On 3 July 2016, the Market Abuse Regulation (MAR) will come into force. It has direct effect and will result in the repeal of the existing civil market abuse regime in the Financial Services & Markets Act 2000 and of the FCA’s Code of Market Conduct. The FCA is currently consulting on policy proposals and Handbook changes relating to MAR implementation (CP 15/35 published on 5 November 2015) and the Exchange set out its preliminary thoughts on how it expects MAR obligations to sit alongside the disclosure obligations in the AIM Rules in an Inside AIM published on 28 October 2015.
Unlike the Market Abuse Directive (MAD), which only applied to financial instruments admitted to trading on regulated markets, the MAR applies to financial instruments admitted to all EEA multilateral trading facilities, including AIM. The most significant change for AIM companies lies in the disclosure regime and the prime regulator both as regards inside information and directors dealings, including a mandatory (and different) closed period. The FCA is the designated regulator under the MAR as regards all UK based trading facilities and so will be the prime regulator.
Currently for AIM companies the obligation to disclose price sensitive information is set out in AIM Rule 11. For issuers on the Main Market, the FCA’s proposed approach to MAR implementation is to delete provisions in the Disclosure Rules and Transparency Rules and the Listing Rules where the MAR contains an equivalent provision (signposting the relevant provision in MAR) or the current provision is incompatible with MAR, and to retain existing guidance that is compatible with the MAR. However, the Exchange’s preliminary thoughts in respect of the AIM Rules for Companies are that they should retain AIM Rule 11 (either as currently drafted or with minor amendments) on the basis that retaining a disclosure rule in the AIM Rules is important to the integrity of AIM and the maintenance of an orderly market. This does mean (and is acknowledged) that AIM companies will have obligations to both AIM Regulation and the FCA, and the Exchange envisages that any disclosure issues would be discussed first with AIM Regulation and the Nomad, with AIM Regulation co-ordinating with the FCA “as necessary”. The Exchange notes that only the FCA will be able to opine on MAR compliance and will retain the right to engage directly with an AIM company if necessary.
The disclosure obligation under the MAR is to inform the public as soon as possible of inside information which directly concerns the issuer. “Inside information” is defined as information of a precise nature relating directly or indirectly to one or more issuers or to one or more financial instruments which, if made public, would be likely to have a significant effect on the price of those financial instruments or the price of related derivative financial instruments. That is a different formulation than AIM Rule 11 although arguably the intent is the same.
Both the MAR and the Guidance Notes to Rule 11 envisage that disclosure may be delayed. The MAR permits this “at the issuer’s own responsibility” where (i) immediate disclosure is likely to prejudice the legitimate interests of the issuer; (ii) delay of the disclosure is not likely to mislead the public; and (iii) the issuer is able to ensure the confidentiality of that information. The MAR requires that, where an issuer has delayed the disclosure of inside information under these conditions, it must inform its competent authority (in the UK, the FCA) about the delay, providing a written explanation of how the conditions were met as soon as the information is disclosed to the public. The competent authorities have the option to require disclosure only upon request and the FCA is proposing to require an explanation only upon request from the FCA. However, all AIM companies should document the reasons for delayed disclosure at the time of the delay so that they can provide the explanation readily if so requested.
Under MAR, AIM companies will be required to keep and update insider lists containing the detailed information on each individual on that list set out in the template provided by ESMA and set out in ESMA’s final report on technical standards under the MAR published on 28 September 2015 (ESMA/2015/1455). Whilst Main Market companies have been obliged to keep insider lists under the MAD, the details required by MAR are much more extensive.
MAR also governs the form and content of disclosure of transactions by persons discharging management responsibilities (PDMRs) and their assistants and again ESMA has provided a template in its final report. The MAR introduces a de minimis threshold of EUR 5,000 within a calendar year below which transactions need not be notified. The FCA has the option to increase the threshold to EUR 20,000, but does not propose to do so. It remains to be seen what the Exchange will propose in respect of AIM Rule 17 and Schedule 5.
The MAR imposes a mandatory close 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, during which PDMRs are not permitted to deal, subject to very limited exceptions and with the issuer’s approval. It is not compatible with EU law to have domestic rules that conflict or overlap or duplicate EU regulation so the FCA will repeal its Model Code, but is proposing to replace it with rules and guidance. The Exchange has not yet indicated what approach it is considering for AIM Rule 17 and the related Guidance Note, but it is hard to see how the current 2 month close period can be retained.
MAR LEVEL II NOT YET FINALISED
It is frustrating that the European Commission has not yet adopted the measures recommended in ESMA’s final report and that ESMA has not yet published the guidelines specified in the MAR to establish non-exhaustive lists of information reasonably expected to be inside information and of the legitimate interests of issuers for the purposes of delayed disclosure. In addition, HM Treasury has not yet made public the draft statutory instrument which will implement the legislative changes required by the MAR. The FCA have to caveat the proposals in their consultation paper by stating that if these core documents are subject to material change, it may be necessary for the FCA to review their analysis and reach a different conclusion, in which case they will consult further. However, given that the MAR comes into force in just over seven months, companies and their advisers should start preparing for it now.