Following on from our earlier publication in relation to the new Market Abuse Regime, the Market Abuse Regulation (EU 596/2014 - 'MAR') and the Market Abuse Directive on criminal sanctions for market abuse (Directive 2014/57/EU or 'CSMAD' and, together with MAR, 'MAD II') became applicable in Ireland and across the European Union on 3 July 2016. The new regime replaces the previous Market Abuse Directive (2003/6/EC).
MAR aims to enhance market integrity and investor protection by updating and strengthening the existing market abuse framework by (a) extending its scope to new markets and trading strategies; and (b) introducing new requirements and standards.
MAR does not seek to limit its scope to financial instruments traded on regulated markets ("Regulated Markets") in the EU, but extends its requirements to financial instruments listed or traded on Multilateral Trading Facilities ("MTFs") and Organised Trading Facilities ("OTFs") and emission allowances, and to issuers who have made application for securities to be listed or traded on such markets.
Issuers with securities listed on Regulated Markets, MTFs and OTFs in the EU, including the Main Securities Market ("MSM"), Global Exchange Market ("GEM") and Enterprise Securities Market ("ESM") of the Irish Stock Exchange, should carefully review the obligations under MAR and to adopt policies and procedures to ensure compliance with the new regulations.
For the purpose of this memorandum MAR, CS MAD, the ESMA Technical Advice dated 3rd February 2015 (the "TA") and the ESMA Technical Standards dated 28th September 2015 (the "TS") are collectively referred to as ("the Regulations").
If you have any questions on the new Market Abuse Regime please contact a member of our ISE Listing Team or your usual Financial Services contact.
Determining what constitutes inside information:
It is the responsibility of the Directors to determine whether information constitutes inside information. Where information is determined to constitute inside information it must be made public as soon as possible.
The definition of what constitutes inside information is set out in Appendix I. It encompasses information which has not been made public, relating, directly or indirectly, to an issuer of securities which are listed or traded on a regulated market, MTF or OTF, which, if the information were made public, would be likely to have a significant effect on the prices of those listed/traded financial instruments or on the price of related derivative financial instruments. In determining the likely significance of information an ISE listed fund is required to assess whether the information in question would be likely to be used by a reasonable investor as part of his/her investment decision and would be likely to have a significant impact on the price of the funds financial instruments or related derivative financial instruments (the "reasonable investor test").
In the context of an ISE listed fund, "issuer" may be interpreted as (i) the umbrella as a whole, where the information may have a potential impact on the price of all of the securities of the fund or (ii) a listed sub-fund, where the information relates only to securities within that listed sub-fund.
The decision as to whether information constitutes inside information is of critical importance, and the key elements of that decision should be documented and where appropriate minuted by the fund.
- The date and time that the fund and/or relevant person came into possession of the information;
- The date and time of the decision as to whether the information constitutes inside information and the outcome of that decision;
- In the case of a protracted process – the consideration of whether each stage may in itself constitute inside information.
- The identity of those persons involved in decision;
Persons to whom the Insider Rules apply:
These rules relating to inside information apply to any person who possesses inside information by virtue of:
- the person's membership of the administrative, management or supervisory bodies of a listed fund;
- the person's holding in the capital of a listed fund;
- having access to the information through the exercise of the person's employment, profession or duties; or
- the person's criminal acts.
These rules also apply to any person who possesses inside information under circumstances other that those referred to above, where that person knows, or ought to know, that it is inside information. Where that person is a legal person, these rules shall also apply, in accordance with national law, to the natural persons who participate in the decision to trade, amend or cancel an order for the account of the legal person involved. This effectively extends the insider rules to any person in possession of inside information, who is aware, or ought to be aware that it constitutes inside information.
Conditions, requirements and prohibitions which apply to an ISE listed fund and those persons acting on behalf of the fund when in possession of inside information:
- Trading Restrictions;
- Restriction on Unlawful Disclosure of Inside Information;
- Preparation and Maintenance of Insider Lists; and
- Publication of Inside Information.
A. Trading Restrictions
Insider dealing arises where a person who possesses inside information uses that information by acquiring or disposing of, for its own account or for the account of a third party, directly or indirectly, financial instruments to which that information relates, e.g. shares or debt instruments of the listed fund, or derivatives linked to them.
All persons in possession of inside information are prohibited from dealing in any securities of the ISE listed fund as appropriate, or derivatives linked to them, while in possession of inside information relating to the listed fund or those financial instruments. For the avoidance of doubt, this includes all securities of the fund, whether listed or unlisted, to which that inside information relates.
A person in possession of inside information shall not:
- engage or attempt to engage in insider dealing;
- recommend that another person engage in insider dealing or induce another person to engage in insider deadline; or
- unlawfully disclose inside information.
It is an offence to use inside information to buy or sell financial instruments. It is also an offence to disclose inside information to any other person, unless this is done in the normal course of that persons employment, profession or duties.
A person who deals while in possession of inside information will be presumed to have used that information.
The use of inside information by cancelling or amending an order in the securities of a listed fund, or derivative securities linked to them, where the order was placed before the person concerned possessed the inside information, shall also be considered to be insider dealing.
