06 June 2016
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:
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.
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:
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.
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:
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.
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.
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
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’.