On 3 October 2019 the European Securities and Markets Authority (ESMA) published a press release outlining their Consultation Paper addressing select provisions of the Market Abuse Regulation 596/2014 (MAR). ESMA’s input was formally requested by the European Commission (EC) to fulfil the EC’s obligation to submit a report to the European Parliament and the Council of the EU assessing certain provisions of MAR as mandated under Article 38 of MAR.

The mandated topics required to be reviewed under Article 38 MAR and subsequently discussed in the Consultation Paper, are:

Spot foreign exchange (Spot FX) contracts and MAR’s benchmark provisions

ESMA considered the scope of MAR in relation to the potential inclusion of Spot FX contracts and the application of MAR’s benchmark provisions. ESMA concluded that although a clear case could be made for the extension of MAR to Spot FX contracts, the fact that the Spot FX market is predominantly an OTC market where many of the trading platforms potentially fail to meet the requirements of a MiFID II trading venue would make extending MAR to these contracts in a “mechanical” way impossible. It would therefore be necessary to adapt “key” MAR concepts to make them workable for the purposes of Spot FX contracts. On this point, the Consultation Paper seeks submissions on whether or not extension of the scope of MAR to Spot FX contracts would be necessary.

The Consultation Paper also found that the definitions of “benchmark” under MAR and the European Benchmarks Regulation – Regulation (EU) 2016/1011 (BMR), although seen to be substantially covering the same types of benchmarks, were not “fully overlapping” when it came to AIFs and UCITS not traded on trading venues, credit agreements for consumers and financial instruments traded via systematic internalisers. ESMA requires input from firms about whether such a difference in the definitions of benchmark have been found to raise any market abuse risks

Reporting obligations and simplification of the reports for Buy-Back Programmes (BBP) under Article 5

The Consultation Paper concluded that the current reporting obligations under Article 5(3) of MAR should be “streamlined” as it is “burdensome” in its current state. ESMA suggested that the most appropriate reporting mechanism to be implemented with regards to BBP-transactions would be the “reporting of the most relevant market in terms of liquidity under Article 26(1) of MiFIR to the NCA”. It would then be the responsibility of this National Competent Authority (NCA), to forward this information to the NCA’s of the relevant trading venues (both where the shares are admitted to trading and where they are traded,) if requested. With regards to transparency, ESMA found that data presented in an aggregated form may be more beneficial to market participants, such as the aggregated volume traded and the weighted average price paid for the shares.

The effectiveness of the Article 7 definition of “inside information” in the context of preventing market abuse

The Consultation Paper found that although at the time of writing, the MAR definition of “inside information” had only been in place for approximately 3 years and was largely built off of the definition found in the repealed Market Abuse Directive (Directive 2003/6/EC), ESMA would require the input of market participants to offer their opinions on the effectiveness of the definition for market abuse prevention purposes. ESMA also seeks feedback from firms on whether the mechanism for the delay of disclosure under Article 17 is sufficiently clear for issuers to effectively rely on it.

The Article 11 market sounding procedures and requirements

ESMA identified a number of changes and amendments that should be made to the current Article 11 market sounding procedures. These are: (i) to clarify the obligatory nature of the requirements, (ii) to confirm the fact that Disclosing Market Participants (DMPs) carrying out market soundings in accordance with the relevant requirements should be granted full protection against the allegation of unlawfully disclosing inside information, and (iii) to foster harmonisation and a level playing field across the EU.

ESMA is also expected to assess whether limitations to the definition of market sounding should be introduced or alternatively, if “additional clarification” as to the scope of the current definition should be provided. An example of a potential limitation would be the exclusion of some types of transactions from being within the scope of the definition.

The usefulness, content requirements and clarification of insider lists under Article 18

ESMA assessed with whom the obligation lies for the creation and maintenance of insider lists, with the Consultation Paper concluding that insider lists should be restricted to persons who accessed a piece of inside information and not those who had the capability of doing so. Pending firm feedback, ESMA plans to draw a conclusion as to whether the responsibility for the creation and maintenance of insider lists should be expanded to include individuals who perform tasks which expose them to inside information, even if they do not “act on behalf [of] or on the account of the issuer”.

The guidelines surrounding the level and appropriateness of thresholds and transactions which would result in notification obligations under the Article 19 manager’s transactions regime

ESMA finds in the Consultation Paper that the notification threshold process under MAR is “quite simple” and does not require a Person Discharging Managerial Responsibilities (PDMR) to establish additional controls in satisfaction of things such as whether other thresholds are reached or not. ESMA are asking for feedback from firms on the potential for NCAs to increase the minimum threshold to a higher amount or if a standard single threshold should be implemented across the entirety of the EU.

In addition to these MAR provisions where analysis was requested of ESMA by the EC, the Consultation Paper also addresses various additional matters identified as being closely linked and therefore necessary to be considered. These issues include:

  • The interplay between the MAR person discharging managerial responsibilities regime (PDMR) and collective investment undertakings (CIUs), with specific reference to: (i) the application of PDMR obligations, (ii) the disclosure requirements for insider information held, and (iii) the maintenance of insider lists by CIUs.
  • ESMA’s perspective on the Cum-Ex and multiple withholding tax reclaim schemes as well as their consideration of the potential establishment of a cross-market order book surveillance framework by national competent authorities. With regards to Cum-Ex and multiple withholding tax reclaim schemes, the Consultation Paper sought feedback on whether MAR should be amended to: (i) address the identified EU “regulatory gap”, (ii) give NCAs enhanced powers to investigate and sanction “unfair behaviours” and (iii) allow NCAs to cooperate with tax authorities upon request. ESMA plans to receive inputs from firms as to the possible implementation of a cross-market order book surveillance framework, namely the pros and cons. The Consultation Paper establishes that a “pre-requisite” for any EU cross-market surveillance framework would be the harmonisation of the format in which trading venues submit their order book data to NCAs. The suggested format by ESMA is for the data to be in an electronic and machine-readable format, which adopts a common template.
  • ESMA’s view on the necessity for cross-border enforcement of sanctions through the introduction of common rules which would require Member States to impose administrative sanctions for insider dealing and market manipulation. ESMA’s review of this did not suggest an “urgent need” for the amendment of MAR in satisfaction of the cross-border enforcement procedures. However, ESMA are seeking input as to whether amendments should be made to EU law to ensure the smooth application of cross-border enforcement of sanctions.

ESMA are inviting all interested firms to submit a response in respect of any of the questions raised in the Consultation Paper and will be holding an open hearing to discuss any views on the consultation on 5 November 2019. ESMA will submit a final report to the EC in Spring 2020 following a review of the responses received. The consultation period for this paper will end on 29 November 2019.