The market abuse regime in Europe has changed. On July 3, the Market Abuse Regulation (MAR) took direct effect in every EU Member State, bringing in changes relating to insider dealing, market manipulation, recipients of market soundings, suspicious order and transaction reporting, and investment recommendations, imposing additional obligations and requirements on issuers, and the managers of issuers, with shares and other financial instruments traded on European markets.
Significantly, the new regime goes beyond the scope of its predecessor, extending to all financial instruments admitted to trading on EU multilateral and organised trading facilities. Unfortunately, this broad-brush approach has the negative effect of making it difficult for market participants to identify whether a particular financial instrument is within the scope of the regulation. Indeed, MAR provides that Esma must compile a centralised list of financial instruments that are admitted to trading but makes clear that the regime applies to financial instruments regardless of whether they are included in Esma’s list; it will not be possible to use Esma’s list for a definitive indication of whether or not any particular financial instrument falls within the scope of MAR. Importantly, MAR applies to persons wherever located in relation to behaviour concerning financial instruments that are admitted to trading on an EU trading venue. Market participants based outside the UK and EU will need to be alert to the extraterritorial application of MAR.
GUILTY TILL PROVEN INNOCENT?
Under the new regime, national competent authorities can establish ‘accepted market practices’ that allow market participants to carry out certain types of behaviour when dealing in financial markets that are customary for a particular national market, even though such activities may potentially constitute market abuse in another national market. What is an accepted practice in one particular market may not be an accepted practice in another. Market participants should therefore pay close attention to the type of activities they wish to carry out in each trading venue they wish to operate in.
The introduction of the market soundings regime allows issuers, secondary offerors, emission allowance market participants and any party acting on behalf of the above to disclose inside information to potential investors to gauge interest in a transaction. Disclosing parties and recipients must ensure all such information is made and received in compliance with the provisions of MAR.
SUSPICIOUS TRANSACTION AND ORDER REPORTING
MAR establishes a new obligation regarding suspicious transactions and orders. Under MAR, all persons who professionally arrange or execute transactions are required to maintain effective systems and procedures to detect and report suspicious transactions and orders and cancellations that could constitute insider dealing, market manipulation, attempted insider dealing, or attempted market manipulation to the trading venue’s regulator without delay.
BREXIT AS USUAL
The UK government and the FCA believe in tough market regulation. Following any Brexit, market abuse will, in our view, not likely be a target for deregulation, not least because MAR and its predecessor are the offspring of the UK civil market abuse regime introduced in 2000.
In sum, firms must consider their potential obligations and ensure their systems and controls and training programmes protect against breach of the expanded regime.
William Yonge is partner at Morgan Lewis
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