The Market Abuse Regulation (MAR) came into force on 3 July 2016. It aims to strengthen the existing market abuse framework by extending its scope to new markets, platforms and trading behaviours. It contains prohibitions for insider dealing and market manipulation, and provisions to prevent and detect these.
To help companies comply with MAR, ESMA has published, on 13 July 2016, its final guidelines clarifying the implementation of MAR for persons receiving market soundings and on delayed disclosure of inside information, and also updated its Q&As regarding managers transactions.
ESMA held a consultation on the draft guidelines in early 2016; you can read our response here.
Guidelines on market soundings
Market soundings are a communication of information, prior to the announcement of a transaction, 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.
Among other things, the guidelines detail the following:
- Internal procedures and staff training – The final guidelines require the creation of internal procedures that are proportionate to the scale, size and nature of the business of the person receiving the market sounding (MSR). Proportionality is also required regarding staff training on relevant internal procedures and the prohibitions arising from being in possession of inside information;
- Written minutes or notes – ESMA clarified that an MSR must sign off the minutes or notes of unrecorded meetings or telephone conversations, where agreed, or provide an alternative version to the disclosing market participant (DMP), where not agreed, within five working days after receipt of the DMP’s minutes or notes;
- Assessment of possession of inside information – The guidelines specify that the DMP's assessment of whether an MSR is in possession of inside information is one of the relevant factors to take into consideration by the MSR in its assessment. In conducting those assessments, the individual(s), function or body should not be required to access information behind any information barrier within the MSR;
- Record keeping – MSRs should, for a period of at least five years, keep records of, among other things, internal procedures; notifications to the DMP of the wish to not receive future market soundings; and the assessments as to whether they are in possession of inside information as a result of the market sounding and the reasons therefor.
Guidelines on legitimate interests of issuers to delay disclosure of inside information and situations in which the delay of disclosure is likely to mislead the public
Regarding the legitimate interests of issuers to delay disclosure of inside information the guidelines provide an indicative, non-exhaustive list of examples of situations in which the delay of disclosure is likely to mislead the public. Examples of cases of legitimate interests of issuers which are likely to be prejudiced by immediate disclosure of inside information include:
- Conduct of negotiations – where the disclosure of inside information might prejudice the outcome of negotiations being conducted by the issuer, including those related to mergers, acquisitions, splits and spin-offs, purchases or disposals of major assets or branches of corporate activity, restructurings and reorganisations;
- Financial recovery – where the financial viability of the issuer is in grave and imminent danger and immediate public disclosure of the inside information would seriously prejudice the interests of existing and potential shareholders, by jeopardising the conclusion of the negotiations aimed at ensuring the financial recovery of the issuer;
- Management decisions or contracts requiring approval of another issuer body – where issuers meet the following two conditions: (i) immediate public disclosure of information before a definitive decision would jeopardise a correct assessment of the information by the public; and (ii) the issuer has arranged for the definitive decision to be taken as soon as possible.
Updated Q&As on the Market Abuse Regulation, including managers transactions
ESMA published an updated version of its Q&As to clarify whether the announcement of the interim or year-end financial results determines the end date for the 30-day closed period. According to MAR, during a closed period, persons discharging managerial responsibilities (PDMRs) are generally prohibited from dealing in shares and debt instruments of the issuer.
ESMA has confirmed in its new Section 2 of the Q&As that the announcement of preliminary financial results agreed by the management body of the issuer used in Article 19(11) will constitute the announcement marking the end date of the closed period under MAR. This can only apply if the disclosed preliminary financial results contain all the key information relating to the financial figures expected to be included in the year-end report. In the event the information announced in such way changes after its publication, this will not trigger another closed period but should be addressed in accordance with Article 17 of MAR.
ESMA's clarification on this question confirms the FCA's supervisory approach which had been announced in May 2016.