New European Market Abuse Regime – What Do Non-EU Incorporated Issuers Need to Know?

June 22, 2016

I.          Introduction

Why read this note?

From 3 July 2016, the European Market Abuse Regulation (MAR)[1] will enter into effect, creating a new common regulatory framework on market abuse across the European Union (EU) resulting in the repeal and replacement of existing EU market abuse rules implemented pursuant to the Market Abuse Directive[2] and in new rules being implemented in the UK.  On the same day, a new European Directive, the Directive on Criminal Sanctions for Market Abuse (CSMAD)[3], which complements MAR, will also come into effect.  Together, MAR and CSMAD will update, strengthen and extend the scope of the EU market abuse regime, incorporating a wider range of more stringent sanctions. 

If you are an issuer with financial instruments listed on certain EU markets, you are already likely to be caught by the existing European market abuse regime.  The changes introduced by MAR will be of interest as they will require changes to existing policies and procedures.  In addition, entities which are not currently caught by the existing regime should be aware of the nature of the extensions in the scope of the new market abuse regime, in particular with respect to the new types of financial instruments, new markets, benchmarks and behaviours which will be caught.

Scope of this note:

This note summarizes the key changes introduced by the new regime as expected to be implemented in the United Kingdom (UK), likely to be of relevance to non-EU incorporated issuers and practical steps to be taken to comply. 

Whilst MAR is a European regulation with direct effect in all EU member states including the UK, the CSMAD is a European Directive which offers implementation options to member states. The UK has opted not to implement the CSMAD (the UK already having a regime for the imposition of criminal sanctions in the case of insider dealing) and accordingly this note does not address the new criminal sanctions under CSMAD. It should however be noted that due to the extra-territorial nature of certain aspects of the market abuse offences, actions and behaviours which take place in the UK (or indeed in any other non-EU jurisdiction) may be subject to new criminal sanctions being implemented across other EU member states, if they amount to market abuse in those jurisdictions.

By way of overview, the MAR regime introduces three types of positive obligations or requirements on issuers and four types of prohibitions, which we address in turn below. Note that certain aspects of MAR, in particular the three requirements (described in sections III to V below) and the prohibition on PDMRs dealing during a closed period (described in section VI below) apply to issuers who: (i) have requested or approved admission of their financial instruments to trading on a regulated market; or (ii) (in the case of instruments only traded on a MTF or an OTF) have approved trading of their financial instruments on an MTF/OTF or have requested admission to trading of their financial instruments on an MTF. 

II.        How has the scope of the regime been extended?

The existing market abuse regime captures "qualifying investments" admitted to trading[4] on an EU regulated market[5]. One of the learnings from the global financial crisis was that there are a broader range of financial instruments and indices and other markets on which a significant volume of market- impactful trades are conducted. MAR is designed to capture these other instruments, indices markets and related behaviours[6].

New "financial instruments":  The existing regime captures a range of instruments including "transferable securities" (which cover shares in companies and other securities equivalent to shares in companies, bonds and forms of securitized debt), certain types of futures, forward agreements, swaps, options and derivatives.  Accordingly, issuers with shares, debt or depository receipts (ADRs or GDRs) listed on the main market of London Stock Exchange (or other EU regulated markets) would already be covered by elements of the existing regime. A list of the "financial instruments" which fall within the scope of MAR is set out in Annex 1.

Going forward, emission allowances[7], which have been reclassified as "financial instruments", will fall within the scope of MAR.  In addition, for purposes of the market manipulation prohibition (see section VIII. below), spot commodity contracts (which are not wholesale energy products) will be caught in certain circumstances as will other financial instruments including derivative contracts/instruments which transfer credit risk, where the transaction or behaviour has an effect on the price or value of a spot commodity product.[8]

Benchmarks:  During the legislative process for MAR, behaviour amounting to manipulation of the LIBOR, EURIBOR and other benchmarks came to light in the UK and elsewhere in Europe and were brought within the scope of MAR.  The market manipulation prohibition (see section VIII below) now extends to "behaviour in relation to benchmarks[9]."  Note that all published benchmarks, including those accessible through the internet, whether free of charge or not (such as CDS benchmarks and indices of indices) will fall within the MAR definition of benchmarks. 

New markets:  In addition to regulated markets (which are subject of the current regime), MAR extends the scope of the market abuse framework to: (i) "financial instruments" which are traded on a multilateral trading facility (MTF)[10], admitted to trading on an MTF or for which a request for admission to trading on an MTF has been made; (ii) traded on an organized trading facility (OTF); and (iii) other instruments, the price or value of which depends on or has an effect on the price or value of any regulated market, MTF or OTF financial instrument.  This would include but is not limited to credit default swaps and contracts for difference. 