Recommending or inducing others to engage in insider dealing or to cancel or amend an existing order in securities of a listed fund also amounts to insider dealing.
Certain legitimate behavior is recognised whereby legal persons in possession of inside information may trade in a securities relating to an ISE listed fund in circumstances where:
The fund has established, implemented and maintained adequate and effective internal arrangements and procedures that effectively ensure that neither the natural person who made the decision on behalf of the fund to acquire or dispose of the shares, nor another natural person who may have had an influence on that decision, was in possession of the inside information; and
That legal person has not encouraged, made a recommendation to, induced or otherwise influenced the natural person who, on behalf of the legal person, acquired, disposed of the shares of the fund.
Further legitimate behaviour includes transactions where either:
- The obligation results from an order placed or an agreement concluded before the person concerned possessed inside information; or
- The transaction is carried out to satisfy a legal or regulatory obligation that arose, before the person concerned possessed inside information.
Closed Dealing Period
The directors of an ISE listed fund are prohibited from dealing in the securities of the fund, or derivatives or other financial instruments linked to them, on their own account or for the account of a third party, directly or indirectly, during a closed period of 30 calendar days prior to the publication of the funds' interim and annual report, unless specific limited circumstances apply.
B. Unlawful Disclosure of Inside Information
The directors of an ISE listed fund, or any person in possession of inside information, may not disclose such inside information to any other person, except where the disclosure is made in the normal exercise of an employment, a profession or duties.
The onward disclosure of recommendations or inducements also amount to unlawful disclosure of inside information where the person knows, or ought to know, that it was based on inside information.
Market soundings are interactions between a seller of financial instruments and one or more potential investors, prior to the announcement of a transaction. These are recognised to be a highly valuable tool and are important for the proper functioning of financial markets and should not in themselves be regarded as market abuse.
Prior to conducting any market sounding, an ISE listed fund must:
- specifically assess whether the market sounding will involve the disclosure of inside information;
- make a written record of its conclusion and the reasons for reaching it (and provide this written record to the competent authority upon request);
- obtain the consent of the person to receiving the sounding to receive that information;
- inform the person receiving the information that he/she is prohibited from using that information, or attempting to use it, by acquiring or disposing of, for his own account or for the account of a third party, directly or indirectly, financial instruments relating to that information; or cancelling or amending an order which has already been placed concerning a financial instrument to which the information relates; and
- inform the person receiving the market sounding that by agreeing to receive the information he is obliged to keep the information confidential.
An ISE listed fund should maintain a record of all information given to the person receiving any market sounding, including the prescribed information given and the identity of potential investors to whom the information has been disclosed and the date and time of each disclosure. Such records will be provided to the Central Bank on request.
C. Insider Lists
An ISE listed fund is required to draw up a list of those persons working for them, whether under a contract of employment or otherwise, "who have access to inside information".
Such lists must be drawn up in line with the prescribed format, held in electronic form and must be prepared on an event driven basis in response to a specific piece of inside information. Such lists require the inclusion of personal information in relation to each person on the list in order to allow the Central Bank to identify and contact such a person in the event of a suspected breach of the Insider Rules.
Lists must be kept up to date at all times and not only upon receipt of a request from the Central Bank. Lists must be promptly updated where there is any change to those persons with access to information or where there is a change in the reason the person on the list has access to the inside information. Any insider lists must be provided to the Central Bank through its Online Reporting System ("ONR"), as soon as possible upon request. Insider lists must be retained for a period of at least 5 years after being drawn up or updated.
An ISE listed fund may maintain a list of the principal contacts at its service providers where each service provider in turn maintains their own lists of employees who might have access to any inside information and confirm to the ISE listed fund that such lists will be maintained, updated and made available to the fund on demand. The ISE listed fund will remain ultimately responsible for the preparation, updating and maintenance of insider lists relating to the fund.
Any person on an insider list will be required to acknowledge in writing their legal and regulatory duties entailed and that they are aware of the sanctions applicable to insider dealing and unlawful disclosure of inside information.
Insider lists must be updated promptly, including the date of the update and should specify the date and time of the event triggering the update:
- Where there is a change in the reason for including a person already on an insider list;
- Where there is a new person who has access to inside information and needs to be added to the insider list; and
- Where a person ceases to have access to inside information.
ISE listed funds may elect to prepare and keep up to date a "permanent insiders" section of the insiders list, which is of a different nature to the rest of the sections, as it is not created upon the existence of a particular piece of inside information. The permanent insiders list includes those persons who, due to the nature of their function or position, have access to all inside information within the listed fund.
An additional list, the "Event Driven List", will include all insiders, other than the permanent insiders, in relation to a specific item of inside information, which together with the permanent inside list, would constitute the aggregated insider list in relation to that inside information.
D. Public Disclosure of Inside Information
An ISE listed fund must inform the public as soon as possible of inside information.
The information will be made public in a manner which enables fast access and complete, correct and timely assessment of the information by the public. The listed fund must post and maintain on its website, for a period of five years, all inside information it is required to disclose publicly.
Where there is any change in published inside information, and the change itself constitutes new inside information, this new information is covered by inside information provisions under the Regulations, and the full process of public disclosure will have to take place again.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.