United States: Governance & Securities Law Focus: Europe Edition, July 2016

EU DEVELOPMENTS

EU Referendum: UK Votes to Leave the European Union

As you are likely aware, the UK public voted on 23 June 2016 to leave the European Union. The vote itself has no legal effect on the laws of the UK or EU, and the UK will remain a member of the EU until there is either an agreement to exit or a two-year period expires from the date of issuance of a formal notice of exit by the UK government. That notice, when served, triggers a negotiation period of up to two years during which time the current EU laws continue to apply in the UK.

For further information on the departure of the UK from the European Union, please see our "Brexit" resource page which includes FAQs and industry specific comments, at:

Common Operation of Market Abuse Directive: ESMA Updates Q&A

On 1 April 2016, the European Securities and Markets Authority ("ESMA") published an updated version of its Q&A on the common operation of the Market Abuse Directive. The updated Q&A includes a new question on investment recommendations. The question deals with whether material that is intended for distribution channels or for the public, which concerns one or more financial instruments and contains statements indicating that these financial instruments are "undervalued," "fairly valued" or "overvalued," falls within the definition of "recommendation" contained in Article 1(3) of Commission Directive 2003/125/EC.

The update on the common operation of the Market Abuse Directive can be accessed here:

Prospectuses: ESMA Updates Q&A

On 6 April 2016, ESMA published version 24 of its Q&A on prospectuses. This version includes one new question around whether a prospectus can include an additional column to reflect recent or future material changes to the capitalisation and indebtedness statements required pursuant to Item 3.2 of Annex III (Minimum disclosure requirements for the share securities note) of the Prospectus Regulation. ESMA considers that it will depend on whether or not the change has triggered the requirement to disclose pro forma financial information, whether it is a recent complex change, whether it is a recent straightforward change and, in the case of a future change, whether it is certain or not.

Version 24 of ESMA's Q&A on prospectuses can be accessed here:

Transparency Directive: Final Draft Commission Delegated Regulation on European Electronic Access Point

On 19 May 2016, the Commission published the final draft text of its delegated regulation supplementing the Transparency Directive with regard to regulatory technical standards on access to regulated information at Union level.

The draft is substantially the same as the draft submitted by ESMA to the Commission in September 2015. The publication of the regulation in the Official Journal and its entry into force are subject to the European Parliament and Council not opposing the regulation. For a summary of the previous draft submitted by ESMA on 28 September 2015, please see our Q3 2015 Governance and Securities Law Focus newsletter available here:

Market Abuse Regulation: Regulation Takes Direct Effect in All Member States

On 3 July 2016, the Market Abuse Regulation ("MAR") took effect and became directly applicable for all Member States. At the same time, Member States (other than the UK and Denmark who chose not to opt into that directive) were required to have implemented the Criminal Sanctions for the Market Abuse Directive.

MAR replaces and extends the application of the EU's previous Market Abuse Directive in a number of significant ways, while retaining certain core underlying concepts and rules – such as the concept of "inside information" that must generally be disclosed to the market as soon as possible, limited circumstances in which this disclosure may be delayed, the requirement to maintain and update "insider lists," reporting of transactions by "persons discharging managerial responsibilities" ("PDMRs") and prohibitions on insider dealing and manipulation of the market.

Key areas in which MAR extends the previous EU market abuse regime include:

  • applying to securities traded on multilateral trading facilities (and, from January 2018, organised trading facilities) as well as regulated markets;
  • applying to market participants in emissions trading allowances (although these provisions will not take effect until January 2018);
  • imposing "closed periods" during which PDMRs may not deal in securities; and
  • laying down much more detailed and prescriptive mechanisms and procedures that must be followed to comply with MAR (e.g. in relation to conducting market soundings) or to fall within certain safe harbours (such as those established for share buy backs and stabilisation transactions).

MAR was finalised and officially published in 2014 and various ancillary implementing or delegated measures have also been issued or are being issued under MAR.

For our previous coverage of MAR in the Governance and Securities Law Focus newsletters, please see:

To view a copy of our MAR briefing, please see:

To view the regulation itself, please see:

MiFID: Commission Delegated Regulation on Admission to Trading (Corporate Aspects)

On 24 May 2016, the European Commission published a delegated regulation under the Markets in Financial Instruments Directive (II) ("MiFID II") regarding the technical standards for the admission of financial instruments to trading on regulated markets. Corporate aspects of the text of the regulation remain in substantially the same form as the text proposed by ESMA in its September 2015 report.

For a summary of the previous draft submitted by ESMA on 28 September 2015, please see our Q3 2015 Governance and Securities Law Focus newsletter available here:

The delegated regulation will enter into force on the 20th day after its publication in the Official Journal and will apply from 3 January 2017, subject to the European Parliament and Council not opposing it under Article 13 of Regulation 1095/2010.

