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Market Abuse update – insider lists

04 July 2016

One of the key provisions under the new Market Abuse Regulation (MAR), which applies from 3 July 2016, is an enhanced requirement to maintain insider lists.

Under the MAR, issuers or persons acting on their behalf must:

  1. Prepare a list of all those with access to inside information, to include both employees and advisors (for example, accountants and legal advisors)
  2. Maintain the insider list by updating it when required (for example, when an additional person accesses the inside information, or a person ceases to have such access)
  3. State the date and time when the change triggering the update occurred
  4. Provide the insider list to the relevant competent authority (for example, the Central Bank of Ireland) as soon as possible upon its request.

Issuers are also obliged to take all reasonable steps to ensure that all those with access to inside information (‘insiders’) acknowledge their duties in this regard and are aware of the applicable sanctions relating to insider dealing and the unlawful disclosure of inside information.

Precise content of insider lists

MAR does not introduce the obligation to maintain insider lists. There is a similar, albeit less prescriptive, requirement under the existing market abuse regime. However, the application of this requirement under the current regime has resulted in a lack of uniformity across member states leading to increased costs and inefficiencies for issuers and advisors located in multiple jurisdictions.

The key change that MAR will bring about for insider lists is that the level of information required to be provided by the issuer will be more burdensome. In this regard, the European Commission has recently adopted an implementing regulation (to supplement the MAR) specifying the precise format of insider lists.

Insider lists are required to be prepared on a deal-specific/event-specific basis and maintained in electronic format in accordance with Template 1 of Annex 1 here. Further, issuers are given the discretion to maintain a supplemental list of ‘permanent insiders’ who, due to the nature of their function, have access at all times to inside information. The permanent insider list should also be maintained in electronic format in accordance with Template 2 of Annex 1 here.

Specifying the exact form and content of the information to be provided is expected to ensure greater harmonisation across member states, which will benefit issuers and their advisors by reducing compliance costs.

Can ‘insiders’ deal in the issuer’s shares?

There are limited circumstances in which insiders can deal in the shares of the issuer. One example is where a person, in the normal course of their employment, is authorised to execute third-party orders and the dealing results from carrying out such transactions.

In light of the extremely limited scope for insiders to legitimately deal in the issuer’s shares, and the express updating requirements under MAR, it is very important that insider lists are updated regularly. If an insider list is not promptly updated, a person could inadvertently fall foul of the prohibition on insider dealing despite not actually being in possession of inside information − all because the insider list had not been updated to reflect the fact that he had ceased to hold such information.

Next steps

Issuers and their advisors need to consider the necessary internal procedures required to ensure the initial preparation and subsequent prompt updating of insider lists. Issuers should also discuss with their advisors how best to manage the flow of inside information between their respective organisations.

It is noteworthy that the issuer remains fully responsible for complying with the insider lists requirement even if the issuer’s advisors assume the task of preparing and updating the advisors' own insider lists. 

Managers’ and issuers’ obligations to disclose transactions under Market Abuse Regulation

Our updates on the MAR continue with this article which summarises the wide-ranging and prescriptive regime to be introduced for the notification of managers' transactions

The new Market Abuse Regulation (MAR) introduces a more robust, wide-ranging and prescriptive regime for the notification of managers’ transactions than currently applies.

Article 19 of MAR obliges persons discharging managerial responsibilities (PDMRs) and persons closely associated with them to notify both the issuer and the relevant competent authority of every transaction (conducted on these persons’ accounts) relating to the shares or debt instruments of that issuer, or to derivatives or other financial instruments linked thereto.

Who is a PDMR?

A PDMR is:

  1. A member of the administrative, management or supervisory body of the issuer (or other specified entity); or
  2. A senior executive with regular access to inside information and the power to take managerial decisions affecting the future developments and business prospects of the issuer.

Who is a closely associated person?

A closely associated person is:

  1. A spouse, or a partner considered to be equivalent to a spouse under national law
  2. A dependent child
  3. A relative who has shared the same household for at least one year on the date of the transaction
  4. A legal person, trust or partnership, the managerial responsibilities of which are discharged by a PDMR or by a person referred to at (1) – (3) and which is:

     a. controlled by that person;
     b. set up for the benefit that person; or
     c. the economic interests of which are substantially equivalent to those of that person.

Application

The notification requirements apply to a wide-range of transactions. For example, should a PDMR or closely associated person pledge or lend financial instruments in the issuer as collateral for a credit facility, this will amount to a notifiable transaction under MAR which is not the case under existing Irish market abuse law. Notifications must be made promptly and in any event no later than three business days after the transaction.

PDMRs must notify closely associated persons, in writing, of their obligations under MAR and PDMRs must keep a copy of this notification.

Notification is not required until the transaction(s) reach a cumulative value of €5,000 within a calendar year. The competent authority of each member state has the power to increase this threshold to €20,000, but must inform the European Securities and Markets Authority of this decision and its justification in advance of the application of the threshold.

The issuer’s obligations

Issuers are obliged to ensure that the notifications they receive are promptly made public and in any event no later than 3 business days after the transaction. It is worth noting that MAR permits domestic legislation to provide for the competent authority, rather than the issuer, to make the notifications public. However, it is not yet clear whether Ireland will adopt such a provision.

Content of the notifications

MAR prescribes the information to be contained in notifications by PDMRs and closely associated persons to issuers and the relevant competent authority. This includes party names, the reason for the notification, a description of the financial instrument in question and the price and volume of the transaction.

The European Commission has recently adopted an implementing regulation relating to PDMR notifications, which provides the template to be used for the notification of transactions. This template can be viewed here (at the Annex). As you will note, the template requires information on all transactions conducted on a particular day, both on an individual and aggregated basis.

Closed periods

MAR stipulates that, subject to limited exceptions, a PDMR must not carry out any transactions on its own account or for the account of a third party during a closed period of 30 days before the announcement of interim or year-end results.

Next steps

Issuers should consider how their share dealing code will be affected by these rules. They should also prepare a list of PDMRs and closely associated persons, together with a procedure for ensuring that this list is accurately maintained at all times.

Thought should be given to requiring PDMRs and closely associated persons to notify the issuer of all transactions carried out rather than just those above the value threshold so as to avoid an inadvertent breach by the issuer or, indeed, the PDMR or closely associated person.

Issuers should also consider whether it may be appropriate to set a shorter internal deadline for the notification of transactions, so as to ensure sufficient time to make the public disclosure within the 3 day timeframe.

Finally, issuers should offer training to PDMRs to ensure that they are fully aware of their notification obligations.