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MAR: The unanswered questions

05 August 2016

MAR: The unanswered questions - read more

Few company secretaries and compliance officers think that they are totally ready for the new EU regulations on market abuse

The EU Market Abuse Regulation (MAR) (EU 596/2014) replaced the Market Abuse Directive (MAD) and the current UK regimes for market abuse and inside information on 3 July. In light of uncertainties in the interpretation of the MAR and related regulations, organsiations must ensure they are fully prepared. According to research, only a small proportion of company secretaries and compliance officers think that they are totally ready for the new EU regulations.

MAR establishes a new regime covering market abuse, market manipulation, dealings by Persons Discharging Managerial Responsibility (PDMRs), insider lists and disclosure of inside information. The new regulations apply equally to main market and AIM companies. A less prescriptive regime for SME growth markets, including AIM, will be introduced when MIFID II comes into force in January 2018.

MAR is supplemented by further European legislative and supporting material consisting of:

  • Regulations containing delegated acts, regulatory and implementing technical standards (ITS), which set out detailed requirements and templates for complying with MAR
  • Directive by way of an implementing act supplementing MAR
  • Guidelines to be issued by the European Securities and Markets Authority (ESMA), addressed to member states and/or market participants.

The majority of regulatory and implementing technical standards have come into application, or have been adopted by the Commission, and are subject to European Parliament and Council approval. Importantly though, the guidelines have yet to be published in final form.

The ability of the Financial Conduct Authority (FCA) to give guidance independently of the European Securities and Markets Authority (ESMA) is limited as EU law does not allow member states to make rules that have a direct effect on EU regulations. This in turn has led to issuers and their advisers dealing with areas of uncertainty, but under pressure to establish compliance procedures. Areas where uncertainty continues are set out below.

Delaying disclosure

MAR requires an issuer to inform the public as soon as possible of inside information that directly concerns that issuer. This is essential to avoid insider dealing and ensure investors are not misled. Under MAR, issuers are able to delay the announcement of inside information if their legitimate interests are likely to be prejudiced by immediate disclosure and if the delay in disclosure will not mislead the public. A key role for company secretaries is to ensure that decisions made are documented to guarantee compliance with MAR.

Questions requiring clarification are: what must an issuer do to comply with ITS for public disclosure of inside information and who should be identified as the person making such a notification? A suggested approach to implementing certain aspects of MAR has been drafted by the City of London Law Society and Law Society Company Law Committees’ Joint Working Parties on MAR, which has considered and provided a Q&A to many of the uncertainties raised.

Dealings and notifications

A number of questions have been raised which require clarification in relation to PDMRs and PCAs. For example, what notifications a PDMR and PCA must make with regards to dealings carried out by them in units or shares in a collective investment undertaking or portfolio of assets, which invests in shares of the issuer in relation to which he is a PDMR? Is the cancellation or surrender of an option (or other right to acquire shares) awarded to a PDMR under an employee share scheme permitted during a MAR closed period?

It is important that company secretaries and compliance professionals have considered the answers to such questions so that prompt notifications can be made in light of the shortened timetable for disclosure.

Industry Standard Share Dealing Code and guidance

The FCA have repealed Annex 1 of Listing Rule 9, known as the Model Code, as it is not compatible with MAR. Feedback received by the FCA generally agreed that the Model Code should be withdrawn, but was mixed on the question of whether, and if so, how, it should be replaced.

ICSA: The Governance Institute, GC100, the Quoted Companies Alliance and other market participants (which included PwC Legal) agree that it would be of great benefit for listed and quoted companies to be able to turn to an equivalent version of the FCA's Model Code with the introduction of a single, industry-led dealing code rather than a variety of, no doubt broadly similar, codes which would potentially create confusion in the market. Accordingly, this group developed a specimen dealing code and accompanying guidance that issuers can review to reflect their own individual circumstances and requirements. This can be found on the ICSA website.

Insider lists

Questions related to insider lists include: which individuals should be included on adviser’s lists? And, how do issuers and their advisers complete the national identification number column in the Insider List templates in respect of UK citizens and other nationals who do not have national identification numbers? In our opinion, advisers’ staff should be included on the insider lists if:

  • They are acting on behalf of or for the account of the issuer
  • They perform tasks through which they have access to insider information of the issuer.

UK citizens do not have national identification numbers so the requirement cannot apply.

Unanswered questions

With a number of questions unanswered and guidelines yet to be published in final form, it is no wonder that company secretaries and compliance professionals are feeling under prepared for this EU Regulation. By being aware of the uncertainties and undertaking appropriate planning to formulate an opinion, company secretaries and compliance professionals can ensure their companies are well prepared.

Peter Swabey, Policy and Research Director at ICSA: The Governance Institute commented: ‘It is important to be clear that each company is responsible for its own compliance with MAR obligations and/or AIM requirements and for the systems and procedures that it puts in place related to dealings in the company’s securities. These requirements are complex and there is currently limited formal guidance available as to how they should be applied. We were delighted to be able to work with GC100, the Quoted Companies Alliance, and the team at Slaughter and May who led the drafting of the industry standard code.’

Susan Fadil is Director in Entity Governance and Compliance, PwC Legal

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