Our previous article mainly focused on the scope and principles of MAR, and gave an overview of the three main activities which MAR seeks to curtail – insider dealing, unlawful disclosure of inside information, and market manipulation – and their corresponding safe harbours. This second article seeks to (i) outline the main positive obligations imposed on market participants; and (ii) give an overview of the sanction which may be imposed for a breach of MAR.
Apart from prohibiting insider dealing, the unlawful disclosure of inside information and the engagement in market manipulation, MAR also imposes a number of positive obligations on market participants. These obligations may be broadly classified into three: (i) the public disclosure of inside information, (ii) the maintenance of insider lists, and (iii) the notification of transactions carried out by persons discharging managerial responsibilities ("PDMRs") as well as persons closely associated with them ("PCAs"). A few remarks on each are merited:
- public disclosure of inside information – one of the cornerstones of MAR is indeed the obligation for issuers to publicly disclose inside information, without delay. This obligation is considered to be an indispensable element in ensuring that all investors are kept on an equal footing in terms of the level and amount of information available to them, however, it doesn't come without its problems. Indeed, this obligation is considered by many to be the heftiest price issuers have to pay for approaching the financial markets since this obligation may require them to publicly disclose commercially sensitive information, which information may be used by their competitors (who may not necessarily be subject to the same obligations) to gain a competitive edge. In fact, in recognition of the fact that it is impracticable to mandate issuers to publicly disclose all inside information immediately, MAR allows issuers to delay the publication of inside information. The disclosure of inside information may be delayed if (i) immediate disclosure would likely prejudice the legitimate interests of the issuer (including, for instance, where immediate disclosure of inside information would adversely affect ongoing negotiations relative to the financial viability of the issuer), (ii) the delay in disclosure would not be likely to mislead the public, and (iii) the issuer is able to safeguard the confidentiality of the inside information. A written explanation as to the reasons for the delay would need to be provided to the relevant competent authority.
- insider lists – in practical terms, issuers as well as persons acting on their behalf or their account, must draw up and maintain a list of all persons having access to inside information as a result of their contract of employment, or otherwise by performing tasks by virtue of which they will have access to inside information (thus capturing engaged advisors, for instance). These lists are an important tool for regulators in the course of investigating possible market abuse. Their maintenance, however, may be viewed as an administrative burden, and in fact, MAR exempts issuers whose financial instruments are admitted to trading on SME growth markets from the obligation to maintain insider lists, subject to certain criteria being fulfilled. Furthermore, issuers must take all reasonable steps to ensure that any person on the insider list acknowledges in writing the legal and regulatory duties entailed and is aware of the sanctions applicable to insider dealing and unlawful disclosure of inside information.
- PDMR/PCA notifications & closed periods – MAR required PDMRs and PCAs to notify the issuer and the relevant competent authority of any transaction which they carry out in the shares / bonds of the issuer. Issuers and competent authorities are, in turn, obliged to publish the information received in such notifications. The notification requirement starts to run once a threshold of €5,000 within a calendar year has been reached. Subject to qualified exceptions, PDMRs are also prohibited from trading for a period of thirty (30) calendar days prior to the announcement of an interim financial report or end of year report which the relevant issuer is legally obliged to make public. Similar to their obligation in respect of insider lists, issuers must inform PDMRs of their obligations under MAR; while PDMRs must then inform their PCAs of the said obligations and keep a copy of this notification. Issuers are also obliged to draw up a list of all PDMRs and PCAs.
MAR also imposes other obligations on specific market participants. For example, market operators of regulated markets and investment firms and market operators operating an MTF or an OTF must, without delay, notify the competent authority of any financial instrument for which a request for admission to trading on their trading venue is made, which is admitted to trading, or which is traded for the first time. Furthermore, any person professionally arranging or executing transactions must establish and maintain effective arrangements, systems and procedures to detect and report suspicious orders and transactions; and where such a person has a reasonable suspicion that an order or transaction in any financial instrument, whether placed or executed on or outside a trading venue, could constitute insider dealing, market manipulation or attempted insider dealing or market manipulation, the person must report the transaction without delay.
The importance attributed to the Market Abuse Regulation by the legislator is evidenced by the harsh sanctions that are imposed for its breach. These sanctions are contained mainly in the Prevention of Financial Markets Abuse Act (Chapter 476 of the Laws of Malta) (the PFMAA) which, inter alia, transposes the provisions of Directive 2014/57/EU on criminal sanctions for market abuse (the Market Abuse Directive).
By way of example, and amongst a plethora of other possible sanctions, the PFMAA provides that a natural person found guilty of engaging (or attempting to engage) in one of the prohibitions under MAR may incur a fine of up to €5 million or up to three times the profit made or the loss avoided by virtue of the offence (whichever is the greater), or to imprisonment for a term not exceeding six years, or to both such fine and imprisonment. Similarly, a legal person in breach of one of the said prohibitions may incur a fine of up to €15 million or up to three times the profit made or the loss avoided by virtue of the offence (whichever is the greater) or to (i) exclusion from entitlement to public benefits or aid; (ii) temporary or permanent disqualification from the practice of commercial activities; (iii) placing under judicial supervision; (iv) judicial winding-up; (v) temporary or permanent closure of establishments which have been used for committing the offence, or to both such fine and any or all of the measures mentioned in sub-paragraphs (i) to (v). Naturally, the liability of legal persons under the PFMAA does not exclude other criminal proceedings against natural persons (such as directors) who are involved as perpetrators, inciters or accessories in the offences committed by the legal persons.
As European financial markets continue to evolve, so will MAR be expected to periodically reinvent itself to adequately cater for the onset of new trends. Many will inevitably have their eyes set on lobbying for potential changes to some of the more onerous requirements discussed in this piece, including in particular the definition of inside information and the maintenance of insider lists. Others will be curious as to whether any changes in relation to the applicable thresholds and requirements with respect to PDMRs will ever be on the cards1. And their wait may not be too long. Right at the time of writing, the European Securities and Markets Authority (ESMA) has issued its ' MAR Review report' in accordance with the mandate given to it by the European Commission under MAR itself. This long-awaited report has been drafted after considerable consultation and liaison with market participants, and promises to shed some much needed light on the adequacy (or otherwise) of MAR since its entry into force in 2014. It therefore goes without saying that this report will very likely merit a separate article altogether. Watch this space.
1 For more information on current legislative efforts being made to amend MAR, click here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.