On 3 July 2016, the EU Market Abuse Regulation (Regulation 596/2014) (MAR) came into force across all EEA Member States. MAR has direct effect and repeals and revokes its predecessor, the Market Abuse Directive. Its aim is to expand and develop the existing EU market abuse regime by establishing a common regulatory framework on market abuse and establish measures to sanction and deter insider dealing, unlawful disclosure of inside information and market manipulation, thereby enhancing the integrity of, and confidence in, European financial markets.
MAR applies to companies admitted to trading on AIM (AIM companies) as well as Main Market issuers. Whether MAR will continue to apply post-Brexit will depend on the terms on which the UK leaves the EU, but it will remain good law pending the UK’s exit.
This note considers the effect of MAR in terms of the compliance regime to which AIM companies are subject under the AIM Rules for Companies (AIM Rules).
Earlier this year, the London Stock Exchange (LSE) consulted on proposed changes to the AIM Rules in light of MAR. In its AIM Notice 45, published on 14 June, the LSE confirmed the changes to the AIM Rules that came into force on 3 July 2016. However, AIM Regulation has said that it will monitor the operation of the revised AIM Rules in practice and keep them under review, with further changes being possible once clarification is received on certain aspects of the operation of MAR. The revised AIM Rules can be found here.
- Disclosure of inside information: AIM Rule 11 is retained in its pre-MAR form, meaning that AIM companies are now subject to two similar but slightly different regimes governing disclosure of price sensitive information under AIM Rule 11 and under Article 17 of MAR respectively.
- Insider Lists: MAR introduces a new requirement to keep and maintain lists of personal details in respect of all persons working for the AIM company who have access to inside information. AIM companies need to have in place processes to obtain and record the level of detail required under MAR.
- Dealings ‘on own account’ by ‘persons discharging managerial responsibilities’ (PDMRs): in the revised AIM Rules, information regarding directors’ dealings is deleted from the list of matters that must be disclosed without delay under AIM Rule 17. Instead, under Article 19 of MAR, issuers, PDMRs and their ‘closely associated persons’ are required to disclose transactions on their own account’ and this is supported by a requirement for AIM companies to have in place a meaningful and effective share dealing code from admission. Mandatory closed periods are also introduced.
TO THE EXTENT THAT THEY HAVE NOT ALREADY DONE SO, AIM COMPANIES SHOULD TAKE STEPS TO:
Disclosure of inside information:
- identify and appoint a committee or person responsible for keeping a record of all inside information and decisions in connection with disclosure;
- put in place record keeping procedures; and
- identify persons to liaise with the FCA.
- identify ‘permanent insiders’ and notify them;
- if the company does not have the necessary information on individuals, take steps to collate it;
- review and consider the existing procedures in place for identifying both ‘permanent’ and ‘specific’ insiders, collating information on them and informing them of their obligations;
- consider how insider lists are to be maintained – will they be maintained internally or using an external provider?; and
- liaise with advisers and ensure that they understand what the company expects from them in terms of provision of information.
- consider whether there are any non-directors who should be treated as PDMRs;
- provide appropriate training to PDMRs and help them to identify their ‘closely associated persons’;
- in conjunction with the company’s nominated adviser, review the company’s current share dealing code in light of MAR and the new AIM Rule 21 and consider whether it is a sensible policy, reflective of the company’s particular circumstances and that will be workable in practice; and
- provide education around the share dealing code to PDMRs (and others to whom the code will apply).
DISCLOSURE OF PRICE SENSITIVE INFORMATION
The consultation around the revisions to the AIM Rules highlighted some disagreement among market participants with the retention AIM Rule 11. It is difficult in practice to think of a situation where information would be disclosable under AIM Rule 11 but not under MAR, and vice versa. However, AIM Regulation considers the retention of this Rule (compliance with which it can itself investigate and enforce), to be fundamental to the maintenance of an orderly market in which all users have simultaneous access to information on which to base investment decisions.