One of the biggest pool of non-EU issuers impacted by this extension are issuers with securities trading on unregulated exchanges such as AIM (the London Stock Exchange (LSE) market for smaller and growing companies[11]) and the Global Exchange Market (GEM) of the Irish Stock Exchange, both being MTFs now in scope under MAR. Further, issuers with securities traded on an unlisted basis, for example on the LSE’s Admission to Trading (ATT)-only platform, other swap execution facilities or broker-crossing systems will now fall within the new framework.

Behaviours:  As noted above "behaviours" in relation to benchmarks will be caught by the MAR market manipulation offence.  In addition, the new regime makes it clear that any transaction, order or behaviour concerning any financial instrument (as described as being in scope above), will be covered by MAR irrespective of whether that transaction, order or behaviour takes place on a trading venue or not.   

"Inside Information":  The definition of "inside information" is fundamental to a number of the requirements and prohibitions under MAR as summarised in sections III, VIII and IX below.  The definition of inside information is broken down by reference to information relating to issuers of financial instruments, commodity derivatives, emission allowances/ auction products based on emission allowances and persons charged with the execution of orders concerning financial instruments.  With respect to financial instruments, inside information needs to be of a "precise nature, which has not been made public, relating directly or indirectly to one or more issuers or to one or more financial instruments, and which, if it were made public, would be likely to have a significant effect on the prices of those financial instruments or on the price of related derivative financial instruments.  MAR states that the latter limb of the primary definition means "information that a reasonable investor would be likely to use as part of the basis of his or her investment decision".

This definition of inside information is largely similar to the current definition save that the so-called "reasonable investor" test now falls within the primary definition of inside information.  Indeed, in the UK the "competent authority" for MAR, the Financial Conduct Authority (FCA)), appears to be proceeding on the basis that implementation of MAR is not likely to significantly change how the definition of "inside information" is interpreted and applied in the UK as the "reasonable investor" test is currently applied in the assessment of inside information[12]. That having been said, we are still awaiting EU technical standards and ESMA guidance on the definition of inside information.

Key points:

  • Non-EU issuers with financial instruments traded on an OTF or MTF, admitted to trading on an MTF or for which a request for admission to trading on an MTF has been made, are now ‘in scope’.
  • Issuers need to keep themselves apprised of EU technical standards and further guidance due to be published by the European Securities and Market Authority (ESMA) on the definition of inside information and of developing market practice.

III.       Requirement 1 – Publicly Disclose Inside Information[13]

As now, MAR requires an issuer to inform the public as soon as possible of inside information which directly concerns that issuer.  This is essential to avoid insider dealing and ensures that investors and the market are not misled.  This obligation applies to: (i) issuers who have requested or approved admission of their financial instruments to trading on a regulated market; or (ii) (in the case of instruments only traded on a MTF or an OTF) issuers who have approved trading of their financial instruments on an MTF/OTF or have requested admission to trading of their financial instruments on an MTF.

The obligation to disclose information to the market has been extended to include some emission allowance market participants (EAMPs), although they will not be affected until January 2017 as part of a staged implementation of MAR and accordingly the rest of this note does not address the obligations or restrictions that apply to EAMPs under MAR.

This European regime already gives rise to challenges for some non-EU incorporated issuers with the disclosure requirement based on a broad definition of inside information and limited scope for delay or withholding of disclosure. The EU regime may be different to the triggers for ongoing market disclosures in other jurisdictions. Accordingly, the assessment of and compliance with the applicable continuing obligations can vary and the outcome (i.e. whether there is a requirement to disclose or not and/or delay) in each jurisdiction can also be different.

Delay: As now, issuers will be able to delay disclosure to the public of inside information, on their own responsibility, provided the following three conditions are satisfied:  (i) immediate disclosure is likely to prejudice the legitimate interests of the issuer; (ii) delay of disclosure is not likely to mislead the public; and (iii) if the issuer is able to ensure the confidentiality of that information.

"Legitimate Interests"[14]: One of the key practical challenges which both EU and non-EU issuers currently contend with when seeking to rely on this limited safe-harbour, is the application of the "legitimate interests" test.  The recital to MAR provides that legitimate interests pertinent to an issuer may relate to ongoing negotiations "where the outcome or normal pattern of those negotiations would be likely to be affected by public disclosure" and where decisions taken or contracts made require the approval of another body to become effective in circumstances where public disclosure before such approval would jeopardise the correct assessment of the information by the public. These however are just a handful of examples and further input from EU is needed.

The European Securities Market Authority (ESMA) is required to issue guidance establishing a non-exhaustive indicative list of the legitimate interests to issuers and situations in which delay of disclosure of inside information is likely to mislead the public.  The draft EU guidance in circulation unfortunately lacks detail/clarification in a number of key areas which are currently covered by existing UK guidance and is unhelpful in parts (e.g. where it states that the approach to permitting delay of disclosure should be interpreted narrowly). This has led to a wave of unfavourable comments and feedback from practitioners in the UK and in other EU jurisdictions who are concerned with the wording of ESMA’s guidance. ESMA is still considering the guidance which has yet to be finalised and approved – hence it is not inconceivable that guidance will not be published until after the new regime comes into force (circa early Q3 2016). 

