Employee Share Plans Under MAR: The Impact on UK Companies

This post comes to us from Paul Ellerman (Partner) and Mark Ife (Partner) of Herbert Smith Freehills. 

New rules on inside information in the EU come into force on 3 July 2016 which impact on employee share plans.

The EU Market Abuse Regulation (MAR) will completely replace the current Market Abuse Directive and its UK implementing measures.  For UK listed companies, MAR will affect how Persons Discharging Managerial Responsibilities (PDMRs) get clearance for dealings in shares and how dealings are disclosed to the market. 

In addition, the periods when share awards under employee share plans may be granted or vest may change.  This is because the well-known concepts of "close periods" and "prohibited periods" under the UK Listing Authority's Model Code will disappear, to be replaced by a single concept of "closed periods" during which "dealings" will be prohibited (except in limited circumstances).  The Financial Conduct Authority (FCA) and the European Securities and Markets Authority (ESMA) have not so far provided guidance on how closed periods work and companies will need to re-visit their share plan rules to check the impact of MAR on the grant and vesting process.

At this stage, there is still a great deal of uncertainty as to the impact of MAR on the day to day operation of share plans and much will depend on whether and to what extent the FCA chooses to provide guidance.  Under the (disappearing) Model Code regime, there were a number of helpful exemptions that greatly assisted with the smooth operation of share plans (e.g. enabling participation by PDMRs in all-employee plans, allowing for the grant of awards in prohibited periods if certain conditions are met etc).  MAR contemplates that there may be special provisions which are applicable in relation to share plans but the related ESMA guidance is more restrictive than the current position under the Model Code so there remains uncertainty.

A guide to these issues may be found here and UK listed companies will be keen to start considering the issues highlighted and whether amendments are needed to their share plans to take account of MAR, particularly as the FCA provided very little guidance in their recent Policy Statement (PS16/13) on the issues.