The Commission published a proposal to revise the Market Abuse Directive (MAD II) on 20 October 2011. It consists of the Market Abuse Regulation (MAR) and a supplementing EU Directive on criminal sanctions for insider dealing and market manipulation (CSMAD). The UK government has for present exercised its discretion not to opt in to CSMAD.

The Commission intends that the scope of the existing market abuse regime will be extended to multilateral trading facilities (MTFs) and organised trading facility (OTFs), as well as regulated markets. Also in scope are related financial instruments traded on an OTC basis which can have an effect on instruments traded on a trading venue. Under the existing regime, the market integrity and transparency rules apply to commodity derivatives markets, but not to the underlying markets. The Commission intends that MAR will govern transactions or behaviour in the underlying spot markets which are related to, and have an effect on, the financial and derivative markets which are within the scope of MAR. The trading of emission allowances will also fall within the scope of MAR.

The definition of inside information in MAR will be widened. One issue is that there will be a new category of inside information which is information which is not generally available, but, if it were, would be likely to be considered “relevant” to a reasonable investor’s decisions. The information need neither be “precise” or, apparently, “price sensitive”.

MAR also specifies certain examples of strategies using algorithmic and high frequency trading which will fall within the prohibition against market manipulation or attempts to engage in market manipulation.

MAR also proposes a new offence of “attempted market manipulation”, which is taking steps to manipulate the market without executing an order.

Timing and recommended actions: The EU parliament will consider the proposals in March 2013. Prior to adoption, firms will need to identify relevant instruments in scope and undertake a full compliance review of market abuse procedures, including reporting procedures.