New notification obligations:  Going forward, there will be new obligations to note and implement.  In particular, if an issuer has chosen to delay disclosure of inside information, it will be required to notify the local regulator (being, in the case of the UK, the FCA) immediately after announcement of the delayed inside information and must include in that notification details of the inside information (subject to delay) that was disclosed in the relevant announcement together with the identity of all persons responsible for the delay decision[15].  The FCA has recently published a template notification form (based on the mandated EU form) that issuers will be required to submit where they have delayed disclosing inside information.[16]

Confidentiality: Consistent with the three mandatory conditions for delay of disclosure of inside information, in the event that a decision to delay disclosure is taken but subsequently confidentiality of that inside information is no longer capable of being assured, the issuer will immediately be under an obligation to disclose that inside information to the public as soon as possible.

Publication: Under MAR, the issuer is required to post and maintain on its website for a period of at least five years, all inside information it is required to disclose publicly.[17] Draft EU regulations also state that communications should clearly identify that the information communicated is inside information.  It is not yet clear whether the requirement to identify communications that contain inside information can be addressed by a general statement or rubric that the communication contains or may contain inside information or whether more granular identification (for example where the communication includes inside information relating to clearly different matters) or further specificity will be required.

Key points

  • Issuers need to ensure that they have systems in place to comply with notification requirements to relevant local regulators in the event of delay of disclosure of inside information and to maintain appropriate records of decisions made by boards or committees to delay disclosure of inside information.
  • Issuers should consider whether changes need to be made to the procedures for updating and inputting content on their websites to ensure that the inside information which is required to be publicly disclosed has been "clearly identified". This is an area where practitioners in the UK are seeking guidance from the FCA. 

IV.       Requirement 2 – Maintain Insider Lists[18]

As with the current market abuse regime, MAR requires issuers or persons acting on their behalf or on their account to draw up a list of all persons who have access to inside information and who are working for them under a contract of employment, or otherwise performing tasks through which they have accessed inside information, such as advisors, accountants or credit rating agencies, known as an "insider list." 

New content: The requirement to maintain an insider list remains broadly the same however, the content and format requirements for insider lists are more prescriptive under MAR.  By way of example, an insider’s home and personal mobile numbers, date of birth, personal home address and personal identification number details, will now be required under MAR.

Electronic format: The new form of insider list is to be kept up-to-date in a prescribed electronic format[19]

Template list: In order to ensure uniformity of approach, ESMA has developed template insider lists[20] use of which, unlike the position today, will be mandatory on all impacted issuers.

Obligations with respect to persons on list: Finally, MAR requires issuers to take all reasonable steps to ensure that any persons included on the insider list acknowledge in writing that they are aware of the obligations involved and sanctions applicable to insider dealing and unlawful disclosure of inside information.

Key points

  • Issuers will need to review and update their insider list forms to comply with the new ESMA templates; review existing systems and procedures to ensure that the lists are kept up-to-date in the prescribed electronic format and also review and update existing processes in order to ensure that written confirmations from insiders named on the list, are properly obtained. 
  • Issuers should consider seeking from all potential insiders the information required to populate insider lists ahead of 3 July so that insider lists can be created promptly and updated as necessary.

V.        Requirement 3 – PDMRs to disclose dealings[21]

The other disclosure requirement regime which has altered under MAR is the requirement which rests on "persons discharging managerial responsibilities (PDMRs) together with "persons closely associated with them" (PCAs), to disclose to an issuer and the relevant regulatory authority (being the FCA, in the case of the UK), every transaction conducted on their own account relating to the shares or debt instruments of that issuer or derivatives or other linked financial instruments. Issuers need to note that the scope of the existing disclosure regime has broadened and requirements as to form, timing and permitted exceptions have become stricter.

Scope of dealings: The current regime requires PDMRs of issuers of financial instruments and their PCAs to disclose transactions conducted on their own account relating to shares of the issuer, or to derivatives or other financial instruments linked to them. Under MAR, PDMRs of issuers and their PCAs must disclose transactions conducted on their own account relating to shares or debt instruments of the issuer or to derivative or other instruments linked thereto. Dealings in debt instruments and related financial instruments of the issuer are accordingly now also generally in scope under MAR however: (i) the scope of dealings in particular the reference to linked financial instruments appears to cast a wider net than the existing regime; and (ii) there is a critical area of uncertainty with respect to the application of the regime to debt issuers and GDRs. In particular, the regulations and guidance do not directly address the position of whether a PDMR of an issuer with debt instruments traded on one of the EU regulated markets (or MTF or OTF) is required to disclose only dealings in the debt instruments or also dealings of all other instruments of the issuer including non-EU traded shares. We expect that, consistent with the scope and reach of the regime, disclosure of dealings will be limited to those debt instruments within the scope of MAR and not to all instruments of the issuer.

