As discussed in previous briefings, the new Market Abuse Regulation (MAR) will come into effect from 3 July 2016. MAR carries over the prohibition on insider dealing, being an unfair advantage that is obtained from "inside information" to the detriment of third parties who are unaware of such information, with the consequent undermining of the integrity of financial markets and investor confidence. One significant change from the previous market abuse regime that is being brought about by MAR is the amendment and broadening of the definition of "inside information".
Scope of inside information:
MAR provides a different definition of what constitutes inside information for each of the following for the first time:
- Financial instruments
- Commodity derivatives
- Emission allowances or auctioned products based thereon
- Persons charged with the execution of orders concerning financial instruments
What constitutes inside information?
While the definition of "inside information" under MAR is broadly similar to the definition under the existing regime, MAR provides more certainty as to how to assess what may be inside information. The definition of inside information under MAR includes in the regulation certain factors, which were previously provided as guidance or set out in case-law, thereby making compliance with them compulsory. Under MAR "inside information" generally means information which:
- relates, directly or indirectly, to particular instruments or issuers;
- is of a precise nature;
- has not been made public; and
- if it were made public, would be likely to have a significant effect on the price of those instruments.
MAR expands this definition by providing further information on its constituent parts.
Information of a precise nature
Under MAR information is deemed to be "of a precise nature" if it indicates:
- a set of circumstances which exists or which may reasonably be expected to come into existence; or
- an event which has occurred or which may reasonably be expected to occur.
The information must be specific enough to enable a conclusion to be drawn as to the possible effect of that set of circumstances or event on the prices of the instruments in question as set out above.
Significant effect on price
MAR has extended the definition of inside information by providing that information that would be likely to have a "significant effect on price" means information that a reasonable investor would be likely to use as part of the basis of his/her investment decisions. The concept of a "reasonable investor test" was outlined in the Central Bank of Ireland's Market Abuse Rules, but did not arise at a European level.
Reflecting European case-law in respect of when inside information might arise in a protracted process, MAR confirms that in the case of a protracted process that is intended to bring about, or that results in, particular circumstances or a particular event, those future circumstances or that future event and the steps leading to them may be deemed to be inside information (for example, information relating to ongoing contract negotiations or conditions for the marketing of financial instruments).
An analysis should be carried out on issuers' internal policies and procedures to assess if they need to be updated to correspond with this broader definition of inside information. Training on the expanded definition and its impact should be given to staff members that handle inside information regularly. Finally, a review should be undertaken internally on how inside information is first identified to ensure that there is no inadvertent failure to publicly disclose inside information.