3 July 2016 will bring the introduction of a new market abuse regime across the EU, replacing the existing market abuse regime that has operated in Ireland for the last 11 years. This new, more robust and far-reaching regime comprises a Market Abuse Regulation ("MAR") and the directive on Criminal Sanctions for Market Abuse (the "CSMAD"). MAR outlines the revised market abuse framework and, in contrast to the existing regime which is based on a 2003 Directive, MAR is a regulation and will consequently be directly effective in the EU Member States. Dispensing with the need for domestic legislation in the Member States will mean that application will be consistent across the EU. The minimum rules for criminal sanctions arising from breaches of the framework under MAR are set out in CSMAD which, being a directive, will require domestic legislation in each member state. This legislation is expected to be published in Ireland closer to the July transposition date.
The introduction of MAR and the CSMAD will have a number of implications for issuers of Irish listed debt securities. Issuers of debt securities listed on the Main Securities Market (the "MSM") on the Irish Stock Exchange are currently subject to the existing market abuse regime; however the new rules will extend beyond this regulated market to other organised trading facilities ("OTFs") and multilateral trading facilities ("MTFs"), meaning that for the first time issuers of debt securities on the unregulated markets across the EU, including the Enterprise Securities Market ("ESM"), the Atlantic Securities Market ("ASM") and the Global Exchange Market ("GEM") in Ireland, will now be subject to the market abuse rules.
Key Changes under the New Regime
- Issuers of financial instruments traded on OTFs and MTFs (including GEM, ESM and ASM in Ireland and the Third Market (Dritter Markt) of the Vienna Stock Exchange) will now be in scope;
- Issuers will be obliged to compile and maintain insider lists containing more detail than previously required;
- Dealings by PDMRs in debt securities must now be disclosed (the previous regime required disclosure of dealings in shares only);
- The timelines around notification of transactions by PDMRs and connected persons have been reduced from four days to three;
- There is now a prohibition on dealings by PDMRs and connected persons during 'closed periods';
- Delays in public disclosure of inside information and notification to the competent authority are permitted in limited circumstances;
- MAR is more prescriptive in relation to record keeping requirements for issuers;
- Minimum administrative sanctions will apply to breaches and criminal sanctions should be available for serious breaches committed with intent.
- Certain aspects of MAR are extraterritorial and so non-EU investment managers cannot ignore it and therefore need to understand the scope of the new regime.
Market Abuse Rules
The new market abuse regime prohibits insider dealing, unlawful disclosure of inside information and market manipulation. Chapter 3 of MAR sets out the obligations of issuers in respect of public disclosure of inside information, compiling and maintaining insider lists and reporting of transactions by managers.
Engaging or attempting to engage in insider dealing, recommending that another person engages in insider dealing or inducing another person to engage in insider dealing are all prohibited activities. Insider dealing arises where a person possesses inside information and uses same to gain an unfair advantage by directly or indirectly acquiring or disposing of financial instruments to which that information relates, whether for its own account or that of a third party. Cancelling or amending an order concerning a financial instrument to which the information relates, where the order was placed before inside information came into the possession of the person concerned, also constitutes insider dealing.
Unlawful Disclosure of Inside Information
This occurs where a person possesses inside information and discloses same to another person, except where the disclosure is made in the normal exercise of an employment, a profession or duties. Onward disclosure of recommendations or inducements for insider dealing also amounts to unlawful disclosure of information where the disclosing person knows or should know that it was based on inside information.
Inside information is information that is of a precise nature that has not been made public, relates directly or indirectly to one or more issuers or one or more financial instruments and if made public, would have a significant impact on the price of those financial instruments or related derivative financial instruments, as assessed by reference to a "reasonable investor". Article 7 of MAR outlines the types of information that constitutes inside information and states that ESMA will establish a non-exhaustive list of information which is reasonably expected or required to be disclosed for the purposes of MAR.
The public consultation process in respect of these guidelines is currently under way, and ESMA published responses to the consultation process on MAR information regarding commodities on 1 June.
Engaging in market manipulation or attempting to manipulate the market are offences under MAR and Article 12 sets out the types of activities and behaviour that can constitute market manipulation. Where any such transaction, order or behaviour have been carried out for legitimate reasons and conform to accepted market practice ("AMP"), the prohibition on market manipulation will not apply. ESMA will maintain and publish a list of approved AMPs and a competent authority can establish an AMP and notify same to ESMA where certain criteria are met, including the following:
- the practice provides for transparency to the market;
- safeguards to the operation of market forces are ensured;
- the practice has a positive impact on market liquidity and efficiency;
- the trading mechanism of the relevant market is taken into account and participants allowed to react properly and in a timely manner;
- the practice does not create risks for the market.
Disclosure of Inside Information
Issuers are obliged to disclose to the public inside information which directly concerns such issuer as soon as possible. The inside information should be made public in a manner which enables fast access and complete, correct and timely assessment. Disclosure should not be combined with the marketing of the issuer's activities and all inside information that the issuer is required to disclose publicly should be posted and maintained on the issuer's website for a period of at least five years. Public disclosure of inside information may be delayed by an issuer where each of the following conditions are met:
- immediate disclosure is likely to prejudice the issuer's legitimate interests;
- the delay is not likely to mislead the public; and
- the issuer can ensure the confidentiality of the information.
An issuer that delays public disclosure of inside information in these circumstances must, immediately following public disclosure, inform the Central Bank of the delay and provide a written explanation of how the foregoing conditions were met.
Issuers that are credit institutions or financial institutions may also delay public disclosure of inside information (including information relating to a temporary liquidity problem and the need to receive temporary liquidity assistance from a lender of last resort) for the purposes of preserving the stability of the financial system where:
- the disclosure risks undermining the financial stability of the issuer and of the financial system;
- delayed disclosure is in the public interest;
- the confidentiality of the inside information can be ensured; and
- the Central Bank has consented to the delay.
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