On July 3, 2016 the entire text of Regulation (EU) no. 596/2014 (‘Market Abuse Regulation’: see here and here) has become fully applicable in the European Member States, introducing a uniform legal framework on market abuse that contributes to the achievement of an effective Capital Market Union in Europe. While the Market Abuse Regulation springs from past rules and experience, being in many respects in line with the former Directive 2003/6/EC (‘Market Abuse Directive’) and with the case law of the European Court of Justice (‘ECJ’), it also contains significant substantive innovations that will impact the management of inside information by issuers and insiders and, more generally, trading practices. Clearly, the choice of this type of legislative instrument is in itself meaningful, since European regulations, generally speaking, do not require transposition into national law.
Our recent book (see details here) offers an extensive discussion of the new rules combining different approaches. In the first part, the contributors take a broader look at the underpinnings of insider trading regulation considering its key concepts also from an economic, historical and comparative perspective. The second part, on the other hand, contains an article-by-article analysis of the provisions of the MAR, along the model of a ‘commentary’. Our goal, in fact, is to bring together, in a single outlet, theoretical and practical considerations, attention for the general architecture of the system and its rationale, and also detailed interpretative analysis.
Firstly, a general framework discussion is required because of the increased opportunities to exploit inside information generated by the modern information economy and because of the challenges posed by continuous technological development. For instance, algorithmic and high-frequency trading (see a previous post here), which allow purchase and sale orders to be executed within milliseconds and market players to act immediately upon having an informational advantage, pose the question whether such techniques also raise a problem in terms of insider trading. The greater availability of information venues and financial engineering strategies potentially increases also the danger of market manipulation conduct, both in the form of information-based and transaction-based manipulation. The concept of market manipulation has correspondingly evolved in order to accommodate such changes.
Secondly, the Market Abuse Regulation calls for a renewed consideration of older theoretical problems, such as to what extent the insider dealing prohibition applies to the so-called ‘insider of himself’, in cases when the person dealing with the inside information is also the subject of the information or has created it, in light of the seemingly strengthened parity-of-information approach adopted by the European lawmaker. Similarly, from an enforcement perspective, attention must be given to the effectiveness of the powers granted to the supervisory authorities and to the need to clarify the administrative sanctioning system, as well as to the possibility of private enforcement. Market sounding rules also raise new and still unchartered legal issues (see here).
As a complement to the general discussion, a deeper scrutiny on the content of the specific provisions of the Market Abuse Regulation sheds light, on the other hand, on the more practical questions that remain unanswered.
An interesting example is given by the market abuse of unlawful disclosure of inside information, which takes place by simply disclosing inside information outside the normal exercise of an employment, profession or duty, and by its newly introduced exemption, which refers to the legitimate disclosure that occurs while conducting a market sounding in compliance with the requirements of the Market Abuse Regulation. Since there is no exact precedent on these provisions at the EU level or in some EU jurisdictions, their practical ramifications and repercussions are open to debate.
Also, the modification of pre-existing rules and definitions raises arguably unfamiliar issues. For instance, the Market Abuse Regulation not only expressly clarifies that intermediate steps of a protracted process may be considered inside information, thus codifying the ruling of the ECJ in the case Geltl v. Daimler, but also adopts a uniform definition of inside information, which is triggered at the same time as the insider dealing prohibition and the issuer’s disclosure obligations. This convergence of the two concepts is a significant departure from the two definitions that were seemingly allowed in the previous regime and that were adopted at the national level by some member States (such as the UK, Italy, and Spain). The effect should be that, at least in some cases, the point in time when disclosure obligations may arise can likely be anticipated.
Open issues concern, therefore, the exact timing of the disclosure, the required degree of consciousness of the existence of inside information concerning the issuer in order to fulfil the disclosure obligations, as well as the identification of the corporate body that is competent to assess whether a piece of inside information exists and how to manage it in compliance with the Market Abuse Regulation.
The book benefits from the perspectives of scholars and experts from different EU jurisdictions including, in addition to the editors Sebastian Mock and Marco Ventoruzzo, Alain Pietrancosta, Marco Dell’Erba, Sofie Cools, Danny Busch, Arad Reisberg, Chiara Mosca, Johannes Zollnern, Chiara Picciau and Jesper Lau Hansen.
Marco Ventoruzzo is Professor of Law at Bocconi University in Milan, Italy, and Professor of Law at the Pennsylvania State University Law School, State College, and Chiara Picciau is a post-doctoral researcher in commercial law at Bocconi University in Milan.