Disclosure Form: Again, with a view to greater harmonization and consistency, disclosures by PDMRs and PCAs will need to follow a specific template prescribed under the EU regulations and issuers will need to ensure that all impacted employees are informed of this. The requirement referred to above for the PDMRs themselves to notify the relevant regulator is new[22] and the FCA has recently published a template notification form (based on the mandated EU form) that PDMRs and PCAs will be required to submit.[23]

Timing: One of the key changes to this requirement is the overall shortening of the period within which disclosures are to be made. A PDMR and PCA will now have three business days after the date of the dealing or relevant transaction to notify the issuer (compared with the current four calendar day window) and the issuer has an obligation to disclose this information promptly into the market (by way of a regulatory announcement) and in any event, also by no later than three business days after the transaction. The obvious practical challenge for issuers is compliance with the timing requirements in the event that disclosures by PDMRs and PCAs are made at the back-end of the 3 business day window.

De minimis threshold: In a relaxation of the regime, MAR sets a de minimis disclosure threshold of transactions with an aggregate value of €5,000 per annum, which can be increased to €20,000 at the discretion of the local regulatory authority. The FCA has stated that it does not propose to exercise its discretion to increase the threshold and will apply the €5,000 threshold. It has also stated that it will be prepared to accept over-disclosure (i.e. disclosure of transactions which fall below the threshold) and this can be of assistance to issuers and their PDMRs to avoid having to monitor when the threshold is met. What is still yet to be clarified is what exchange rates should be applied when calculating whether the relevant annual dealing disclosure thresholds have been met.

Key points:

  • The results of the various changes to the disclosure regime will require issuers to review and amend existing disclosure obligations on PDMRs and PCAs.
  • In particular, issuers need to (i) train and educate (and have records of the same) their PDMRs of the new disclosure obligations; (ii) implement the new template reporting requirements; (iii) consider whether to require PDMRs and PCAs to disclose relevant dealings and transactions within a shorter (say 1 or 2 business days) period than allowed for under the regime; (iv) consider whether to require disclosures of all relevant dealings and transactions even those below the de minimis threshold; and (v) consider the compatibility of the new EU regime with any other disclosure or personal dealing (see section VI below) policies they have in place to comply with domestic rules such as 10b5-1 plans, for US issuers.

VI.       Prohibition 1 – Restriction on PDMRs dealing during closed periods[24]

As under the current regime, PDMRs are prohibited from dealing during "closed periods" subject to certain exceptions, which have been narrowed or tightened under the new MAR regime. The duration of the prohibition is 30 calendar days prior to the announcement of an interim financial report or year-end report that the issuer is obliged to publish "according to the rules of the trading venue where the issuer’s shares are admitted to trading, or national law". For the UK, the duration of the prohibition (currently prescribed under the "Model Code"[25]) is 60 days prior to the announcement of preliminary results and annual results, 30 days prior to the announcement of any quarterly results and in the case of half-year results, the period from the end of the relevant half year period to the time of publication.

Narrowing of exceptions to prohibition: The issuer will continue to be permitted to allow dealings in the closed period in certain exceptional circumstances (such as financial hardship) or pursuant to an employee share scheme or where the beneficial interest does not change. However, other exceptions recognized under the Model Code including dealings connected to a rights issue or takeover offer or dealings pursuant to a trading plan over which the PDMR has no discretion, are no longer expressly recognized under MAR.

There are two key practical points and challenges for issuers under the proposed new regime as below:

Withdrawal of the Model Code: Currently, issuers subject to the UK premium listing regime are required to adopt the Model Code (or more onerous provisions) as their company share dealing code. The code provides a helpful market standard and sets out various exceptions to the "closed period" dealing restrictions imposed by the Model Code under the current market abuse regime. Going forward however, as the Model Code is no longer compatible with MAR, the FCA has proposed to delete the Model Code and not to replace it.

When does the closed period start and end?: In the UK, it is customary for issuers to release or announce preliminary results prior to the publication of their final financial reports or results. Some issuers also publish quarterly reports. Under the Model Code, a closed period would apply by reference to the period prior to the publication of the preliminary results announcement and would end on publication of such preliminary results announcement. However, as preliminary results announcements are not required under UK rules, for UK issuers, the closed period would not end on the publication of the preliminary results announcement but would continue to run until publication of the final results. A similar position would apply for non-EU issuers preparing financial results that are similarly not required under the rules of the trading venue where the issuer’s shares are trading. Pending clarification that is being sought from ESMA on this issue, the FCA’s stated position[26] on this inconsistency is that it will continue to take the view that where an issuer announces preliminary results, the closed period (being 30 days under MAR), where dealing is prohibited, is immediately before the preliminary results are announced.

