminal Sanctions for Market Abuse Directive 2014/57 ("CSMAD"), which provides for minimum rules on criminal offences and criminal sanctions for market abuse.
Key changes relevant to debt issuers include:
- issuers of debt securities admitted to trading on an MTF and an organised trading facility will come within the scope of the market abuse rules (see further below); and
- changes to rules relating to:
- Inside Information;
- Insider Lists; and
- PDMRs (and PCAs).
For more detailed information see our briefing note here.
Like MAD, MAR requires an issuer to inform the public as soon as possible of inside information which directly concerns the issuer. Both MAD and MAR define "inside information", as information of a precise nature that has not been publicly disclosed, relating directly or indirectly to the relevant issuer or to one or more financial instruments and which, if made public, would be likely to have a significant effect on the price of those financial instruments or on the price of related derivative financial instruments. However, MAR expressly states:
- the publication of information will have a significant effect on price if it is information which a reasonable investor would likely use as part of the basis of its investment decision; and
- information about an intermediate step in a protracted process leading to an event or set of circumstances may in itself constitute inside information.
Inside information regarding debt securities is likely to include:
- any circumstances that may impact on the issuer's ability to meet its obligations under the relevant debt securities (including the repayment of principal or the payment of interest);
- a significant improvement in the issuer's financial situation that reduces the issuer's risk of default, such as an injection of capital through a capital increase;
- agreements and transactions that may have an impact on the issuer's creditworthiness; and
- default by one or more of the issuer's significant customers.
Inside information must be publicly disclosed in a manner enabling the public's fast access to and complete, correct and timely assessment of the information. An issuer must also disclose and maintain all inside information required for public disclosure on its website for at least five years.
As is the case under MAD, an issuer will still be able to delay announcing inside information so as not to prejudice its "legitimate interests". However, MAR requires an issuer to inform its regulator in writing of its decision to delay announcement immediately after the information is disclosed to the public and explain to it how the conditions for delay were satisfied in respect of the particular piece of inside information (unless a member state provides otherwise).
The European Securities and Markets Authority ("ESMA") has published draft technical standards setting out details of the internal records that an issuer will be expected to maintain if it delays the publication of inside information. ESMA has also published draft guidance identifying six (non-exhaustive) categories of "legitimate interests" that would entitle issuers to delay the disclosure of inside information.
MAR preserves the existing requirement that an issuer maintain an insider list of all employees or persons otherwise performing tasks for the issuer who have access to inside information and send the list to its regulator on demand.
However, MAR sets out very specific requirements regarding the type of information to be included on an insider list, which have been further detailed by Commission Implementing Regulation (EU) 2016/347 regarding the precise format of insider lists and for updating insider lists in accordance with MAR. Required information includes home landlines, personal mobiles and the date of birth (or national identification number) for each person on the list.
MAR also requires an issuer or any person working on its account to take all reasonable steps to ensure that any person on the insider list acknowledges in writing the legal and regulatory duties entailed and is aware of the sanctions for insider dealing and unlawful disclosure of inside information.
Managers' Transaction Disclosures
MAR imposes certain obligations on issuers and on their associated PDMRs and PCAs (or on behalf of ) regarding transactions conducted by a PDMR or a PCA on his or her own account relating to the issuer's debt securities (or shares) or other financial instruments linked to those securities ("Managers' Transactions").
An issuer must:
- notify each of its PDMRs in writing of his or her obligations regarding Managers' Transactions and keep a copy of this notification;
- draw up a list of all its PDMRs and PCAs; and
- disclose to the public information regarding Managers' Transactions notified to the issuer by a PDMR or PCA promptly and in any event no later than three business days after the Managers'
- Transaction. The disclosure must be made in a manner which enables fast access to the relevant information on a nondiscriminatory basis.
A PDMR must:
- notify the issuer and the relevant competent authority of every Managers' Transaction carried out on the PDMR's own account promptly and in any event no later than three business days after the Managers' Transaction this requirement does not apply to transactions under 5,000 per calendar year in aggregate;
- inform each of his or her PCAs of their obligations in respect of Managers' Transactions and keep a copy of this notification; and
- not conduct any transaction on his or her own account or for the account of a third party, directly or indirectly relating to the issuer's debt instruments (or shares) or to linked financial instruments during a closed period of 30 calendar days before the announcement of an interim financial report or a year-end report which the issuer is obliged to make public. This requirement is subject to certain exceptions, notably in the case of exceptional circumstances such as severe financial difficulties that require an immediate sale. While this requirement does not apply to announcements regarding preliminary results, market practice is evolving with regard to whether good practice would require an additional closed period linked to such announcements.
A PCA must:
- notify the issuer and the relevant competent authority of every Managers' Transaction carried out on the PCA's own account promptly and in any event no later than three business days after the Managers' Transaction this requirement does not apply to transactions under 5,000 per calendar year in aggregate;
Commission Regulation 2016/523 sets down more detailed requirements regarding the format and template of the submission of notifications and public disclosure of Managers' Transactions under MAR.
MAR: What do Debt Issuers on the Main Securities Market (MSM) need to do?
Much of MAR will be familiar to issuers of debt securities trading on a regulated market, including the MSM, which are currently subject to MAD and its implementing measures. However, such an issuer will need to ensure that it:
- updates its policies and procedures for the disclosure of inside information to the market (particularly with respect to record keeping when delaying disclosure);
- reviews the ESMA template for insider lists and modifies its insider list procedures to match the new rules and requirements;
- fulfils its requirements regarding Managers' Transactions as outlined above.
MAR: What do Debt Issuers on Multilateral Trading Facilities (MTFs) need to do?
As the markets abuse regime will apply for the first time to an issuer of debt securities trading exclusively on an MTF from 3 July 2016, such an issuer will need to familiarise itself with MAR and put in place the necessary policies and procedures to ensure compliance with MAR's requirements. In particular it will need to:
- identify and publish inside information as soon as possible (unless an exemption applies);
- establish appropriate procedures to ensure the confidentiality of inside information, and ensure that any person with access to inside information acknowledges its duties of confidentiality and is aware of the sanctions for misuse of that information;
- draw up an insider list of persons working for it with access to inside information; and
- ensure that it complies with its notification and disclosure obligations regarding Managers' Transactions and that it maintains a list of its PDMRs and PCAs.