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What’s next for the EU Market Abuse Regulation? Anne Kirkwood, professional support lawyer at Herbert Smith Freehills, explains the new technical guidance.
ESMA clarifies market abuse requirements LNB News 03/02/2015 121
Enhanced disclosure of managers’ transactions under the Market Abuse Regulation (EU) 592/2014 (MAR) is clarified in technical advice submitted to the European Commission by the European Securities and Markets Authority (ESMA). The advice is the first such submission concerning MAR implementation. Other issues addressed include procedures to ensure sound whistleblowing infrastructures and MAR market manipulation indicators. ESMA confirms it will submit the MAR regulatory technical standards in July 2015.
What are the main areas of interest in these recommended technical standards?
The new MAR will introduce a new regime for market abuse in tandem with new rules on the disclosure of inside information, insider lists and restrictions on share dealings by persons discharging managerial responsibilities. ESMA recently published the first of its final reports to the European Commission setting out its recommendations on some of the measures required to implement MAR. This report follows one of the two consultation papers on MAR issued by ESMA in July 2014.
One of the key topics in the final report is share dealings by persons discharging managerial responsibility (PDMRs). A summary of the main points is set out below.
The basic concept in MAR regarding disclosure by PDMRs and their connected persons of transactions in securities is the same as it is now under DTR 3, and the definition of PDMRs and connected persons remains the same. However, the scope of transactions to be disclosed has been broadened and the ESMA technical advice provides detail on that scope. The key points in the ESMA response and technical advice are:
MAR, art 19(11) imposes a prohibition on PDMR dealings during ‘closed periods’, that is 30 days prior to the issue of financial results. The ESMA paper covers the definition of the closed period and the circumstances in which an exception can apply, allowing a PDMR to deal.
Definition of ‘closed periods’
The MAR provision and ESMA’s initial interpretation appeared to preclude the use of a preliminary results announcement to end a closed period (which is the case in the current regime under the UK Model Code). ESMA’s report acknowledges that it has received feedback to the effect that this is potentially a significant issue for UK companies. ESMA indicates that if the preliminary announcement of an annual report is required either by national or trading venue rules, it can end a closed period. This interpretation would therefore suggest that if the FCA decided to make preliminary announcements compulsory again, they would then operate to end the closed period, rather than having to wait for the full annual report. (The current UK position is that a company is not obliged to publish a preliminary announcement of its results but may choose to do so voluntarily under LR 9.7A.)
Basis for any exemption
Trading in closed periods can only be permitted by an issuer if the PDMR is able to demonstrate that the transaction cannot be executed at another moment in time other than during the closed period.
Dealing in exceptional circumstances
ESMA defines very narrowly the criteria for when clearance may be given for PDMR dealings in a closed period in ‘exceptional circumstances’. Circumstances are exceptional only where they are ‘extremely urgent, unforeseen and compelling and where their cause is external to the PDMR who has no control over them’. Account may be taken of the extent to which a PDMR has to meet a financial commitment arising from a legally enforceable demand
Exceptions for certain types of transactions
Exceptions included in the Model Code which permit certain transactions in prohibited periods (eg acceptance of a takeover offer or rights issue during a closed period) are not replicated in ESMA’s technical advice. The exemption for share schemes provided for in MAR is also given a restrictive interpretation in the ESMA technical advice
What should firms be doing to prepare?
UK listed companies, including AIM companies, will need to plan ahead for the MAR, which will take effect on 3 July 2016.
How does this fit into the bigger picture of developments in the financial services sector?
In accordance with the process for Level 2 measures, the Commission can now proceed to adopt the ESMA recommendations. The EU Parliament or Council may object to ESMA’s delegated acts within three months of their adoption by the Commission. If neither objects, the delegated acts will be published in the EU’s Official Journal prior to July 2016.
ESMA’s final report in relation to its second July 2014 consultation paper, covering issues including market soundings, disclosure of inside information, insider lists, accepted market practices, and stabilisation, is due to be published by July 2015 and will then be subject to a similar process of adoption. We are also expecting the FCA to consult in summer 2015 about the implementation of the new regime in the UK.
Interviewed by Nicola Laver.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
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