Key points:

  • Issuers will need to withdraw or update any personal dealing policies based on the Model Code so that they comply with MAR.
  • As with the disclosure requirements, PDMRs will need to be properly trained and educated on the scope of the dealing restrictions. MAR does not prescribe or mandate clearance procedures for or restrictions on dealings on PDMRs outside closed periods however issuers should consider whether blanket clearance procedures are desirable nonetheless.
  • Issuers should keep themselves apprised on clarification from the European regulators on the issue of closed periods and preliminary results.
  • There is also some lack of clarity as to what dealings are exempt from the prohibition on trading during a closed period. Many of the exceptions provided for in the UK Model Code are not replicated in MAR.

VII.     Prohibition 2 – Prohibition on Insider Dealing[27]

MAR prohibits any person (which includes issuers) from engaging or attempting to engage in insider dealing or recommending that another person engage in insider dealing or inducing another person to engage in insider dealing.  As under the current market abuse regime, MAR provides for exemptions for buy-back programmes and stabilisation measures[28].  In addition, MAR sets out certain types of "legitimate behaviour"[29] which are exempted including: (i) legitimate transactions carried out by market makers; (ii) dealings by X on behalf of Y where Y is in possession of the inside information but has established effective information barriers between itself and X; or (iii) where a person has obtained inside information "in the conduct of a public takeover and merger where the company then uses that inside information solely for the purpose of proceeding with that merger or public takeover" provided that at the point of approval of the merger or acceptance of the offer the relevant inside information has been cleansed by publication (the so-called "takeover defence").

Stake-building: One of the key areas of uncertainty under MAR is the scope of the takeover defence as the relevant provisions embodying the takeover defence or exemption specifically state that it "shall not apply to stake-building". There is a view that notwithstanding this, it may be possible for an issuer to rely on the "own knowledge" safe harbour in MAR if the only "inside information" that an issuer has when undertaking a stake-building exercise in the context of a takeover is knowledge of its intention to launch a takeover, however there are difficulties with this analysis too. Until further clarification is provided by the FCA or ESMA, this is an issue that will require further monitoring and specific advice.

New conditions to reliance on buy-back and stabilisation exemptions: The scope of availability of the exemptions for buy-back programmes initiated by issuers under MAR are generally the same as under the current market abuse regime.  This is also the case for the stabilisation exemption.  The conditions for availability relate to details of the buy-back programme being fully disclosed prior to the start of trading, reporting to the relevant competent authorities, the requirement to observe adequate limits regarding price and volume and ensuring that the buy-back trading is carried out in accordance with certain (legitimate) objectives specified in MAR. Similar conditions apply with respect to the availability of the stabilisation exemption.  

Key Points:

  • Issuers should ensure full compliance with the conditions specified by the European Commission to benefit from either the buy-back or stabilisation exemption.  The requirements and conditions are, as noted, generally the same as under the existing regime albeit more detailed and comprehensive in parts.
  • On a substantive note, for purposes of satisfying the condition as to "adequate limits with regard to price and volume", the method of calculating the trading volumes is different under MAR than under the current regime.
  • In the UK, the FCA is proposing to delete the restriction on undertaking share buy-backs, transferring treasury shares or dealings in own securities by an issuer in prohibited or closed periods, as MAR does not specifically prohibit such transactions during closed periods but instead lays down the conditions to such programmes.  Notwithstanding this, issuers should not undertake buy-backs (or transfers of treasury shares or other dealings in its own shares) if in possession of inside information save other than in connection with a pre-arranged programme, as to do so may run the risk of committing market abuse.

VIII.    Prohibition 3 – Prohibition on Market Manipulation[30]

MAR prohibits persons (including issuers) from engaging or attempting to engage in market manipulation.  The regulation goes on to specify the types of activities which could constitute market manipulation including manipulating transactions, manipulating devices, dissemination of  information which provides false or misleading signals on various factors and other types of misleading behaviours which could or are likely to cause market distortion.  In addition, MAR sets out an indicative list of behaviours which relate either to false/misleading signals and price securing or the employment of a fictitious device/other form of deception or contrivance. The buy-back and stabilisation exemptions as summarised in VII above are also relevant for purposes of the MAR market manipulation offence. The scope of the new market manipulation prohibition largely covers the same ground as some of the behaviours which are currently treated as market abuse under the UK’s code of market conduct.

Extension of scope: MAR does however cover broader ground in conjunction with the expansion of the overall framework of the new market abuse regime in the EU as described in section II above (i.e. with respect to new financial instruments and markets), and also seeks to accommodate new methods of dissemination of information and other technological changes.  In particular, the activities of entering into misleading transactions or disseminating misleading information also cover activities and behaviours which impact commodity contracts, auction products based on admission allowances and inputs in relation to a benchmark.  Market manipulation by way of dissemination of information extends to all types of media including the internet and market manipulation through the placing of orders (or cancellation or modifications thereof) also extends to orders undertaken "by any available means of trading, including by electronic means such as algorithmic and high-frequency trading strategies". 

