The review contains technical advice to the European Commission on various provisions of MAR and builds on feedback received from a consultation published in October 2019. The Commission will use the technical advice to inform its own report on MAR, with formal changes being made in due course. The likely impact of any changes in the UK are uncertain given Brexit, nevertheless, ESMA’s report provides useful insight into the current operation of MAR.
ESMA’s conclusion is that MAR is fit for purpose and that there should be no changes to the definition of inside information applicable to financial instruments and commodity derivatives, but that “targeted” amendments should be made, with additional or revised guidance produced on certain issues.
Recommended amendments and clarifications
ESMA proposes that amendments should be made to various areas including:
- Buy-back programmes — Proposals include improving reporting and transparency by reducing the amount of information which an issuer must disclose and ensuring that issuers only report in one jurisdiction should they have multiple listings;
- Market soundings — Changes should clarify that compliance with MAR obligations will protect disclosing market participants from allegations of unlawful disclosure and streamline certain procedures, including as regards the need to cleanse those in receipt of inside information when a transaction is subsequently announced.
- Insider lists — ESMA concludes that insider lists remain a key element in investigating possible market abuse cases. Echoing current FCA practice in many areas, its report clarifies when insider lists are required, which individuals should be included in them and considers who should be responsible for drawing up and maintaining them, including auditors and other categories of consultant. It also analyses the role of the permanent insider section, concluding that it should remain an available option, and makes proposals to reduce the administrative burden of creating and maintaining insider lists.
- MAR thresholds and requirements for PDMR transaction notifications, and scope of application of trading prohibitions — ESMA recommends keeping the current thresholds set out in MAR as regards the notification of PDMR transactions, and proposes adding further exemptions to the restriction from conducting transactions in a “closed period”, including to permit discretionary asset management mandates, transactions resulting from corporate actions and the acceptance of gifts, donations and inheritance. The extension of closed periods to issuers and persons closely associated with PDMR was rejected as being too burdensome; nor does ESMA propose that the criteria for identifying closed periods be amended.
Further or revised guidance
ESMA suggests that additional guidance would be useful in relation to the constituent elements of the definition of inside information. It also proposes to revise its Guidelines the conditions which must be satisfied to delay disclosure in Article 17(4) of MAR so as to draw out further scenarios. Note that ESMA is not proposing amendments to the underlying conditions relating to delayed disclosure, nor the introduction of formal requirements to establish internal controls relative to the disclosure regime (despite stressing the importance of having such controls) or to inform the relevant competent authority — i.e. the Financial Conduct Authority (FCA) — of inside information the disclosure of which was delayed but which has subsequently ceased to meet the criteria of being “inside”.
FCA underlines need for confidentiality in relation to information requests
In its latest Market Watch newsletter, the FCA has issued a reminder of the importance of confidentiality for those in receipt of an information request from the FCA at the outset of an investigation.
Therefore, requests for the disclosure of information such as insider lists and corporate action chronologies in the context of the FCA investigating circumstances surrounding instances of suspected suspicious trading or inappropriate access to, and communication of, inside information should be kept strictly confidential. Should an issuer need to take “further investigative steps” or engage more widely in order to meet any information request, the FCA should be consulted in advance.