MAR 101 – Summary of the Changes under the Market Abuse Regulation
With the Market Abuse Regulation (MAR) and the Directive on Criminal Sanctions for Market Abuse (CRIM-MAD), the European legislator intends to harmonize the application of market abuse rules within the European Union. The new laws have a broader scope than the previous rules and contain numerous detailed provisions addressed to market participants and national authorities. In addition, sanctions for infringements of the market abuse rules have been tightened.
Overview: Main Changes
- Extended scope
- Inside information
- Prohibition of insider trading and disclosure of inside information
- Market sounding
- Ad hoc disclosure
- Director’s dealings
- Market manipulation
The MAR is not only applicable to issuers on regulated markets but also to issuers on multilateral trading facilities (MTF) and organized trading facilities (OTF) provided that the issuer requested or approved trading on these markets. As a consequence, issuers also listed on the open market are subject to the ad hoc disclosure, director’s dealings and maintenance of insider lists rules. For the purpose of determining whether an issuer is subject to the MAR regime, ESMA’s Financial Instruments Reference Data System (FIRDS) provides useful information. However, the FIRDS register is not supposed to be a comprehensive record and cannot be relied on as such. Those issuers concerned about their status under MAR should consult their legal advisors in order to fully understand the regulatory environment.
Inside information is defined as precise information which has not been made public, related directly or indirectly to the issuer or the financial instrument and which, if made public, would be likely to have a significant effect on the price of those financial instruments. Further, the MAR stipulates that intermediate steps in an protracted process can be inside information. Such provision codifies the Daimler/Geltl decision of the European Court of Justice.
Prohibition of Insider Trading and Disclosure of Inside information
The MAR introduces a new prohibition regarding inside information. In addition to the prohibition of insider trading and making recommendations, the MAR also prohibits the cancellation or amendment of an order after having obtained inside information. Furthermore, the transactions based on recommendations are prohibited if the person making the transaction knew or ought have known that the recommendation is based on inside information.
The MAR stipulates so-called “legitimate behaviour”, i.e., specific exceptions to the prohibition of insider trading (Art. 9 MAR). In the Spector/Photo-Group decision, the European Court of Justice established a rebuttable presumption that a person trading financial instruments in possession of inside information is using inside information. In its decision, the European Court of Justice specified several exceptions from this presumption. The MAR stipulates additional exceptions, e.g., regarding adequate and effective internal arrangements and procedures to isolate inside information within a legal entity and with respect to the disclosure of inside information within a legal entity.
Further, the MAR introduces the permitted disclosure of inside information to potential investors and shareholders intending to sell in the context of market soundings. The disclosure of inside information to such privileged market participants is only allowed if extensive information and documentation requirements are observed (Art. 11 MAR).
Issuers listed on the open market also have to maintain insider lists if their financial instruments are traded there upon request of the issuer. However, for issuers on SME growth markets, the MAR provides for some facilitations.
Further additions to the information to be contained in insider lists were stipulated in the implementing regulation of the Commission dated March 10, 2016.
Ad Hoc Disclosure
The ad hoc disclosure rules now also extend to issuers on the open market. Ad hoc announcements have to be available on the issuer’s website for a period of five years (before one month).
The MAR also allows for delay of the ad hoc announcement of inside information if the issuer has a legitimate interest for the deferral (e.g., negotiations in progress), the public is not misled by the delay, and the issuer ensures the confidentiality of the information. Under the MAR, the confidentiality is no longer ensured if a sufficiently accurate market rumour exists.
The rules regarding director’s dealings have been extended. The disclosure obligations now also cover transactions in debt securities (e.g., bonds). Directors have to notify the issuer and the competent national authority of transactions on their own account within three business days (Art. 19 para. 1 and 2 MAR).
The MAR introduced so-called “closed periods” during which directors are not allowed to conduct any transactions on their own account. The closed periods are the period of 30 calendar days before the announcement of a mandatory interim financial report or year-end report (Art. 19 para. 11 MAR). Certain exceptions exist, e.g., in case of severe financial difficulties of the director which require the immediate sale of shares.
In addition to the established prohibition of market manipulation, e.g., issuing misleading signals or manipulative dissemination of information, the MAR also includes the manipulation of certain benchmarks and indices as well as manipulative high-frequency trading (Art. 12 para. 1 and 2 MAR). Another new feature is that the attempt of a market manipulation is now sanctioned as well.
Furthermore, national supervisory authorities may establish jointly with the ESMA and other national authorities accepted market practices as special exceptions to market abuse. However, when a market practice has been adopted by the authorities in one member state such practice is not automatically permitted in the other member states.
Administrative Sanctions: The MAR stipulates fines and administrative penalties (Art. 30 MAR) as minimum standards to be implemented into national law by the member states. The authorities are now able to impose increased fines and for legal entities such fines can be based on the total annual turnover of the parent group. Other possible administrative sanctions are public warnings (so-called “naming and shaming”) or temporary or permanent occupational bans of individual persons.
Criminal Sanctions: The CRIM-MAD contains minimum standards for criminal sanctions for insider trading and market manipulation (in particular fines and imprisonment) to be implemented into national law by the member states.
Entry into Force
The MAR is directly applicable in all member states since July 3, 2016. The CRIM-MAD has to be implemented by the member states into national law by such date. However, certain rules regarding organized trading facilities, SME growth markets and emissions allowances will become effective only on January 3, 2017, potentially even later according to a current proposal.