Attempted manipulation:  Another key change under MAR, is that the market manipulation offence will is extended to cover attempted manipulation.  This prohibition has been included to complement the basic prohibition on (actual) market manipulation and to enable competent regulatory authorities in the EU to impose sanctions in respect of it.  Attempted market manipulation does not require a likelihood of market manipulation occurring and indeed behaviour which is likely to result in market manipulation is separately caught by MAR. Attempted market manipulation may also include situations where potentially manipulative activity has commenced but not completed.

Accepted market practices: MAR however recommends that certain types of behaviours which amount to "accepted market practices" (AMPs), should not be treated as market manipulation and provides an exemption for AMPs[31].  The concept of AMPs exist under the current European market abuse regime and reflect behaviours by reference to particular national markets which have developed as legitimate behaviours, for example as a result of custom established over a period of time. MAR leaves it up to national competent authorities to establish AMPs. If so established, in order to be recognised as constituting valid exemptions from the MAR market manipulation offence, there is a procedure that the relevant competent authorities will need to follow with respect to ESMA comprising formal notification of proposed AMPs and an assessment by ESMA as to whether the AMPs are compatible with the relevant provisions of MAR.  Details of ESMA’s assessment/opinion on any AMPs will be publicly available on ESMA’s website.

Key points:

  • In the UK, the FCA has decided not to introduce any specific AMPs having determined that its existing provisions on accepted market practices as set out in the FCA’s Code of Market Conduct (CoMC) already significantly overlap with the provisions of MAR. In fact, the FCA proposes to delete CoMC in its entirety without being replaced and accordingly issuers who have policies drawn up by reference to CoMC will need to ensure that these are updated.
  • Non-EU issuers need to note that where they have financial instruments traded or admitted to trading on other EU regulated markets MTFs or OTFs (other than the UK) they will need to consider what, if any, AMPs are in place in that relevant jurisdiction and that AMPs may vary from member state to member state.

IX.       Prohibition 4 – Unlawful Disclosure of Inside Information[32]

One of the other types of behaviours which are prohibited under the current market abuse regime is the improper disclosure of inside information by any person (including but not limited to issuers), commonly known as "tipping off".  Under MAR, there is a prohibition on all persons from "unlawfully disclosing" inside information.  MAR explains that this will arise where a person possesses inside information and discloses that information to another person, except where the disclosure is made in the normal exercise of an employment, a profession or duty.  Onward disclosures of recommendation or inducements also amount to the unlawful disclosure of inside information, where the person disclosing the recommendation/inducement knows that it was based on inside information.

From an issuer’s perspective, a key concern is to understand in what circumstances it is permitted to disclose inside information, on a selective basis to certain third parties, prior to that information being made public in accordance with the requirement to publicly disclose inside information (as described in section III above). 

Market soundings – general[33]: In this regard, the new "market soundings" regime under MAR needs to be understood by issuers going forward, in particular in what circumstances and under what conditions they will be able to rely on the "market soundings" exemption without breaching any prohibitions under MAR.

Market soundings – protocol: In summary, MAR introduces a new regime allowing issuers and certain other specified persons referred to as disclosing market participants (DMPs) to disclose inside information to potential investors during market soundings or "wall crossings", comprising the communication of information to one or more potential investors prior to the announcement of a transaction in order to gauge the interest in the potential transaction and the conditions relating to it such as its potential size or pricing.  There are certain prescribed and detailed steps which will need to be taken prior to conducting a market sounding and detailed record keeping requirements are imposed under MAR[34]. A DMP must assess whether a market sounding will involve the disclosure of inside information (and keep records of its conclusions and reasoning) and even where information is deemed not to be inside information, a written record of information passed on to investors in such circumstances will need to be kept and retained for a minimum of five years. There is a general concern that imposition of this prescriptive regime governing communications with investors could result in an unequal playing field with markets in non-EU jurisdictions and could therefore potentially stymie corporate/issuer actions and activities.

Market soundings – takeovers: MAR helpfully recognises that a disclosure of inside information by a person intending to make a takeover bid for the securities of a company or merge with a company, to parties entitled to the securities will also constitute a "market sounding" provided that the information necessary to enable the parties entitled to the securities to form an opinion on their willingness to offer their securities and such willingness is reasonably required for the decision on whether to make the takeover bid or merger[35].

