What market abuse rules apply?
Now that the United Kingdom has finally left the EU, it is worth taking stock as to how the departure has affected the rules surrounding market abuse and inside information. There are two parallel regimes with which AIM companies must comply in relation to the disclosure of inside information, the Market Abuse Regulation (which originated in the EU) and the AIM Rules.
The Market Abuse Regulation has been retained in UK law by virtue of section 3 of the European Union (Withdrawal) Act 2018, as amended by the Market Abuse (Amendment)(EU Exit) Regulations 2019 and is now known as UK MAR. The original Market Abuse Regulation is now called EU MAR in UK legislation. UK MAR applies to all issuers with securities listed or traded on a UK market such as the London Stock Exchange’s Main Market, AIM and AQSE or which have applied for admission. EU MAR continues to apply where securities are listed or traded on a market in an EEA Member State. Companies which have listings on a European market as well as AIM, for example, will have to comply with both UK MAR and EU MAR.
The start of the 2021 has also seen some notable changes to the rules surrounding inside information. These changes were made to EU MAR by the SME Growth Market Regulation. Some have been adopted by UK MAR automatically and some are being introduced via the Financial Services Bill which is currently going through Parliament. Therefore companies trading on AIM (or the AQSE Growth Market) should be aware of the following modifications.
Under the original market abuse regulation, companies were responsible both for drawing up their own insider list but also for ensuring that each of its advisers kept their own insider list as well. It was felt that this was confusing and so now under EU MAR and UK MAR once the Financial Services Bill has been enacted, it is an express obligation on any person acting for an issuer to keep their own insider list. In addition, a company can request another person to draw up the insider list for it but the company remains responsible for and must have a right of access to that list.
A second change that has been made is that a SME growth market issuer (therefore companies trading on AIM or AQSE) only need to keep a permanent insider list, rather than having to draw up a transaction insider list for every transaction. The permanent insider list should only list those who have access at all times to inside information.
The original market abuse regulation introduced provisions relating to share dealings by “persons discharging managerial responsibilities” or PDMRs. The concept of the PDMR covers directors and senior executives with regular access to inside information relating directly or indirectly to the company and with power to take managerial decisions affecting the future developments and business prospects of the company. The obligations regarding share dealings also extend beyond PDMRs to their “persons closely associated” or PCAs. PDMRs and their PCAs are required to notify the company and the Financial Conduct Authority (FCA) within three business days after the date of any notifiable transaction. That remains the case under UK MAR.
Prior to 1 January 2021, the company also had to make a regulatory announcement of the transaction within those same three business days. However under EU MAR this rule has been amended and now the issuer’s announcement must be made within two days after it has been informed of the transaction by the PDMR (or their PCA). This change will be introduced into UK MAR via the Financial Services Bill once passed. The only slight difference is that UK MAR will specify “working” days, which excludes Saturdays, Sundays, Christmas Day, Good Friday and bank holidays in England and Wales, for both PDMRs and issuers, whereas EU MAR continues to specify “business” days, although this difference is unlikely to have any meaningful impact.
Under the market abuse rules, an issuer is permitted to delay disclosure of inside information if three stringent conditions are satisfied. From 1 January 2021, AIM companies (and also issuers on the AQSE Growth Market) do not have to keep a written record of their reasoning as to why they have delayed the disclosure of inside information. The only caveat to this is that the issuer needs to be able to justify the decision to delay if requested by the FCA. Since it may be difficult to put together such a justification without a written record, we would recommend that companies continue to keep a written record of the reasons behind any delay even though not strictly necessary.
Now that the Market Abuse Regulation has been on-shored, it is likely that subtle changes such as those highlighted above will continue to be announced so it is important that companies quoted on AIM keep up to date with the changes.