Worldwide: EU Market Abuse Regulation—Implications For Non-EU Issuers With Securities Traded On An EU Market

The EU's revamped market abuse rules—the Market Abuse Regulation ("MAR")—come into direct effect in all EU Member States on July 3, 2016. MAR expands the scope of certain EU rules to EU markets that were previously not subject to the EU market abuse rules, including the exchange-regulated segments of the Irish Stock Exchange and the Luxembourg Stock Exchange. These exchanges have historically been popular with non-EU issuers in the United States, in Latin America and elsewhere for listing their cross border debt offerings. For those issuers, MAR imposes new substantive disclosure and compliance requirements. Issuers will need to consider whether they will need to adopt new, or adapt existing, policies and procedures in order to comply with MAR. This briefing provides some guidance to issuers about these new requirements, the issues they raise and options that may be available to issuers in dealing with them, especially for issuers who are not otherwise tied to European markets as trading and capital-raising venues for their equity.

The Annex to this briefing contains a checklist of key actions that issuers may want to consider taking in preparing for MAR's application to their EU-traded securities.

What is Changing on July 3, 2016 and Why This Will Matter For Some Non-EU Issuers

MAR expands the application of the EU market abuse rules to EU markets that were previously exempt. These are EU multilateral trading facilities (MTFs) (and, from January 2018, "organized trading facilities"). EU MTFs include the Irish Stock Exchange Global Exchange Market (GEM), the Luxembourg Stock Exchange Euro MTF market and the London Stock Exchange's AIM market. Under the existing Market Abuse Directive, the rules only apply to securities traded on EU regulated markets, though a number of significant MTFs—e.g. the Irish GEM, AIM and all German MTFs—either chose to apply some parts of the EU rules to their markets or were required by national law to do so. Many non-EU issuers have historically chosen to list their debt securities on an EU MTF, rather than an EU regulated market, because of the MTF's more limited regulatory and reporting obligations. These markets will now become subject to the EU market abuse rules, as described in detail below.

MAR also extends procedural requirements for securities listed on EU regulated markets. In addition, for issuers with securities listed or traded on EU markets that were already subject to the EU market abuse rules, MAR extends the record keeping requirements and other procedures required to be followed to comply with those rules. It imposes more onerous requirements for issuers and, in the case of directors'/senior officers' dealings in EU-traded securities, for those directors/senior officers.

Issuers affected by the revamped rules will want to take the following actions:

  • Assess impact. Non-EU issuers with securities traded on an EU market will need to assess how onerous adapting to the new requirements will be and what changes will be required to their internal policies and procedures (and the related costs).
  • Consider listing alternatives. Depending on the impact assessment, issuers may consider delisting from their existing EU MTF and possibly seeking a listing or trading on a non-EU market. There are a number of market (including investor requirements) and legal considerations involved in any such assessment that will need to be taken into account.

What are the Key Requirements of MAR?

MAR contains two sets of provisions:

  • restrictions/prohibitions on (a) dealing in EU-traded securities when in possession of inside information (defined under MAR as summarized in the Annex, "Disclosure Requirements—Inside Information" below— essentially this is material non-public price sensitive information), and (b) market manipulation in relation to EU-traded securities, and
  • requirements with regards to: (i) the prompt disclosure of inside information in relation to EU-traded securities, (ii) the maintenance of lists of insiders within issuers (and their advisers) and (iii) reporting of dealings, as well as restrictions on dealings, by directors and certain senior officers.

Rules prohibiting insider dealing/market manipulation

MAR's insider dealing and market manipulation rules also apply to conduct taking place outside of the EU and off the relevant trading venue and regardless of any intention to benefit the insider personally. Market manipulation generally requires false or misleading behavior in some shape or form.