Key Points:

  • ESMA is required to publish detailed standards on appropriate arrangements, procedures and record keeping requirements in relation to the new market soundings regime and to prescribe the systems and notification templates to be used to comply with the MAR requirements, for example with respect to the precise format of the records to be retained.  These are under review by ESMA awaiting final approval. It is quite likely (on current timings) that the new guidance will only be published following the MAR regime taking effect (circa early Q3 2016). 
  • Issuers need to keep an eye out for the final developments in respect of these guidelines. We have noted a number of areas of ambiguity and inconsistency in the draft guidelines and the hope is that these issues will be clarified in the final standards adopted by the European Commission.
  • Issuers should note that the regime is expected to apply to communications or soundings with investors who are based outside of the EU as well. In practice, we expect the management of the market soundings process to be co-ordinated by the issuer’s advisory bank or broker.

X.        Key takeaways and points to note:

  • Am I now in scope? If you are an issuer who has not to date been caught by the full European market abuse regime but will be going forward by reference to for example, financial instruments traded on a MTF or OTF (e.g. a US issuer with securities admitted to trading on AIM), you will now need to comply with the new European market abuse regime and amend your policies and procedures accordingly.
  • Repealed guidance: If you are currently "in scope" of the UK market abuse regime, note that a number of the helpful safe harbours, guidance statements and codes will no longer apply. If you have based your internal policies and procedures on these codes or guidance statements (e.g. the Model Code or parts of the Code on Market Conduct), you will need to amend your policies and procedures.
  • Updating policies to reflect broadened scope: If you are currently "in scope" of the European market abuse regime, review and update your policies to reflect the expanded scope of MAR and ensure that all relevant dealings, transactions and behaviours whether "on exchange" (regulated market, MTF or OTF) or off-exchange, are addressed in your policies and procedures.
  • New reporting, recording and notification requirements: New template reporting and notification procedures apply under MAR, for example with respect to delays in disclosure of inside information, insider lists and PDMR dealings – you will need to amend policies and templates to reflect these new requirements.
  • Updating systems to comply with disclosure requirements: Review, and amend as appropriate, internal systems and controls to identify inside information, ensure prompt disclosure and introduce compliant procedures to delay disclosure (including appropriate decision making, notification and record keeping).
  • Buy-backs, stabilisation and market soundings: Internal policies and procedures with respect to buy-back programmes, stabilisation and market soundings will need to be revised and/or drafted to reflect the amended/ new requirements.
  • Personal dealing policies: Consider what changes need to be made to personal dealing policies and ensure all PDMRs are properly trained on the revised disclosure requirements and dealing restrictions.
  • Dealings on venues not sponsored by issuer: Take note that certain aspects of MAR (in particular the prohibitions on insider dealing and market manipulation) also extend to financial instruments admitted to trading on relevant exchanges where the admission to trading was not requested or approved by the issuer. Whilst in practice this is likely to be more relevant to persons dealing in such financial instruments as opposed to the issuer of the underlying (related or linked) financial instruments, issuers should take care to ensure that they do not inadvertently breach such requirements.
  • Inconsistent or incompatible domestic obligations: Non-EU issuers who are also subject to domestic legal or regulatory obligations which are inconsistent with the prohibitions and requirements imposed by MAR summarised above, need to give specific consideration as to how to comply with all relevant regimes. Areas likely to be impacted include the general obligation to disclose inside information to the public, wall-crossings and PDMR dealing restrictions.
  • Developing standards and market practice: Issuers and advisers will need to keep themselves informed of the finalised European standards on certain detailed aspects of the new MAR regime and developing market practice and implementation in relevant European member states going forward.
  • Extra-territoriality: The European market abuse regime and the sanctions and penalties for breach can have an extra-territorial effect as even certain transactions and behaviours which take place outside the EU which impact EU traded financial instruments, benchmarks or exchanges can be caught.

Please contact us if you have any questions on the application of the European market abuse regime or other queries on the matters covered in this note. 



Financial Instruments

1.      Transferable securities;

2.      Money-market instruments;

3.      Units in collective investment undertakings;

4.      Options, futures, swaps, forward rate agreements and any other derivative contracts relating to securities, currencies, interest rates or yields, emission allowances or other derivatives instruments, financial indices or financial measures which may be settled physically or in cash;

5.      Options, futures, swaps, forwards and any other derivative contracts relating to commodities that must be settled in cash or may be settled in cash at the option of one of the parties other than by reason of default or other termination event;

6.      Options, futures, swaps, and any other derivative contract relating to commodities that can be physically settled provided that they are traded on a regulated market, a MTF, or an OTF, except for wholesale energy products traded on an OTF that must be physically settled;

7.      Options, futures, swaps, forwards and any other derivative contracts relating to commodities, that can be physically settled not otherwise mentioned in point 6 of this Section and not being for commercial purposes, which have the characteristics of other derivative financial instruments;

8.      Derivative instruments for the transfer of credit risk;

9.      Financial contracts for differences;

10.  Options, futures, swaps, forward rate agreements and any other derivative contracts relating to climatic variables, freight rates or inflation rates or other official economic statistics that must be settled in cash or may be settled in cash at the option of one of the parties other than by reason of default or other termination event, as well as any other derivative contracts relating to assets, rights, obligations, indices and measures not otherwise mentioned in this Section, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are traded on a regulated market, OTF, or an MTF;

11.  Emission allowances consisting of any units recognised for compliance with the requirements of Directive 2003/87/EC (Emissions Trading Scheme).

