UK: The Market Abuse Regulation – Impact On AIM Companies

On 3 July 2016 the Market Abuse Regulation (MAR) will come into force and will apply directly to AIM traded companies. The London Stock Exchange has recently confirmed the changes it will make to the AIM Rules as a result of MAR. AIM companies should take final steps now to prepare for the new regime under MAR and the new AIM Rules. The revised AIM Rules will come into force on 3 July 2016.  

What are the main changes for AIM companies?

Disclosure of inside information

Under MAR, AIM companies will be required to disclose inside information as soon as possible, subject to certain circumstances when disclosure can be delayed. There are no changes to the current AIM Rule 11 which sets out a general disclosure of price-sensitive information for AIM companies. There is some overlap between the obligations to disclose under the AIM Rules and MAR but they are not identical and there are additional requirements that apply under MAR. An AIM company will need to consider both the AIM Rules and MAR when deciding whether disclosure to the market should be made immediately or whether disclosure can be delayed.

The guidance to AIM Rule 11 will signpost companies to the separate obligation to comply with their obligations under MAR. These include requirements around the format and content of notification of information to the market and making that information available on the AIM company's website.

AIM intends to work closely with the FCA to reduce duplication of regulation.

Delaying disclosure

If an AIM company delays disclosure of inside information to the market, it must keep detailed records of its decision to do so, including: the time and date of when the company decided to delay disclosure, the persons responsible for the decision to delay disclosure and the steps that the company took to monitor the conditions permitting the delay. Subsequently, when the inside information is announced, the company must inform the FCA that disclosure was delayed and the FCA may ask for written explanation of the reasons and justifications for delaying disclosure.

Insider lists

Under MAR, companies are required to keep up-to-date insider lists which list all persons acting for them who have access to inside information (on a permanent and ad hoc basis). Further, companies are required to ensure that any person on the list acknowledges in writing their legal and regulatory duties in respect of inside information and the potential sanctions for breach. Insider lists should be kept in a prescribed form electronically.

Dealings by "persons discharging managerial responsibilities"

MAR introduces:

  • new disclosure obligations on "persons discharging managerial responsibilities" (PDMRs) and "persons closely associated" (PCAs) with them; and 
  • new restrictions on PDMR dealings during "closed periods",

which will apply to AIM companies.

A PDMR includes not only board members but also any senior executive who has regular access to inside information and power to make managerial decisions affecting the development and business of the company. A PCA to a PDMR includes: a spouse or civil partner, a dependent child, another relative living with a PDMR for at least 12 months and a legal person, trust or partnership set up for, controlled or the benefit of, a PDMR or another of its PCAs.

Disclosure obligations

PDMRs and their PCAs will be required to notify the company and the FCA within three business days of every transaction conducted on their own account relating to shares or debt instruments in the company or related derivatives or other financial instruments. Companies are under an obligation to promptly, and in any event  within three business days, make public each transaction notified to it, by its PDMRs and their PCAs. These requirements go further than current AIM Rule 17, which relates only to directors dealings and which will therefore now be deleted.

The threshold requiring disclosure under MAR is EUR 5,000 per annum. However, as there was no previous threshold for disclosure and due to the complications around conversion rates, an AIM company may wish to ensure that all transactions are notified.

Notification of dealings (both by a PDMR/PCA) should be made in the form prescribed by the FCA.

Companies are required to keep a list of all PDMRs and their PCAs. A company must notify its PDMRs in writing of their obligations to disclose dealings to the company and the FCA, and PDMRs are required to notify their PCAs of the same.

Prohibited dealings

MAR sets out a legal prohibition on PDMRs conducting transactions on their own account or for the account of third parties during closed periods. This is subject to only limited exemptions. A closed period under MAR is a period of 30 days immediately preceding the announcement of a company's interim or year-end financial report.  

As the obligations under existing AIM Rule 21 and the new obligations under MAR are not fully aligned (the current definition in the AIM Rules of "closed period" is, for example, more extensive than that set out in MAR), AIM Rule 21 in its current form will be deleted.

The FCA have advised, pending clarification from the European Commission and ESMA, that where a company announces preliminary results the closed period will be 30 days immediately preceding announcement of the preliminary results. The announcement will end the closed period provided it contains all inside information expected to be included in the year-end report.

Share dealing code

It will be a new requirement of AIM Rule 21 for an AIM company to have a share dealing code in place.  A share dealing code sets out the requirements and procedures for PDMRs dealing in the securities of the company and, in many respects, this new AIM Rule codifies market practice for AIM companies.

At a minimum, the share dealing code must include: when a company's closed periods are;  when a PDMR requires clearance to deal in the company's securities; the nominated person within the company to grant clearance; the procedure to obtain clearance and the company's assessment for clearance; the timeframe for dealing and notification of dealing in accordance with MAR. A company may wish to extend its share dealing code to restrict PDMR dealings, for example in circumstances where the company is in possession of unpublished inside information (whether the PDMR was aware of such information or not).

AIM has stated that a share dealing code should be tailored to a particular company's circumstances to ensure it is understood and applied effectively in practice.

What does an AIM company need to do?

AIM companies will need to consider the following:

Disclosure of inside information

  • Processes: Review existing processes for consistency with MAR.
  • Delay Disclosure Committee: Consider whether it is appropriate to adopt a committee to make decisions about whether disclosure of inside information can be delayed.  If not, who has responsibility for that decision?
  • Clear Record Keeping: Keep detailed records including specific dates and times about delaying disclosure of information.
  • Insider List: Keep an electronic up-to-date list of all persons who have access to inside information in the format compliant with MAR. Persons listed on the insider list should acknowledge in writing their legal and regulatory duties in respect of inside information.

PDMR dealings

  • PDMR and PCA List: Keep an up-to-date list of all its PDMRs and their PCAs and notify its PDMRs in writing of their obligations to disclose dealings to the company and the FCA.
  • Share Dealing Code: Review its current share dealing code (assuming the company has one) and either update the current form or adopt a new share dealing code that is compliant with the AIM Rules and MAR.
  • Nominated Clearance Person: Nominate an appropriate person to grant clearance to PDMRs to deal in accordance with the share dealing code.
  • Existing Employee Share Schemes: Review any existing employee share schemes to ensure they are compliant with the exceptions for dealing during closed periods under MAR.

More generally, AIM companies should consider what training is appropriate for its employees in respect of compliance with the company's obligations under MAR and the new AIM Rules.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries.

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.

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