The Market Abuse Regulation – an update on its practical application.

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The Market Abuse Regulation (MAR) has now been in force for over eight months and over that time market participants have had the opportunity to see how the regulation has begun to operate in practice. Already some market practices and trends have started to develop and the focus of this briefing will be to consider those trends and also to review any further guidance issued by ESMA and/or the FCA since July 2016.

Inside Information

The implementation of MAR has provided the opportunity to review and update many issuers’ approach to inside information. MAR has refreshed the focus on maintaining confidentiality and the changes to working environments and practices, such as open plan offices, mean a ruthless approach to confidentiality is now being taken. Papers are less visible and computer screens are protected from view. Access to information is restricted to a ‘need to know’ basis.

Although MAR has not changed the definition of inside information, it has refocused the mind as to what actually is inside information. It would appear that the general consensus at the moment is that advisers and issuers are exercising more caution than pre-MAR as to whether information amounts to inside information. However we will have to wait and see whether ‘over-caution’ becomes market practice.

In relation to financial results there has been a mixed approach from issuers as to whether they should be treated as inside information. Where issuers do consider the financial results to be inside information, they are required by MAR to include wording to that effect within the announcement. Following the implementation of MAR, issuers, in general, appear to be taking the view that where their interim results were in line with market expectations, those results did not give rise to inside information. However, others included the inside information wording on their interim results even where those results appeared to be in line with market expectations. We will have to wait and see which approach becomes market practice although it is clear that ‘one size does not fit all’ and every company will need to form its own view as to what amounts to inside information.

Where a company is announcing inside information to the market it must include wording to that effect. MAR does not prescribe the precise wording but market practice is to include the following “This announcement contains inside information” in a prominent position at the top of the announcement. The announcement must also include the identity of the person making the declaration and their position within the company.

Insider Lists

By now companies should have amended the form of their insider lists to ensure that they comply with the prescribed format laid down in MAR. They should also be capturing the additional information required by MAR such as each insider’s date of birth, birth name and mobile phone number. It would appear in practice that the production and maintenance of insider lists has been delegated to the finance director or company secretary. It would also appear that IT solutions software is becoming commonplace to monitor inside information and complete insider lists.

The approach to permanent insider lists seems to have divided opinion amongst issuers. There are those that take the view that they have no permanent insiders and instead prefer to draw up specific lists for specific projects whilst others consider the whole board of directors as permanent insiders. Time will tell if a general market practice develops, but the danger, as we see it, is that by having a permanent insider list (when one may not be strictly required) an issuer is suggesting that there is inside information the disclosure of which is being delayed, and with that comes the additional administration and considerations referred to below.

There is an obligation and responsibility on issuers to ensure that their advisors keep their own insider lists. Market practice is for the letter of engagement with the professional adviser to include a term that the adviser must keep an insider list if it comes into possession of confidential information which subsequently becomes inside information and that it will grant access to such list if requested.

Finally, one area of confusion that seems to have arisen under MAR is in relation to counterparties to a transaction. Some issuers have tried to impose an obligation to create and maintain an insider list on counterparties to a transaction on the misguided assumption that MAR requires this. Counterparties on transactions do not need to keep insider lists if they are not acting for a company that is subject to MAR.

Ability to delay disclosure of inside information

MAR provides that issuers are able to delay the announcement of inside information under certain conditions (including that the delay is not likely to mislead the public and that immediate disclosure is likely to prejudice the interests of the issuer). This ability to delay, in itself, is not new. However, what is new, is the need to notify the FCA when an announcement is delayed together with an explanation, if requested by the FCA, as to how the conditions have been satisfied. Issuers have been waiting for guidelines from ESMA to provide more information as to when such delay would meet the required conditions. These guidelines were published in October 2016, adopted by the FCA soon after and resulted in the FCA amending their Handbook with a new rule DTR 2.5 which came into force on 24 February 2017.

The guidelines (which are reflected in DTR 2.5) establish a non-exhaustive list of the legitimate reasons whereby issuers can delay the disclosure of inside information and situations in which delaying disclosure is likely to mislead the public. In particular, delay is likely to mislead the public in circumstances where: “the inside information is in contrast with the market’s expectations, where such expectations are based on signals that the issuer has previously communicated to the market”. This new rule has resulted in issuers needing to monitor very closely whether, where inside information arises, such information could be said to contrast with signals already given by the issuer to the market.

PDMR dealings and share dealing codes

Although MAR doesn’t contain a requirement for issuers to have a share dealing code, it would appear that the majority of companies have adopted the ICSA/GC100/QCA dealing code as standard or a slightly modified version of it.

In addition, a trend seems to be developing whereby issuers are extending their closed period from the prescribed 30 days to 60 days before the announcement of interim or final results. Others have imposed an additional requirement on PDMRs to use best endeavours to prevent those persons closely associated with them from themselves dealing during closed periods thus going further than the requirements of MAR.

Finally, it seems that the €5,000 de minimis threshold for PDMR notifications is not generally applied, with most companies preferring to disclose all dealings.