Earlier this year, following a consultation period, the Capital Market Authority (CMA) issued the amended Market Conduct Regulations (MCR). While much of the amendments clarify the scope of the prohibition on market practices involving manipulation or deceit in the trading of securities, the prohibition on insider trading and disclosure of inside information has been expressly extended to apply to directors, senior executives and employees of capital market institutions (CMIs).

Key Amendments

There are three key amendments that increase the responsibility of CMIs in any insider trading scenario and the impact of which compliance officers at CMIs should consider carefully:

  • Broader Definition of "Insider"

    Previously, the definition of an "Insider" in the MCR specifically included directors, senior executives and employees of the issuer of the relevant security. However, for the first time, the definition of "Insider" now also expressly includes directors, senior executives and employees of CMIs related to the relevant inside information.

    Similarly, the previous definition of "Insider" referred to persons who obtain inside information through a business relationship, including from the issuer of a security related to the inside information. However, the new broader definition extends this to information obtained from a CMI related to the inside information.

  • Client Approval for Disclosure of Insider Information

    Despite the general prohibition on disclosure of inside information, it had widely been assumed this does not prevent a CMI from conducting its ordinary course of business. However, the amended MCR clarifies that a CMI and a registered person may only disclose its client's orders for the purpose of negotiating a private transaction for such client, provided that (a) the disclosure is in the client's interest to complete the transaction, and (b) the client's prior approval has been obtained and documented.

  • New Retrospective Market Manipulation and Insider Trading Reporting Obligation

    Previously, the reporting obligation was preventative in that a CMI had to notify the CMA within three days of any client order that it has declined to execute based on reasonable grounds to believe that its client is engaging in market manipulation or insider trading. While that remains the case, the reporting obligation has now been extended to a retrospective notification whereby the CMI, having accepted an order and subsequently believing, on reasonable grounds, that its client was engaging in market manipulation or insider trading, must notify the CMA within three days of becoming aware of such grounds.

Considerations for Capital Market Institutions

In light of these additional responsibilities, it would be prudent for compliance officers at CMIs to consider revising their policies and procedures and client terms and conditions to comply with the amended MCR and in order to mitigate the increased scrutiny faced by their directors, senior executives and employees.

Originally published September 2021

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