MAR requires a technical analysis of whether a particular piece of information falls within the definition of ‘inside information’. If it does, it must be disclosed to the market as soon as possible, but with delay permitted in very limited circumstances. Under Article 17, disclosure may be delayed where all of the following conditions are satisfied:
- immediate disclosure is likely to prejudice the legitimate interests of the issuer (the European Securities and Markets Authority (ESMA), has consulted on draft guidance on the meaning of ‘legitimate interests’ in this context, see here);
- delay of disclosure is not likely to mislead the public; and
- the issuer is able to ensure the confidentiality of the relevant information.
The AIM Rules, on the other hand, take a principles-based approach and require prompt and fair disclosure of information which, if made public, would be likely to lead to a significant movement in the price of the company’s AIM-traded securities. Discussion between AIM companies and their nominated advisers (and between nominated advisers and AIM Regulation) will continue to be crucial to compliance with this Rule.
AIM companies and their nominated advisers therefore now need to engage in dual thought processes:
- is the information ‘inside information’ under MAR and if so, can disclosure be delayed under MAR?; and
- is the information price sensitive and if so, can disclosure be delayed under the AIM Rules?
Disclosure can only be delayed where delay is permitted under both regimes: if either one requires disclosure, then the information must be disclosed.
AIM Regulation has said that it will not opine on MAR compliance (investigation and enforcement under MAR is the remit of the FCA), but it has said that it will share information it receives from nominated advisers with the FCA on a real-time basis. It will then be for the FCA to decide whether it wishes to contact the issuer. It is hoped that this approach will avoid duplication of efforts and improve the information flow to the FCA, as Nomads have 24 hour access to AIM Regulation.
Where a decision to delay disclosure of information to the market is made (following discussion with the AIM company’s nominated adviser), an AIM company should:
- keep detailed records of the date and time that the decision to delay was made, the persons responsible for the decision and the ongoing monitoring of the delay;
- notify the FCA (in its capacity as the competent authority under MAR), at the time that the relevant information is disclosed to the market, that disclosure was delayed; and
- if requested by the FCA, provide a written explanation of how the conditions permitting delay were satisfied.
The revised AIM Rules include an amended guidance note to AIM Rule 11 that highlights an AIM company’s obligation to comply with both regimes. In addition, the list of people to whom an AIM Company may disclose information about impending developments or matters in the course of negotiation in confidence, has been expanded to include its lenders.
Under MAR, the existing requirement for Main Market issuers to maintain an insider list has been extended to apply to AIM companies. Maintaining insider lists is good housekeeping: AIM companies should keep records of whom they have made insiders. However, the level of detail required under MAR will place a significant additional onus AIM Companies and their nominated advisers.
The lists must include, as a minimum, the identity of persons having access to inside information, the reason why a particular person is included in the list, the date and time when the person obtained access to inside information and the date on which the list is drawn up. The pro-forma insider list prescribed by ESMA contains a range of mandatory information on individuals such as: birth surname(s) (if different from current surname(s)); date of birth; national identification number (if applicable); and personal home and mobile telephone numbers as well as personal address.
MAR envisages that companies may keep their insider lists in two sections – one that contains deal- or event-specific lists, and another that sets out the company’s ‘permanent’ insiders, being those people who will generally always have access to inside information, if and when it exists, by virtue of their position within the company.
Under MAR, companies are required to take all reasonable steps to ensure that any individuals added to insider lists acknowledge their legal and regulatory duties and are aware of the sanctions for insider dealing and improper disclosure of inside information. The company will need to provide its insider lists to the FCA on request.
A less onerous insider list requirement will apply for companies whose shares are traded on ‘SME growth markets’. However, this relaxation will only apply in relation to AIM companies if and when the LSE applies for SME growth market status for AIM (which cannot be done prior to MiFID II coming into force in January 2018).
