The New Market Abuse Regime: The Framework So Far

This post is based on the summary of a memorandum by Raj Panasar and Eloise Skinner of Cleary Gottlieb’s London office.

On July 3, 2016, the Market Abuse Regulation will replace the current civil market abuse framework established under the Market Abuse Directive.

The European Securities and Markets Authority published draft technical standards on 28 September 2015 and a consultation paper on 28 January 2016. These publications are currently in draft form and open to further amendment, but nevertheless provide an increasingly clear sense of the future framework under MAR. Many of the changes are likely to require significant updates to the systems and controls of market participants, including investment banks and companies with publicly traded securities in Europe as well as investors in those securities.

Key features of the proposed changes to the market abuse regime include:

• Scope and application – MAD covers European regulated markets only. MAR will govern activities on European regulated markets, multilateral trading facilities and organised trading facilities (European Trading Platforms, “ETP”). MAR will therefore be triggered by the trading of a financial instrument on a single ETP, even if the admission to that ETP is not as a result of an application by the issuer.
• Disclosure of managers’ dealings –  MAD requires persons discharging managerial responsibilities (“PDMRs”) of issuers of shares admitted to trading on a regulated market to report dealings in shares. MAR will extend this reporting requirement to PDMRs of issuers of shares, GDRs, debt securities and derivatives admitted to trading on any ETP, and requires reporting of dealings in a wide array of financial instruments, including debt.
• Inside information –  MAR contains an updated definition of inside information, which is likely to widen the circumstances in which information must be reported to the market. The regime may afford greater flexibility to delay disclosure, but will result in enhanced regulatory scrutiny in relation to the reasons for delay. Prescribed systems and controls are required, including new recording requirements and more extensive insider lists.
• Insider dealing –  MAR broadens the scope of insider dealing with the addition of new offences.
• Market soundings – ESMA guidance sets out extensive record keeping and other procedures which must be followed in relation to market soundings in respect of any non-public information, whether that information is inside information or not.
• Suspicious order reporting – The overall expansion of scope of the market abuse regime under MAR (for example, in the application to all ETPs) will result in additional obligations on market participants to report suspicious transactions and orders.
• Investment recommendations – Both MAR and ESMA guidance set out an updated investment recommendations regime with a significantly broader scope, incorporating a lower ownership threshold to trigger the regime and a new category of persons subject to the obligation.

Our memorandum, available here, sets out the key features of the proposed changes and provides practical guidance on how to deal with them.