The Market Abuse Regulation (MAR) regulates insider dealing, provision of information to the markets, market manipulation and the reporting of directors’ dealings for all quoted companies. An updated Q&A on MAR was published by the European Securities and Markets Authority (ESMA) on 1 September 2017 and a further updated Q&A published on 29 September 2017. The purpose of the Q&A is to promote common, consistent and uniform supervisory approaches and practices in the day-to-day application of MAR. It is intended to achieve this by responding to questions asked by the public as well as financial market participants, competent authorities and other stakeholders.
Responses to questions on the following issues were published:
- disclosure of inside information
- market soundings
- insider lists
- prevention and detection of market abuse
Disclosure of Inside Information
There is an obligation under Article 17 of MAR for issuers to inform the public as soon as possible of inside information that directly concerns the issuer. An issuer may delay, on its own responsibility, the disclosure of inside information to the public provided the conditions set out in Article 17(4) are met. Where an issuer has delayed the disclosure of inside information, the issuer must inform the competent authority of the delay immediately after the inside information has been disclosed to the public. The competent authority in Ireland that must be notified is the Central Bank of Ireland. The issuer must also provide a written explanation of how the conditions set out in Article 17(4) were met.
ESMA considers how an issuer should deal with a situation where it has delayed disclosure of inside information and subsequently the information loses the element of price sensitivity. ESMA notes that where an issuer has delayed the disclosure of inside information and the information subsequently loses the element of price sensitivity, the information ceases to be inside information and is outside the scope of Article 17 of MAR. The information does therefore not need to be publicly disclosed nor the competent authority notified of the delay in accordance with Article 17(4).
However, ESMA has confirmed that given that the information has been inside information for a certain period of time, the issuer has to comply with all relevant obligations relating to the drawing up and updating of insider lists and the maintenance of information relating to the delay of disclosure.
Article 11 of MAR deals with the topic of market soundings. It sets out the conditions in which the disclosure of inside information will be deemed to be in the normal exercise of a person's employment, profession and duties and not be deemed an unlawful disclosure. The disclosure must be made in the course of a market sounding by an issuer, a secondary offeror, an emission allowances market participant or a third party acting on their behalf.
ESMA considers whether Article 11 covers all communications of information to potential investors prior to the announcement of a transaction to gauge their interest in a possible transaction of financial instruments.
ESMA examines the definition of financial instruments under MAR in this context and notes that where the financial instrument subject to the possible transaction is already admitted to trading, or a request for admission to trading has been made, or is traded on a trading venue, then the transaction will fall within the scope of Article 11.
However, where the financial instrument subject to the possible transaction is not admitted to trading, nor a request for admission to trading has been made, nor traded on a trading venue, that financial instrument does not fall within the definition of a financial instrument under Article 2(1)(a)-(c). The instrument may still be caught under Article 2(1)(d) of MAR if its price or value depends or has an effect on the price or value of another existing financial instrument within the scope of MAR. This is determined by disclosers on a case-by-case basis.
Two new Q&A were included relating to insider lists. The first Q&A considers whether persons acting on behalf of or on account of an issuer, for example legal advisors, consultants, etc., are subject to the obligation to draw up, update and provide upon request their own insider lists under Article 18(1) of MAR. ESMA has confirmed that such persons are subject to this obligation.
The second new Q&A considers whether an issuer is responsible for the compliance by another person acting on behalf of the issuer with Article 18(2) of MAR. Article 18(2) requires issuers, or any person acting on their behalf or on their 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 applicable to insider dealing and unlawful disclosure of inside information. ESMA has confirmed that, in circumstances where a person is acting on behalf of an issuer and has been delegated the task of drawing up and updating the insider list of the issuer, it is the issuer who remains responsible for compliance by that person with Article 18(2) of MAR.
Prevention and detection of market abuse
There is an obligation under Article 16(2) of MAR for “persons professionally arranging or executing transactions” to detect and report market abuse. In the Q&A, ESMA considers whether this obligation extends to companies other than investment firms under MiFID.
ESMA examines the definition of “person professionally arranging or executing transactions” in Article 3(1). It notes that it is activity based, does not cross refer to definitions under MiFID and is independent of MiFID. ESMA considers that the scope of the obligation is therefore not only limited to firms or entities providing investment services under MiFID but is broad enough to include buy-side firms, such as investment management firms (AIFs and UCITS managers), as well as firms professionally engaged in trading on own account.
MAR is intended to enhance the integrity of European financial markets and increase investor confidence. ESMA’s Q&A is a valuable resource as it aims to promote common supervisory approaches and practices in the application of MAR and its implementing measures. ESMA’s updated Q&A should provide some clarity to issuers, secondary offerors, emission allowances market participants and third parties acting on their behalf, as to their obligations under MAR.