Dealing on own account by PDMRs
In the revised AIM Rules, the requirement to disclose directors’ dealings under AIM Rule 17 is removed (with a consequent amendment to Schedule 5 of the AIM Rules). Instead, under Article 19 of MAR, PDMRs (including directors and other senior managers who have regular access to inside information relating (directly or indirectly) to the company, and who have power to take managerial decisions in relation to the company) and their closely associated persons (including spouses, partners, dependent children, other relatives resident (for at least one year) with the relevant PDMR and trusts or partnerships controlled by, or which benefit, any of them), are required to notify the issuer, and the issuer is required to make public, details of every transaction conducted on such persons’ own account. This is a much broader concept than under AIM Rule 17.
Notification must be made in a mandated disclosure template. A de minimis threshold of 5,000 Euro per calendar year applies, with transactions below that threshold not requiring disclosure. However, it is likely that in practice, many issuers will elect to disclose all transactions, including those below the threshold, as this is likely to be administratively more straightforward in practice.
Mandatory closed periods
MAR prohibits PDMRs from conducting any transactions on their own account, or for the account of someone else, during a mandatory ‘closed period’ of 30 days before the announcement of annual and interim results. Under the pre-MAR AIM Rules, closed periods were 60 days prior to annual and interim results announcements and included periods where the company may be in possession of unpublished price sensitive information. The exceptions to the prohibition on ‘transactions on own account’ during a MAR closed period are relatively narrow and are limited, broadly speaking, to:
- the existence of exceptional circumstances, eg severe financial hardship (to be considered on a case-by-case basis), that require immediate sale of the PDMR’s shares;
- transactions made under, or relating to, an employee share scheme; or
- transactions where there is no change in the beneficial interest in the relevant security.
Share dealing code
In the revised the AIM Rules, AIM Rule 21 has been deleted in the form in which it existed pre-3 July (along with the glossary definitions of ‘deal’ and ‘unpublished price sensitive information’) and replaced with new AIM Rule 21 that requires AIM companies to have in place from admission a meaningful and effective share dealing policy applicable to PDMRs. Nominated advisers are required to consider the design and implementation of the dealing policy in light of their knowledge of the company and its management team as part of their responsibilities.
Whilst the revised AIM Rules do not prescribe the detailed content of an AIM company’s dealing policy, in its AIM Notice 44, AIM Regulation stipulated certain minimum standards. The guidance note to the new AIM Rule 21 provides that ‘in determining whether to give clearance under its dealing policy [AIM Regulation] would expect an AIM company to consider its wider obligations under MAR’ – compliance with AIM Rule 21 will not necessarily mean compliance with MAR. AIM companies will be expected to appoint ‘an individual with sufficient seniority to grant clearance requests’ and to consider how to deal with situations where those staff members are not independent in relation to a particular request.
Existing AIM companies should review and update their existing dealing policies if they haven’t already done so. In many cases, subject to amendments to reflect changes to the concepts of ‘closed period’ and ‘dealing’ to bring them into line with MAR, AIM companies' pre-existing share dealing codes will meet the minimum requirements. However, Aim Regulation has cautioned that ‘the adoption of boilerplate templates which are not tailored to the company’s circumstances should be avoided’.
ICSA, the QCA and GC100 have jointly produced a guidance note which includes a specimen dealing code, supported by a specimen group-wide dealing policy and dealing procedures manual. These documents are available to members via the ICSA website. Whilst it is unlikely that AIM Regulation will endorse any particular form of code for all AIM companies, as they have stressed the importance of a code being company-specific, appropriate and practical, it is understood that they are reviewing the specimen code and their comments are awaited.
In a number of areas, clarification has been sought at European level on the application of MAR. The LSE has said that it will keep the operation of the revised AIM Rules under review after its implementation and may issue further guidance or make further changes to the AIM Rules in due course, once clarification is received via ESMA and the FCA.