We use cookies to make this site as useful as possible. Read our cookie policy or ignore.

Company secretarial: The devil is in the detail

06 June 2016

Company secretarial: The devil is in the detail - read more

Listed companies must pay close attention to the new EU Market Abuse Regulation

The EU Market Abuse Regulation (MAR) comes into effect in the UK on 3 July 2016 and will replace the Market Abuse Directive. It will affect listed companies on both the main London Stock Market and AIM. Areas affected are the disclosure of inside information, including delayed disclosure and market soundings; insider lists; ‘Person discharging managerial responsibilities’ (PDMR) dealings, share dealing codes and notification of dealings; and close periods.

At a high level, much remains the same, but, as they say, the devil is in the detail:

  • The principle underlying orderly markets, that all investors should have access to the same information at the same time, will not change
  • The definition of inside information under MAR is little changed from that under the Financial Services and Markets Act
  • Companies will still be able to delay the release of inside information in certain limited circumstances, but will have to keep formal records about this and notify the Financial Conduct Authority when they finally announce the information
  • Companies will still have to keep insider lists but in a prescribed format with a lot more information to be included
  • PDMRs and their connected persons will still have to notify their dealings – this will have to be within tighter timescales, notification is to the FCA as well as the company and on a prescribed form – and the Model Code will be abolished 
  • There will still be close periods, but the MAR definition of a close period is new.

Companies will need to refer to the MAR as the requirements will not be copied into either the FCA disclosure rules or to the AIM rules. Instead, there will be signposts to the regulation. Some of the disclosure rules will be replaced by disclosure guidance.

MAR Article 17 − Disclosure of inside information

The basic rule that companies must disclose inside information about their affairs as soon as possible remains. MAR covers the content to be included in such disclosures and how they should be made.

Under the current Disclosure and Transparency Rules, companies may delay disclosure only in certain limited circumstances. Under MAR there are new formal procedures which companies must follow.

Records must be kept of when (the time and date) the inside information first existed – this may be decided by the board, a disclosure committee or a designated senior employee; when the decision was made to delay disclosure; the person(s) responsible for the decision to delay; and evidence as to how the three above conditions for delaying disclosure were met. ESMA will be issuing guidelines on when a delay is permitted.

The key points to consider are:

  • As and when any new inside information becomes available, the same process should be followed to determine if a delay is still permitted 
  • After such a delay, at the same time as when the inside information is disclosed, the company must privately notify the FCA of the delay – it must provide a written explanation of how the conditions for the delay were satisfied if requested to do so by the regulator 
  • As now, if during any delay to disclosure, there is a leak of the inside information, the company must make an announcement as soon as possible.

MAR Article 18 − Insider lists

The basic concept remains the same – i.e. the issuer must keep a list of those working in the company who have inside information and will apply to both fully listed and AIM companies. The lists must be kept electronically in a particular template and made available to the regulator on request.

However, there is new information to be included on the list, in addition to the current requirements: birth surname; company and home addresses; all telephone numbers – work, mobile and home; date of birth; and national ID numbers (NI number in the UK).

There should be a permanent list and project lists. A company’s advisers must also keep their own insider lists and the company must make sure that they have done so.

MAR Article 19 − PDMRs and PCAs share dealing

There is no change to the definition of PDMR and a ‘Person closely associated’ (PCA) is defined in the same way as a connected person is now, under FSMA. More dealings are caught by the new rules – it would be safest to assume most things are covered. The key points to consider are:

  • Issuers will need to keep a list of PDMRs and PCAs
  • Companies must notify PDMRs of their disclosure and dealing obligations
  • PDMRs must notify each of their PCAs in writing of their disclosure obligations and keep a copy of the notification
  • In addition to notifying the company of share dealings, there will be a new requirement to notify the FCA
  • Transactions in a calendar year which total €5,000 or less are exempt, however, companies may prefer to require that all transactions are notified to the company to ensure ongoing compliance
  • The PDMR needs to make the disclosure within three business days of dealing
  • The issuer must notify the market within the same deadline (three business days)
  • There is a prescribed electronic template which must be used.

Close periods

Under MAR, close periods will all begin 30 days before results are announced. Currently it is 60 days for full and half-year results announcements, or from the financial period-end up to the results announcement, if that is shorter. If an issuer wishes to apply a longer period, this must be clearly set out in its share dealing code.

The general rule prohibiting dealings in a close period remains. There will continue to be an exception where an individual is experiencing severe financial difficulty. Another exception will be transactions where the beneficial interest does not change.

Model Code

This will be replaced with a rule (LR6.1.29) which requires issuers to have effective systems and controls in place for PDMRs and PCAs in relation to giving clearance to deal in securities of the issuer.

Regulatory burden

There is a lot more administration under the new rules, much of which does not appear to add any value but merely increases the regulatory burden. It will be essential that companies comply with the new rules. The trend is for the regulator to penalise companies for not having proper procedures in place and being able to produce the correct records, even if no insider dealing took place.

However, we should not despair. There are precedents for unhelpful rules being changed − for example, the annual information update required under the prospectus rules was dropped and more recently the requirement for interim management statements has been abandoned. Time will tell how useful the new rules actually are.

MAR to do list

  • Update procedures for times when disclosure of inside information is delayed
  • Consider setting up a disclosure committee if one is not already in place
  • Brief PDMRs, PCAs and any other staff affected by the new rules
  • Set up new insider lists with the additional information which is required
    – download prescribed template
  • Review and update share dealing code (bearing in mind the abolition of the Model Code)
  • Download and distribute prescribed templates for notification of dealings by PDMRs and PCAs
  • Check final versions of rules and guidance as they are published and update procedures if necessary.

Lorraine Young is Managing Director at Lorraine Young Ltd and can be contacted via lorraineyoung.co.uk

Further reading

Take a look at the expertise article from Lorraine Young on MAR in relation to AIM, ‘Doubling up’.

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’.

Have your say

comments powered by Disqus