On December 20th 2016, the European Securities and Markets Authority (“ESMA”) published a further update of its Questions and Answers (“Q&A”) on Regulation (EU) No 596/2014 of April 16th 2014 on market abuse (the “Market Abuse Regulation”) to include three new questions and answers in Section 2- Managers’ transactions and four new questions and answers in Section 3- Investment recommendation and information recommending or suggesting an investment strategy.

In the answers to the new questions in Section 2, ESMA has:

  • clarified that for the purposes of calculating whether the threshold for triggering the notification obligation under Article 19(1) of the Market Abuse Regulation has been reached, the transactions carried out by a person discharging managerial responsibilities (“PDMR”) and by persons closely associated to that PDMR, should not be aggregated;
  • set out the rules for calculating the price of gifts, donations and inheritance for the purposes of the notifications and disclosure of managers’ transactions under Article 19 of the Market Abuse Regulation; and
  • confirmed that the receipt of shares by a PDMR as part of a remuneration package (i.e. a conditional transaction) does not have to be notified pursuant to Article 19(1) of the Market Abuse Regulation and Article 10(2)(i) of Commission Delegated Regulation (EU) 2016/522 until the occurrence of the relevant conditions and the actual execution of the transaction.

In the answers to the new questions in Section 3, ESMA has:

  • confirmed that communications to clients containing purely factual information on one or more financial instruments or issuers shall not constitute an “investment recommendation” under the Market Abuse Regulation, so long as it does not explicitly or implicitly recommend or suggest an investment strategy;
  • confirmed that a communication intended for distribution channels or for the public will not amount to a new investment recommendation if it only reports or refers to a previously disseminated investment recommendation and does not contain any new elements of opinion or valuation or confirmation of a previous opinion or valuation; however, in the same context, ESMA draws attention to the requirements of Commission Delegated Regulation (EU) 2016/958;
  • confirmed that recommendations relating to a derivative traded solely outside a trading venue fall within the scope of Article 20 of the Market Abuse Regulation insofar as its price or value depends on, or has an effect on the price or value of a financial instrument admitted to trading on a regulated market, traded or admitted to trading on a multilateral trading facility (“MTF”), traded on an OTF, or for which a request for admission to trading on a regulated market or MTF has been made; and
  • clarified how to determine whether a recommendation which relates to a derivative has been given on the same financial instrument for purposes of complying with Article 4(1)(h) of Commission Delegated Regulation (EU) 2016/958.

OCTOBER 2016

On October 26th 2016, the European Securities and Markets Authorities (“ESMA”) published an update of its Questions and Answers (“Q&A”) on Regulation (EU) No 596/2014 of April 16th 2014 on market abuse (the “Market Abuse Regulation”) to include one new question and answer in Section 2- Managers’ transactions and four new questions and answers in Section 3- Investment recommendation and information recommending or suggesting an investment strategy.

The answer to the newly-added question in Section 2 clarifies that in respect of managers’ transactions carried out under Article 19(1) of the Market Abuse Regulation in a currency other than Euro, that the exchange rate to be used to determine if the threshold set forth in Article 19(8) of the Market Abuse Regulation is reached, is the official daily spot foreign exchange rate, which is applicable at the end of the business day the transaction is conducted. ESMA also states that the reference rate published on the ECB website should be used, where possible.

Section 3 comprises of four new questions relating to investment recommendations. In its response to Question 1 of this section, ESMA clarifies that it is the substance of a communication (e.g. phone call, chat functions, sales notes) and not its label, form or medium that determines whether or not it is an “investment recommendation” under the Market Abuse Regulation. ESMA’s response to Question 2 indicates that, generally speaking, a communication which does not refer to either a financial instrument or an issuer, is not an investment recommendation; ESMA notes however that this must be analysed on a case by case basis because, for example, a communication in respect of a specific sector composed of a limited number of issuers may be considered an investment recommendation regarding those issuers, even if no issuer is specifically mentioned. ESMA confirms in response to Question 3 that an investment firm who produces an investment recommendation will fall within the scope of Article 3(1)(34)(i) of the Market Abuse Regulation even though the production of such recommendations is not its main business. Lastly, in response to Question 4, ESMA clarifies that material intended for distribution channels or for the public concerning one or several financial instruments, which includes statements that such instruments are “undervalued, “fairly valued” or “overvalued” shall be considered an investment recommendation.

JULY 2016

On July 13th 2016, the ESMA published an update of its Questions and Answers on the Market Abuse Regulation (“Q&A”) to include one new question and answer in Section 2- Managers’ transactions.

The newly-added question and answer seeks to clarify whether the “announcement” of the interim or year-end financial results determines the timing of the closed period referred to in Article 19(11) of Regulation (EU) No 596/2014 of April 16th 2014 on market abuse (the “Market Abuse Regulation”).

Pursuant to Article 19(11) of the Market Abuse Regulation, a person discharging managerial responsibilities within an issuer shall not conduct any transactions on its own account or for the account of a third party, directly or indirectly, relating to the shares or debt instruments of the issuer or to derivatives or other financial instruments linked to them during a closed 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 according to the rules of the trading venue where the issuer’s shares are admitted to trading or national law.

ESMA has confirmed that the date when the “announcement” is made is the end date for the thirty-day closed period.

ESMA has also made it clear that when the issuer announces preliminary financial results, that contain all the key information relating to the financial figures that will be included in the year-end financial report, this will be considered as the “announcement” of the year-end financial report. If the announced information changes after its publication, this will not trigger another closed period but must be dealt with in accordance with Article 17 of the Market Abuse Regulation.

ESMA reiterates that persons discharging managerial responsibilities remain subject at all times to Articles 14 and 15 of the Market Abuse Regulation.

APRIL 2016

On April 1st 2016 the ESMA published an update of its questions and answers (the “Q&A”) on the common operation of Directive 2003/6/EC of the European Parliament and of the Council of January 28th 2003 on insider dealing and market manipulation (the “Current MAD”) in order to include one new question regarding investment recommendations.

Reference is made to Commission Directive 2003/125/EC of December 22nd 2003 implementing Current MAD, as regards the fair presentation of investment recommendations and the disclosure of conflicts of interest (the “MAD Implementing Directive”); in particular, reference is made to the definitions of “recommendation” and “research or other information recommending or suggesting investment strategy” therein which read as follows:

  • ”recommendation" means research or other information recommending or suggesting an investment strategy, explicitly or implicitly, concerning one or several financial instruments or the issuers of financial instruments, including any opinion as to the present or future value or price of such instruments, intended for distribution channels or for the public;
  • "research or other information recommending or suggesting investment strategy" means:

(a) information produced by an independent analyst, an investment firm, a credit institution, any other person whose main business is to produce recommendations or a natural person working for them under a contract of employment or otherwise, that, directly or indirectly, expresses a particular investment recommendation in respect of a financial instrument or an issuer of financial instruments;

(b) information produced by persons other than the persons referred to in (a) which directly recommends a particular investment decision in respect of a financial instrument.

ESMA confirms in its answer to the new question 3 in the Q&A that if material intended for distribution channels or for the public, concerning one or several financial instruments, contains a valuation statement as to the price of the financial instruments concerned or any other elements of opinion on the value of such financial instruments, such material will fall within the MAD Implementing Directive definitions of “recommendation” or “research or other information recommending or suggesting investment strategy” and hence will be subject to the related obligations and standards set out in that directive.