On 3 July 2016, both the Market Abuse Regulation (MAR) and the Criminal Sanctions (Market Abuse) Directive (CSMAD) came into application introducing a new market abuse regime across Europe. This new legal framework (MAD II) replaced MAD as it had become somewhat outdated and unsuitable for the increasingly global nature of financial markets and to adapt to new technology. Together the framework aims to create a stronger market abuse regulatory framework with harmonised sanctions throughout the EU, with minimum rules on criminal offences and criminal sanctions for those conducting market abuse within the EU or on EU markets.

Market Abuse Regulation (MAR)

Expanded scope
MAR will apply to a wider range of securities and derivatives than the original MAD and will also cover financial instruments traded on all kinds of European trading venues: multilateral trading facilities (MTFs) such as the Alternative Investment Market (AIM); and organised trading facilities (OTFs) and related financial instruments. Instruments which depend on or affect the price of an underlying instrument, i.e. credit default swaps or contracts for difference will be caught and certain commodity spot transactions and carbon emission allowances will be covered more comprehensively.  The new market abuse regime will include several carbon-specific elements for example, a specific definition of inside information, a tailored inside information disclosure duty, and a complete coverage of the primary market (auctioning). The manipulation of benchmarks will also be brought within the scope of market manipulation offence.

Inside information
The definition of inside information under the new regime is similar to the current definition but MAR expands this definition to make it clear that inside information includes information that a reasonable investor would be likely to use as part of the basis of his investment decisions (reasonable investor test). Listed companies and their advisers will also be required to keep insider lists (ie lists of individuals who possess or have access to inside information) in a prescribed electronic format as set out in Commission Implementing Regulation 2016/347 which must be kept up to date. This contains more information than currently required and includes personal data that facilitates the identification of the insiders.

Issuer disclosure of inside information
Issuers of securities admitted to trading only on an MTF or OTF will be brought within the scope of the public disclosure obligation (if they have requested or approved that admission to trading). Article 17(1) of MAR provides that issuers should inform the public as soon as possible of inside information which directly concerns them. (There is a similar provision relating to emission allowance market participants.) Disclosure may be delayed providing certain conditions are met and in this event, the issuer's regulator must be informed immediately (in the case of the UK through an online FCA form) and in writing if requested as to the reason and include specified information.

Attempted insider dealing and attempted market manipulation
For the first time, attempted insider dealing and attempted market manipulation will be prohibited under MAR and the cancellation of orders is now also covered. There is a defence if the transaction or order was legitimate and in accordance with market practices accepted by the regulator.

Market soundings
MAR introduces a new regime on market soundings. MAR will require certain steps to be taken prior to conducting a market sounding and imposes detailed record-keeping requirements and information which will be set out in regulatory technical standards. A market sounding as defined may or may not involve the communication of inside information. MAR recognises that inside information can be legitimately disclosed to a potential investor in the course of market soundings undertaken "in order to gauge the interest of potential investors in a possible transaction and the conditions relating to it, such as its potential size or pricing, to one or more potential investors".

Persons discharging managerial responsibilities (PDMRs)
MAD already requires directors and other PDMRs within an issuer, and connected persons, to report transactions in the issuer’s securities, however there are changes and relevant individuals in a wider range of issuers will be caught due to MAR's increased scope. Under Article 19, PDMRs and persons closely associated with them are required to notify the issuer and competent authority of certain transactions in or related to the issuer’s financial instruments conducted on their own account and worth over €5,000 (Member states may raise threshold to €20,000). Such notification shall be made promptly and no later than three business days after the date of the transaction.

Directors’ dealings
In addition to the previous reporting obligations of directors and senior managers about their own transactions in securities issued by their company, the new market abuse regulation also stipulates, for the first time, a legal closed period for such transactions: in all cases, 30 days prior to the publication of financial results. Issuers are also obliged to compile a list of the managers affected by this measure and of their close associates. Issuers also now have to inform directors and senior managers in writing about their obligations under the market abuse regulation. Directors and senior managers of the issuer are also required to inform relevant family members in writing about their obligations under the new regulation.

Suspicious transaction reporting
MAR introduces new procedures, notification and record keeping requirements for making suspicious transaction and also order reports. The requirements are aimed at market operators, investment firms that operate a trading venue and persons that professionally arrange or execute transactions.

Algorithmic and high-frequency trading
MAR extends the market abuse regime to capture algorithmic or high frequency trading undertaken without an intention to trade but for the purpose of, inter alia, disrupting or delaying the trading system.

New provisions in MAR are aimed at encouraging whistleblowers to come forward. In particular, member states will be able to provide financial incentives for whistleblowers in some circumstances.

Regulators’ powers
New EEA-wide minimum standards are set for regulators’ enforcement and sanctioning powers. Authorities must have power to impose fines of up to at least €5 million for an individual and €15 million or up to 15 per cent of annual turnover for a firm.

Topics covered by Better Regulation include
  • BRRD
  • Banking Structural Reform
  • Basel
  • Benchmarks Regulation
  • Brexit
  • Capital Markets Union
  • Capital Requirements Legislation
  • Central Securities Depositories Regulation
  • Credit Rating Agencies Regulation
  • Deposit Guarantee Schemes Directive
  • Dodd-Frank
  • EMIR
  • GDPR
  • Solvency II
  • Insurance Distribution Directive
  • Interchange Fees Regulation
  • Liquidity
  • Market Abuse/Insider Dealing
  • Markets in Financial Instruments Legislation
  • Money Laundering Directives
  • Money Market Funds Regulation
  • Mortgage Credit Directive
  • Payment Services Directive
  • PRIIPs Regulation
  • Prospectus Directive
  • Ring-fencing
  • Securities Financing Transactions Regulation
  • Securitisation Regulation
  • Senior Insurance Managers Regime
  • Senior Managers Regime
  • UCITS Directive