The revision of market abuse laws with its core element the new Market Abuse Regulation (MAR), is in full swing, resulting in a frenzy of activity for market participants and supervisory authorities alike. The MAR, as well as the Directive on Criminal Sanctions for Market Abuse (CRIM-MAD), will already take effect on 3 July 2016, flanked by a multitude of standards, templates and guidelines.
Legislative procedures still in flux
Therefore, the EU Commission has started to approve the drafts of regulatory technical standards (so-called RTS / ITS) submitted as early as 2015 by the European supervisory authority ESMA and, in relation to this, adopt the first delegated acts on the specific definition of the corresponding provisions (e.g., Delegated Regulation (EU) 2016 / 522 on indicators of market manipulation, exceptions from trading bans and types of reportable proprietary transactions, as well as Implementing Regulations EU 2016 / 523 on technical implementation standards and the final template for the reporting of directors’ dealings and (EU) 2016 / 347 regarding technical implementation standards for insider lists, each having since been promulgated in the Official Journal of European Union).
In an initial “quick fix”, the Commission has also recommended postponing the deadline for the application of MiFID II / MiFIR and of the MAR’s scope of application to organised trading systems until 3 January 2018. In addition, consultation proceedings continue on numerous topics (among others, on market sounding and self- exemption). Lastly, a few national supervisory authorities (including the BaFin (Bundesanstalt für Finanz dienstleistungsaufsicht, Federal Financial Supervisory Authority)) have announced that they will be adjusting their own administrative practices and, for example, publish new issuer guidelines (which, however, are not expected before 3 July 2016). The implementation of the MAR as the henceforth directly applicable law, is driving the need for major adjustments to key elements of the existing WpHG (Wertpapierhandelsgesetz, Securities Trading Act) (insider law, market manipulation, ad hoc publicity, directors’ dealings, insider lists). The corresponding implementation act (1. FimanoG (Erstes Finanzmarkt novellierungsgesetz (First Financial Market Amendment Act)) is likewise set to take effect as of 3 July 2016.
Overview and to-dos for market participants
All of this leads to great uncertainty for market participants, who despite patchy regulations and the lack of interpretative aids, must start preparing the implementation to be able to react when the complex regulatory material enters into force on 3 July 2016. Typically required are updates of procedural descriptions and bulletins providing information for insiders and / or executives, updates of insider lists which take the new requirements into account (in particular Annex XIII ESMA / 2015 / 1544), as well as a critical overall examination of previous compliance procedures pertaining to directors’ dealings (Art 19 MAR in conjunction with Art. 10 Delegated Regulation C(2015) 8943 with a comprehensive list of reportable transactions), trading windows (Art. 19 para. 11, 12 MAR) and ad hoc notifications (Art. 17 MAR). Along with an expanded scope of application to include issuers trading on the open market or on an open market-like multilateral or organized trading system (MTF and / or OTF) – the rationale is the desire to clearly expand notification, reporting, and documentation obligations for issuers, executives, and similar, closely-related persons. Therefore, from the issuer’s perspective, fundamental deliberations need to be made at an early stage with a view towards the future handling of permanent insiders (according to ESMA, “persons who have access at all times to all inside information”), the future classification of executives (and informing them accordingly, and / or ensuring that persons closely related to them are informed accordingly, also with regard to the appropriate documentation), the handling of directors’ dealings (notification deadlines reduced to three days for both executives and issuer, Art. 19 para. 1 MAR), trading windows (“30 calendar days prior to the announcement of an interim report or annual financial report”, Art. 19 para. 11 MAR) and ad hoc reports (newly standardised: ad hoc obligation for processes stretching over long periods as per Daimler / Geltl). Previous processes regarding self-exemptions also need to be reviewed, since, even though Art. 17 para. 4 MAR basically allows a deferment on that person’s own responsibility, the case groups thus far submitted by ESMA in the course of ongoing consultation proceedings still raise many questions. Thus, for example, it is not clear whether ESMA will adhere to the recommendation permitting self-exemption for two- tier boards only if the second tier (supervisory board) concurs with the decision of the first tier as far as possible within the same day. For the majority of German issuers, this would lead to the de facto exclusion of the self-exemption option. Whether applicable stock option schemes comply with the new exemption criteria (Art. 7 et seq.
Delegated Regulation EU 2016 / 522) also requires detailed review. In relation to this, Issuers should review the role of its ad-hoc committee (or consider setting up such committee) which should be responsible for various ad-hoc and self-exemption related matters.
MAR, CRIM-MAD, as well as the FimanoG, substantially expand the range of potential sanctions. Under the FimanoG, a violation of the ban on insider trading, the recommendation of insider trading, or the conspiracy to commit insider trading, or a violation of the ban on the improper disclosure of insider information, may be punishable by a prison sentence of up to five years or a fine. Negligent or reckless acts may be punishable by a fine of up to 5 million euros for natural persons and up to 15 million euros or 15% of the total sales of the previous year for legal entities or associations. In addition, in future violations and the names of violating persons are to be published for a period of five years on the BaFin website (“naming and shaming”).
Despite the aforementioned topics still not being resolved, the lack of guidelines and finalised laws and / or ordinances, the new measures against market abuse take effect on 3 July 2016, so issuers are well advised to adjust their processes without delay and steel themselves for the upcoming implementation of further detailed regulations.