Two months from now, on 3 July 2016, the new European Union Market Abuse Regulation (“MAR”), addressing insider trading, disclosure of inside information, and market manipulation will come into effect. The new rules will repeal and replace the current EU Market Abuse Directive (“MAD”). Unlike the MAD, which set minimum standards for market abuse regulations that Member States were required to satisfy through national laws, the new MAR will directly apply throughout the EU by its own force and replace existing national market abuse regulations.
For the most part, the substantive rules under the MAR will mirror the pre-existing rules under the MAD. In particular, the definitions relating to insider trading and market abuse, as well as the duties of issuers promptly to disclose inside information and avoid selective disclosure, largely remain the same. Several changes, however, have important implications for European issuers, and investment firms and their employees.
Most notably, the MAR has an expanded scope. While the MAD applies only to financial instruments trading on regulated markets and derivatives based on such instruments, the MAR will also apply to financial instruments trading on multilateral trading facilities and organized trading facilities and to related derivatives. Further, under the MAR, market manipulation rules will apply to certain commodities contracts and benchmarks, such as LIBOR.
The MAR will also add several new requirements for covered issuers, including requiring issuers to create and maintain records evidencing compliance with rules for delaying disclosure of inside information, and for disclosure of inside information as part of a market sounding, as well as expanded and more detailed rules for the creation of lists of individuals possessing inside information. For covered issuers, the MAR will expand the MAD’s requirements for disclosing transactions by certain insiders and will introduce closed periods, extending 30 days before the announcement of required interim or year-end financial reports, during which such insiders generally may not trade in the issuer’s securities or related derivatives. Importantly, the MAR’s closed periods differ from the closed periods existing under some countries’ current law, such as those of the UK.
In addition, the MAR makes several changes intended to aid enforcement of market abuse rules. While the MAD required professionals arranging and executing transactions to report any suspicious transactions, the MAR will also require such professionals to report suspicious orders and to maintain effective systems to detect suspicious orders and transactions. In part to reduce the necessary burden of proof for market manipulation, the MAR will add the offense of attempted market manipulation, which does not require proof of an actual impact on the market. And, to increase deterrence, the MAR will create minimum remedies and maximum penalties that all Member States must have available as part of their enforcement regimes. These civil remedies will work in conjunction with the Directive on Criminal Sanctions for Market Abuse , which also comes into effect on 3 July 2016, and requires Member States (except the UK and Denmark, which have opted out) to criminalise and provide adequate penalties for market abuse violations.
As the MAR demonstrates, market abuse remains a major focus for European regulators, and market abuse rules remain an important part of doing business in Europe. Affected companies – including investment banks, investment advisors, and issuers trading on European markets – should review their compliance policies and procedures, and consider adopting any revisions or implementing new systems and mechanisms, in order to ensure that they bring themselves into timely and effective compliance with these impending changes.