18 July 2016
AIM nomads’ responsibilities do not extend to MAR and could lead to companies requiring additional advisors
The EU Market Abuse Regulation (MAR) will have a particular impact on companies on the Alternative Investment Market (AIM) of the London Stock Exchange (LSE) as there may be some complications in the interaction between the AIM rules and MAR.
AIM Notice 44 was published in April with proposed changes to the AIM rules. The follow up AIM Notice 45 was published on 14 June with feedback on the consultation and the final version of the rules.
Considering the impact of the rule changes, it was perhaps surprising that there were only eight responses to the consultation. The rules will be kept under review and updated if necessary once it is seen how they work in practice and if there are any further EU guidelines.
One point of note is that the Financial Conduct Authority (FCA) is the competent authority in the UK to implement, oversee and enforce MAR. The LSE oversees and enforces the AIM rules. Companies on AIM are effectively first-line regulated by their nominated advisers (nomads). The LSE has confirmed that ‘the nominated adviser’s responsibilities and obligations under the Nomad Rules are owed solely to the Exchange and do not extend to advising and guiding an AIM company on its obligations beyond the AIM Rules, including MAR.’
On the face of it, this could potentially leave AIM companies in the unenviable position of having to use legal advisers for assistance in relation to MAR and their nomad for assistance with the AIM rules. Considering that the main selling points of AIM for issuers are its lighter-touch regulation and lower cost for smaller, growing companies, this is potentially bad news – for the market and issuers.
They are now arguably worse off than their larger counterparts on the main market in this regard as the updated disclosure rules simply signpost issuers to MAR, rather than overlapping with it. The key difference is that the FCA acts as the UK listing authority, to oversee the listing regime as well as being the competent authority for MAR. Those acting as company secretaries to AIM companies can obviously assist by ensuring they are up to speed with all of the requirements and can therefore be the first port of call for the board.
The changes to the AIM rules primarily affect rules 11, 17 and 21 and related guidance. Some definitions have been removed from the rules.
Rule 11 – General disclosure of price sensitive information, is to be kept but amended. Although the definition of unpublished price sensitive information is removed, this rule still refers to price sensitive information, rather than inside information. The guidance is updated to clearly reference the purpose of this rule (i.e. to ensure a fair and orderly market) and to point out to companies that they must also comply with article 17 of MAR.
Compliance with both the AIM rule and MAR is separate and compliance with one will not automatically mean there has been compliance with the other. The LSE does state that ‘We intend to work closely with the FCA to co-ordinate our approach and to minimise any duplication of activities’, which is to be welcomed.
Hopefully common sense will prevail and that the occasions when rule 11 requires an announcement, which is not required under MAR, are few and far between. The disclosure of inside information is a key aspect of market rules and one has sympathy with the LSE for not wanting to cede oversight in this area entirely to the FCA, which would erode its authority over AIM. There are similar issues with delaying disclosure where the provisions under MAR overlap with the guidance to AIM rule 11.
There are three conditions which must be met in order to delay disclosure:
A record must be kept of how these conditions are met.
If a delay is permitted under MAR and the information relates to an impending development or a matter in the course of negotiation, then a delay may also be permitted under the AIM rules, provided such information is kept confidential.
If it is decided to delay disclosure, the directors must continue to monitor for leaks and new inside information. The rules on selective disclosure under MAR and AIM must also be followed.
For directors’ dealings, things are better. AIM rule 17 has been amended to remove the requirement for directors and applicable employees to notify dealings. Notifications by ‘persons discharging managerial responsibility’ (PDMRs) and ‘persons closely associated (with PDMRs)’ (PCAs) will now be made under MAR article 19.
AIM rule 21 is removed, along with the definitions of ‘deal’ and ‘unpublished price sensitive information’. There is a new rule 21 to require an AIM company to have a dealing policy. The content of this is not prescribed but there are certain matters which should be included:
MAR relates to PDMRs and PCAs, whereas the AIM rules continue to refer to directors, applicable employees and their families (family is defined in the rules). The definition of applicable employees in the AIM rules for the purposes of rule 21 has been amended so that it now means any PDMRs (apart from directors). However, ‘family’ does not have the same definition in the AIM rules as ‘PCA’ does under MAR, although they are very similar.
MAR article 18 (insider lists) applies to AIM companies and there should not be any confusion as this is simply a new requirement for AIM companies to follow.
The definition of close period has been removed from the AIM rules, so the MAR definition applies. The question as to whether the closed period ends with the publication of preliminary/final results or of the annual report has been clarified (as far as it can be) on the FCA website. Until any guidance to the contrary comes out of ESMA, the closed period can be treated as ending with the publication of results, not the annual report.
Rule 31 is unchanged but is of particular relevance as it states that an AIM company must:
But (as noted above) the nomad is not obliged to advise the company on MAR and any queries have to be directed to the FCA, not the LSE.
As I finish writing this, the result of the referendum is just announced. It remains to be seen if a positive consequence of Brexit can be the removal of some unnecessary red tape, including in the area of market abuse. Hopefully it does not take too long.
The following can be found at on the LSE website:
Take a look at last month’s expertise article from Lorraine Young on MAR, ‘The devil is in the detail’.
For more views from the governance community on the Market Abuse Regulation, read the latest Quick Question survey.
You can also read ICSA’s Guidance note, ‘Market Abuse Regulation (MAR) Dealing code and policy document’.