Market Abuse Regulation: Key issues for corporates

Background

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n Implementation of MAR is 3 July 2016

n Detailed EU implementation measures are stillbeing finalised

n FCA consultation expected late summer 2015

Why do we need MAR?

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n What is market abuse?: “a concept that encompasses unlawful behaviour on the financial markets” (Recital 7, MAR)

n MAD adopted in 2003 and established EU wide framework for tackling market abuse and market manipulation

n Problem?

Creation of MAR and MAD II

Emergence of newtrading platforms

and venues

Creation of new forms of financial

instruments

Desire to create a single European

Rulebook

Poor track record of preventing/enforcing

market abuse in some

Member States

Structure of MAR and supporting regulation

MAR: “Level 1” text, has direct effect in Member States from 3 July 2016(n.b. some provisions only take effect on 3 January 2017)

Supporting “Level 2” regulation: ESMA preparing technicaladvice and standards for adoption by Commission

Likely to be further ESMA guidance to assist withimplementation e.g. Q&A

National implementation: FCA/HMT CP expectedlate summer 2015. Can expect changes toFSMA, LRs and DTRs

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What are the key changes of which you should be aware?

Scope of MAR (Article 2)MAR applies to a wider range of trading venues and securities and derivatives than MAD

MAD

Applies to financial instruments admitted to trading on regulated markets or where request for admission made and related financial instruments whose price depends on or has an effect on the above

Will also apply to financial instruments on other trading platforms (MTFs and OTFs) and related financial instruments e.g. MAR will apply to AIM

Manipulation of benchmarks brought within the market manipulation offence

New offence of attempted market manipulation

Definition of financial instruments extended to cover emissions allowances

Manipulation of benchmarks not expressly covered

MAR

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Inside InformationDefinition of insideinformation (article 7)

Information must be (i) precise, (ii) have not been made public, (ii) relate to one or more issuersor financial instruments and (iv) if made public, be likely to have a significant effect on the priceof those financial instruments

Largely unchanged except that “reasonable investor test” now forms part of definition(previously contained in a supporting directive to MAD)

Insider dealing (article 8) Broadly in line with MAD, but new offence of cancelling or amending orders whilst in possessionof inside information

Rebuttable presumption that person dealing whilst in possession of inside information has usedthat inside information (Recital 24 MAR)

Disclosure of inside information (Article 17)

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New requirements under MAR

Issuer still require to disclose insideinformation asap

1. Where issuer has delayed announcing inside information, on announcement it must informregulator of its decision to delay and explain in writing why it thinks the delay waspermissible. NB: FCA has discretion on implementation to require explanation only to beprovided on request (Article 17(4))

Issuer may still delay so as not toprejudice legitimate interestprovided delay does not misleadpublic and confidentiality maintained

2. Financial institutions can delay where disclosure would risk undermining financial stability ofissuer and financial system, delay in public interest, confidentiality maintained and priorconsent of regulator (Article 17(5))

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Insider Lists (Article 18)

MAD

Issuer must maintain insider listsBroader scope of MAR means issuers on MTFs and OTFs caught (although exemption for issuers on SME growth markets)

Where third party maintains insider list, issuer retains primary responsibility

ESMA mandated to create a harmonised template for insider lists – causing concern due to level of detail being requested (ESMA draft technical standards)

Lists to be maintained for 5 years

MAR

Directors’ transactions (Article 19)

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MAD

PDMRs and connected persons must report transactions in issuer’s securities asap Broader scope of MAR means PDMRs of issuers on MTFs and OTFs caught

Time limit for notification of dealing to be reduced to 3 business days

De minimis threshold for notification of transactions once threshold of €5,000 per calendar year reached (no netting) Member states may raise threshold to €20,000

No trading in close periods – encapsulates some of the provisions of the Model Code but without many of the clarifications of the Code e.g. what is not a dealing, and the types of dealings permitted during a prohibited period

No de minimis threshold for reporting such transactions

MAR

Market Soundings (Article 11)

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n Article 11(4): disclosure of inside information made in course of a market sounding deemed to bemade in normal course of person’s employment/duties where disclosing party complies withcertain specified conditions (i.e. not unlawful disclosure)

n Prior to disclosure disclosing party must

• assess whether market sounding involves disclosure of inside information

• keep written record of assessment and rationale for conclusion drawn

• obtain recipient’s consent to receive inside information and provide specific warnings (ESMAhas developed standard script for market soundings (contained in its draft technical standards))

n Disclosing party must keep record of soundings and disclosures made

n If information ceases to be inside information after wall crossing, disclosing party to notify recipient– otherwise recipient to determine for themselves whether information still inside information

n Records to be kept for 5 years and provided to regulator on request

n ESMA also preparing guidelines for recipients of market soundings (not yet published)

New rules to coversoundings to gaugeinvestor interest inoffering of securitiesand also soundings inconnection withtakeovers and mergers

Market Abuse Directive 2

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n New Directive on criminal sanctions for market abuse

n To be implemented by member states by 3 July 2016

n UK has not opted into MAD2

n In UK insider dealing and market manipulation are already criminal offences under theCriminal Justice Act 1993 and the Financial Services Act 2012

Contacts

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Patrick SarchPartner, LondonT: +44 20 7006 1322M:+44 79 0016 7481E: patrick.sarch@cliffordchance.com

Carlos ConceicaoPartner, LondonT: +44 20 7006 8281M:+44 79 6236 1293E: carlos.conceicao@cliffordchance.com

Caroline DawsonSenior Associate, LondonT: +44 20 7006 4355M:+44 79 4944 3527E: caroline.dawson@cliffordchance.com

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