MAR provides certain safe harbors from the relevant prohibitions if detailed disclosure, record keeping and other requirements are followed:

  • share buybacks (safe harbor limited to share buybacks, but good practice would suggest that bond buybacks also follow the share buyback requirements as appropriate) (see the Annex, "Buybacks/Stabilization" below);
  • stabilization—(available for equity and debt) (see the Annex, as above);
  • market soundings (i.e. wall-crossing—pre-transactional discussions with potential investors where inside information is being shared) (see the Annex, "Market Soundings" below); and
  • certain AMPs (accepted market practices).

Disclosure, insider lists and trade reporting

  • Prompt disclosure of inside information. Inside information in relation to the relevant EU-traded securities must be disclosed as soon as possible and in the prescribed way. There are strict conditions under which this disclosure can be delayed—see the Annex, "Disclosure Requirements—Understanding the Circumstances Where Disclosure May Be Delayed" below. Issuers will need to familiarize themselves with the MAR definitions and standards, implement relevant policies and procedures for the prompt disclosure of inside information relating to the EU-traded securities and obtain appropriate advice in cases of any doubt.
  • Maintenance of insider lists. If an issuer is in possession of inside information, it will be required to maintain an insider list which records the names and certain other information of individuals with access to that inside information. The requirement also applies to any person acting on behalf of the issuer, e.g. professional advisors. These insider lists must be maintained and updated in the prescribed form and, where required, made available to the national regulator—see the Annex, "Insider Lists" below.
  • Trade reporting. Trades by the issuer's directors/senior officers in the EU-traded security must be reported by the individual to the national regulator and issuer. The issuer must then notify these to the market. "Transactions" for these purposes are defined very broadly. This is required whether or not the officer concerned has any inside information.

MAR prescribes a 30-day "closed period" before announcements of interim financials or year-end reports by the issuer. During this closed period, neither directors nor senior officers may deal in the EU-traded security. There are only very limited and tightly controlled and prescribed "exceptional circumstances" when an issuer may allow such dealings.

These rules only apply to EU-traded securities. Information that is price-sensitive for non-EU traded equity but not for EU-traded debt does not have to be disclosed. Dealings in non-EU traded equity will not need to be disclosed under MAR simply because the issuer has debt traded on an EU MTF.

Are the Issues the Same For All Non-EU Issuers? No.

Issuers that have only debt traded on an EU MTF. These issuers will have fewer issues to consider. Director/senior officer dealings in equity not traded in Europe will not require disclosure under MAR.

Issuers already traded on an EU-regulated market. These issuers are already subject to the existing rules and so are likely to have policies and procedures in place to deal with a large part of what MAR will require.

Issuers with securities admitted to trading on an EU MTF without their consent. Issuers who have their securities admitted to trading on an MTF (and no other EU market) without their consent will not be subject to the disclosure, insider lists and directors'/senior officers' transactions rules under MAR. They will, however, be subject to the prohibitions on insider dealing and the market manipulation rules under MAR as will any other person dealing in the securities. Most of the record keeping and notification requirements under MAR concern the disclosure and related rules, rather than the insider dealing and other prohibitions and so MAR should be less of a concern for those issuers. These issuers may, however, need to satisfy themselves that any "own dealings" in those EU-traded securities (e.g. buybacks) will not be caught by the insider dealing prohibitions (e.g. by ensuring they are not conducted when in possession of any inside information).

Sovereign issuers. Certain public bodies and central banks of third (non-EU) countries (as well as certain EU- bodies) have been exempted from MAR in relation to transactions, orders or behavior in pursuit of monetary, exchange rate or public debt management policies. These are designated bodies in the United States, Australia, Brazil, Canada, China, HK SAR, India, Japan, Mexico, Singapore, South Korea, Switzerland and Turkey.

"Private company" issuers. Issuers with no other public trading of securities other than their EU MTF traded debt may not have had to implement the internal policies to support compliance with existing EU rules and regulations, but will now be required to do this under MAR if their debt remains traded on the EU MTF. These companies may face the biggest challenge in preparing their internal systems to adapt to MAR.

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