    [1]       Regulation 596/2014 –

    [2]       Market Abuse Directive 2003/6/EC

    [3]       Directive 2014/57/EU –

   [4]   NOTE: The current market abuse regime also captures investments for which a request for admission to trading on such a market has been made, whether or not the transaction actually takes place on that market.

   [5]   The list of EU regulated markets are maintained by ESMA and can be accessed here – . NOTE: In the UK, aspects of the current regime (for example, section 118 of the Financial Services and Markets Act 2000) apply to "qualifying investments" admitted to trading on "prescribed markets" , which is a wider concept than "regulated markets" and includes, for example, AIM.

   [6]   See Article 2 MAR

   [7]   These are instruments created under the EU Emissions Trading Scheme Directive (2008/87/EC)

   [8]   NOTE: The current market abuse regime applies only to financial and derivative markets and not to the related (non-financial) spot markets.

   [9]   "Benchmarks" mean any rate, index or figure, made available to the public or published that is periodically or regularly determined by the application of a formula to, or on the basis of the value of one or more underlying assets or prices, including estimated prices, actual or estimated interest rates or other values, or surveys any reference to which the amount payable under a financial instrument or the value of a financial instrument is determined (Article 3(2) MAR). 

  [10]   At the time of writing, there are 73 MTFs in the UK. The list of MTFs are maintained on an ESMA database and can be accessed here –

  [11]   NOTE: In the UK, aspects of the current regime (for example, section 118 of the Financial Services and Markets Act 2000) apply to "qualifying investments" admitted to trading on "prescribed markets" , which is a wider concept than "regulated markets" and includes, for example, AIM

  [12]   In Ian Hannam v FCA [2014] UKUT 0233 (TCC) for example, the UK Upper Tribunal (Tax and Chancery Chamber)  concluded that, to find market abuse there must be price significance, and such significance must be perceived through the eyes of the reasonable investor

  [13]   See Article 17 MAR

  [14]   See Article 17(4) MAR

  [15]   Further, if requested by the FCA, the issuer must also provide a written explanation of its decision to delay disclosure. The default position under MAR is that an explanation of the decision to delay must be provided in all cases of delay, without the specific need for a request. Local regulators however, can provide that this is only required if requested, as the FCA has done


  [17]   NOTE: There is an exemption for issuers whose financial instruments are admitted to trading on an SME growth market. For these issuers, the information can be posted on the trading venue’s website instead of the website of the issuer

  [18]   See Article 18 MAR

  [19]   NOTE: Issuers with financial instruments admitted to trading on SME growth markets are exempt from drawing up and keeping up to date the insider list. However, if requested by any competent regulatory authority, they must ensure that are able to provide an insider list, albeit it does not have to be in the prescribed electronic format

  [20]   See for example Annex 1, Template 1 (for deal specific insider lists)  set out in Commission Implementing Regulation (EU) 2016/347 of 10 March 2016 laying down implementing technical standards with regard to the precise format of insider lists and for updating insider lists in accordance with MAR

  [21]   See Article 19 MAR

  [22]   NOTE: The existing regime simply requires the PDMR to notify the issuer which in turn publishes an announcement of the relevant transaction(s)


  [24]   See Article 19(11) MAR

  [25]   Model Code on directors dealings set out in the FCA Handbook (Listing Rules 9 Annex 1) – 


  [27]   See Articles 14 and 16 MAR

  [28]   See Article 5 MAR

  [29]   See Article 9 MAR

  [30]   See Articles 12 and 15 MAR

  [31]   See Article 13 MAR

  [32]   See Articles 10 and 14(c) MAR

  [33]   See Article 11 MAR

  [34]   See Commission Delegated Regulation of 17 May 2016 supplementing MAR with regard to regulatory technical standards for the appropriate arrangements, systems and procedures for disclosing market participants conducting market soundings (C(2016) 2859) –

  [35]   See Article 11(2) MAR

If you require any further information or guidance on the new regime, please contact the authors of this note – Selina Sagayam ([email protected]), Chris Haynes ([email protected]) or Alan Bannister ([email protected]), the Gibson Dunn lawyer with whom you normally work, or the following partners in the firm’s London office.  We would be pleased to assist you.    

Charlie Geffen (+44 (0) 20 7071 4225, [email protected])
Nigel Stacey (+44 (0) 20 7071 4201, [email protected])

© 2016 Gibson, Dunn & Crutcher LLP

Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.