07 September 2016
The new Market Abuse Regulation (MAR) came into effect on 3 July 2016. MAR carries over the prohibition on insider dealing, being an unfair advantage that is obtained from inside information to the detriment of third parties who are unaware of such information, with the consequent undermining of the integrity of financial markets and investor confidence. One significant change from the previous market abuse regime that is being brought about by MAR is the amendment and broadening of the definition of inside information.
MAR provides a different definition of what constitutes inside information for each of the following for the first time:
Although the definition of inside information under MAR is broadly similar to the definition under the existing regime, MAR provides more certainty as to how to assess what may be inside information. The definition of inside information under MAR includes in the regulation certain factors, which were previously provided as guidance or set out in case-law, thereby making compliance with them compulsory. Under MAR, inside information generally means information which:
MAR expands this definition by providing further information on its constituent parts.
Under MAR information is deemed to be ‘of a precise nature’ if it indicates:
The information must be specific enough to enable a conclusion to be drawn as to the possible effect of that set of circumstances or event on the prices of the instruments in question as set out above.
MAR has extended the definition of inside information by providing that information that would be likely to have a ‘significant effect on price’ means information that a reasonable investor would be likely to use as part of the basis of his/her investment decisions. The concept of a ‘reasonable investor test’ was outlined in the Central Bank of Ireland's Market Abuse Rules, but did not arise at a European level.
MAR reflects European case-law in respect of when inside information might arise in a protracted process. It confirms that in the case of a protracted process that is intended to bring about, or that results in, particular circumstances or a particular event, those future circumstances or that future event and the steps leading to them may be deemed to be inside information − for example, information relating to ongoing contract negotiations or conditions for the marketing of financial instruments.
An analysis should be carried out on issuers' internal policies and procedures to assess if they need to be updated to correspond with this broader definition of inside information. Training on the expanded definition and its impact should be given to staff members that handle inside information regularly. Finally, a review should be undertaken internally on how inside information is first identified to ensure that there is no inadvertent failure to publicly disclose inside information.