The delegated regulation can be accessed here:

MiFID and MAR: Council Adopts Legislation to Extend the MiFID II Implementation Date

On 17 June, the Council announced that it had adopted legislation amending MiFID II and the proposed new regulation amending the Markets in Financial Instruments Regulation ("MiFIR"), MAR and the Central Securities Depositories Regulation to, among other things, postpone the implementation date of the MiFID II legislative package by one year to 3 January 2018. No substantive changes have been made to the Parliament's text adopted on 7 June.

The resolutions of the European Parliament made on 7 June can be accessed here:

The press release can be accessed here:

On 30 June 2016, the instruments were published in the Official Journal and are now in force. For further information on the delay to the implementation of MiFID II, please see our client note available here:

UK DEVELOPMENTS

PSC Register: BIS Non-Statutory Guidance

On 12 April 2016, the Department for Business, Innovation and Skills ("BIS") published updated versions of both its non-statutory guidance for companies, SEs and LLPs and its non-statutory guidance for people with significant control.

The revised guidance is broadly the same as previous guidance, however amendments include:

  • clarifying that a person's direct and indirect interests must be aggregated for the purpose of choosing the appropriate statement to include in a PSC register;
  • deleting an option to acquire shares from the examples of rights exercisable only in certain circumstances. The guidance for companies also includes a new paragraph stating that weighted voting rights on particular matters are unlikely to meet the voting rights test in the second specified conditions; and
  • correcting the official wording for inclusion in the PSC register of an LLP.

For a summary of the previous BIS non-statutory guidance, please see our Q1 2016 Governance and Securities newsletter available here:

The updated versions of the non-statutory guidance can be accessed here:

LSE Consultation on Changes to AIM Rules for Companies Ahead of the Market Abuse Regulation

In the UK, the introduction of MAR has led to certain significant amendments to the Financial Services and Markets Act 2000 and the FCA Handbook, largely to repeal or recast guidance or rules that have been replaced by, or may have conflicted with, the new directly applicable MAR requirements.

In addition, on 13 April 2016, the London Stock Exchange ("LSE") issued AIM Notice 44, the purpose of which was to consult on proposed changes of the AIM Rules for Companies in light of MAR coming into effect on 3 July 2016.

The key proposals were to:

  • amend the guidance on AIM Rule 11 (General disclosure of price sensitive information) to clarify that AIM Companies will have to comply with both AIM Rule 11 and Article 17 of MAR;
  • amend AIM Rule 17 (Disclosure of miscellaneous information) to remove the notification requirement in relation to directors' dealings which is satisfied by complying with Article 19 of MAR;
  • incorporate a new rule on dealing policy; and
  • clarify AIM Rule 41 (Cancellation) which deals with the circumstances in which the LSE might waive the requirement for shareholder approval to cancel securities which are or will be admitted to trading on an EU regulated market or an AIM Designated Market.

On 14 June 2016, the LSE published AIM Notice 45 to announce that following the consultation, all of the consequential changes envisaged in AIM Notice 44 would be made to the AIM Rules for Companies and Nominated Advisors and the AIM Note for Investing Companies, save that the definition of applicable employee for the purposes of AIM Rule 21 (Dealing policy) and the respective guidance were also amended. The new versions of the rules came into effect on 3 July 2016.

AIM Notice 44 can be accessed here:

AIM Notice 45 can be accessed here:

The revised AIM Rules for Nominated Advisers can be accessed here:

The AIM Note for Investing Companies can be accessed here:

FCA: Interim Report on Investment and Corporate Banking Market Study

On 13 April 2016, the Financial Conduct Authority (the "FCA") published its interim report on the investment and corporate banking market study.

The FCA began a market study into investment and corporate banking on 22 May 2015. This market study focused on choice, transparency, bundling and cross-subsidisation in debt and equity capital markets, and mergers and acquisitions. The market study also focused on the links between competition in these primary market services and related activities such as corporate lending and broking and ancillary services.

This interim report highlights the FCA's current conclusions stating that, while many clients feel well-served by primary capital market services, there were also some areas where improvements could be made to encourage competition. There was a particular concern around cross-subsidies in the universal banking model between corporate banking and investment banking, as well as specific market practices such as syndication and reciprocity. The FCA suggests some possible remedies for the issues identified.

The FCA expects to publish its final report in summer 2016.

The interim report can be accessed here:

Prospectuses: FCA Discussion Paper on Availability of Information in the IPO Process

On 13 April 2016, the FCA published a paper opening a discussion with the aim of ensuring market participants have access to the right information at the right time during the IPO process. Currently there is a blackout period between research on the issuer being published by the banks supporting the IPO and circulation of the issuer's prospectus, which means that investors only gain access to an important source of information late in the process. In addition, analysts unconnected with the IPO generally lack access to the management of the issuer, leaving them with little information on which to base their independent research.

The discussion paper sets out alternative IPO process models which comprise different combinations of two ideas: a requirement to delay the release of any research by analysts at banks connected to the IPO until after the prospectus is published, and a requirement to invite analysts from unconnected banks and independent research providers to any meetings with management.

The discussion period closes on 13 July 2016.

The discussion paper can be accessed here:

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