The European Commission recently presented drafts for a complete revision of the market abuse regime. The aim is to considerably extend and tighten the applicable provisions regulating the ban on insider trading, ad-hoc disclosure, directors' dealings and the prohibition of market manipulation. An overview of the most important aspects is given by Falk Osterloh, Junior Partner at Oppenhoff & Partner.
A new regulation of the Market Abuse Directive (MAD) dated 2003 has already been the subject of intense discussion for some time. The new regulation is to take the form of an EU Regulation (Market Abuse Regulation (MAR) [Marktmissbrauchsverordnung, MMV]). Because EU Regulations have direct applicability in the Member States, this would leave individual countries with no further leeway of their own regarding its implementation. This should prevent regulatory arbitrage between the trading venues and represents a further step towards a uniform pan-EU capital market law.
The scope of applicability of the market abuse regime is to be broadened considerably as a whole. To date, essentially only financial instruments traded on the regulated market have fallen within its scope, with a few exceptions for listed papers traded OTC. Now, the rules are to apply to all financial instruments traded on and off-market. Certain price-linked financial instruments (e.g. credit default swaps) or commodity derivatives and even emission permits will also fall under the regime. In order to relieve the burden upon small and medium-sized enterprises, many forms of relief are envisaged for such enterprises.
No further synchronisation
To date, the ban on insider trading has been synchronised with the ad-hoc disclosure requirement. A person with inside information may not trade in the securities in question. The issuer must publish inside information without undue delay. This is now to be broken down. Relevant inside information can already lie below the threshold which obliges an enterprise to make an ad-hoc disclosure. The status of M&A contractual negotiations should now fall under this provision. Of extreme relevance in practice is the possibility of postponing the publication of an ad-hoc disclosure under certain circumstances. At present, the issuer bears the risks of falsely appraising the prerequisites herefor. In case of system-relevant information, e.g. the state refinancing of banks, subject to further conditions the competent supervisory authority can now also approve a postponement.
As before, dealings of persons with managerial duties and persons closely related to them concerning shares in their "own" enterprise (so-called directors' dealings) require notification. The Market Abuse Regulation also explicitly covers pledges, gratuitous hires as well as dealings by trustees or asset managers of the directors, for example. The threshold value triggering the notification obligation is to be raised uniformly to 20,000 euro per year. It is questionable whether or not the exceptions that presently exist in Germany will be upheld, for example acquisitions made on the basis of an employment contract.
The prohibition of market manipulation is more strictly structured in Germany than presently prescribed by EU law. For this reason, the modifications are limited in terms of content. However, the prohibition of market manipulation now also applies to the new areas to be covered by the market abuse regime.
Threat of drastic penalties
The operators of markets and trading systems are to be integrated more intensely in the prevention and disclosure of market manipulation. The powers of the supervisory authorities are to be expanded. The sanctioning possibilities are also to be drastically extended. Natural persons can be fined as much as 5 million euro, companies can be fined as much as 10% of their overall annual turnover. Moreover, as a deterrent, all sanctions and measures must be made public (so-called naming and shaming). The Market Abuse Regulation is flanked by the draft of an EU Directive which will now also regulate the criminal sanctions of market abuse on a European level. According to the Directive, insider dealing and market manipulation must be penalised on a pan-European basis. An attempted market-abusive practice, as well as incitement to and the aiding and abetting of such practice, must also be punishable offences. The Bundesrat does not consider the EU to be the competent body for determining the criminal offences and their penalties and has lodged a complaint to this effect.
The drafts are currently being discussed by the expert committees. In all probability, the European Parliament will address the topic in September 2012. The Market Abuse Regulation provides that it will enter into force 24 months after promulgation, that is to say at the earliest in 2014. By such time, the Directive on Criminal Law should also have been transposed into national law.
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