07 September 2016
On 17 May 2016, the European Commission adopted a delegated regulation on market sounding, which supplemented and commenced with the new Market Abuse Regulation (MAR) on 3 July 2016. The delegated regulation will introduce systems and procedures for disclosing market participants (DMPs) to follow when conducting market soundings, thereby regulating the practice for the first time.
A DMP may be any of the following:
Market sounding is the communication of information, prior to the announcement of a transaction, to gauge the interest of potential investors in a possible transaction and the conditions relating to it, such as its potential size or pricing. Market soundings are distinct from ordinary trading and may involve an initial or secondary offer of relevant securities. Examples of market soundings include:
Conducting market soundings may require disclosure to potential investors of inside information. However, where such disclosure is made in the course of a market sounding, and provided the requirements as set out in MAR are complied with, these disclosures will be considered to have been made in the normal course of a person’s employment, profession or duties and the information will, under MAR, be deemed as having been disclosed legitimately.
A DMP will be considered to be acting within the normal course of his employment, profession or duties where the following requirements are met. Before making a disclosure, a DMP must:
A DMP must make and maintain records containing: (i) all information given to the person receiving the market sounding; and (ii) the identity of each person to whom the information has been disclosed. These records must be maintained for at least five years and must be made available to the Central Bank of Ireland (or other relevant competent authority) upon request.
It should be noted that the market sounding recipient should make their own assessment of whether the information disclosed amounts to inside information that would prohibit dealing on the basis of it, or further disclosing it. MAR also requires that the market sounding recipient be informed as soon as the information received no longer constitutes inside information.
The new requirements under MAR are based on what is currently normal practice in advance of certain transactions. However, an examination of your internal policies and procedures should be carried out to determine whether they need to be updated to reflect the precise requirements of MAR, particularly in relation to record-keeping. Training on the new requirements and their impact should be given to staff members who may carry out market soundings.