Market abuse and accepted market practices
MAD is intended to guarantee the integrity of European financial markets and increase investor confidence. Any unlawful behavior in the financial markets is prohibited. The concept of market abuse typically consists of insider dealing, unlawful disclosure of inside information, and market manipulation.
Directive 2003/6/EC of the European Parliament and of the Council (MAD) was published in the Official Journal and entered into force on 12 April 2003.
Its objective is to create a level playing field for all economic operators in the Member States as part of the effort to combat market abuse by:
- reinforcing market integrity;
- contributing to the harmonisation of the rules for market abuse throughout Europe;
- establishing a strong commitment to transparency and equal treatment of market participants;
- requiring closer co-operation and a higher degree of exchange of information between national authorities, thus ensuring the same framework for enforcement throughout the EU and reducing potential inconsistencies, confusion and loopholes.
Regulation No 596/2014 on market abuse (MAR), repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC and Directive 2014/57/EU on criminal sanctions for market abuse (CS MAD) were published in the Official Journal of the European Union on 12 June 2014 and will apply as of 3 July 2016.
MAR aims at enhancing market integrity and investor protection. To this end MAR updates and strengthened the existing MAD framework by extending its scope to new markets and trading strategies and by introducing new requirements.
The definition of financial instruments in MAR refers to the meaning of this concept under the 2014/65/EU (MIFID II), which is very broad. On top of that, MAR does not limit its scope of application to financial instruments admitted to trading on a regulated market or for which a request for admission to trading on a regulated market has been made. MAR covers financial instruments admitted to trading or traded on Multilateral Trading Facilities (MTF), financial instruments traded on Organised Trading Facility (OTF) and emission allowances.
However, some exceptions apply. The prohibition of insider dealing and market manipulation does not apply to trading in own shares in buy-back programs or trading in securities for the stabilization of securities when some conditions laid down in MAR are met. Moreover, MAR does not apply to public authorities in pursuit of monetary, exchange rate or public debt management policy. Other specific exceptions apply in the framework of the EU’s climate policy or the EU’s Agricultural Policy for instance.
MAR provides a defense if the transaction was legitimate and in accordance with market practices accepted by the competent authority – these are referred to as ‘Accepted Market Practices’ (AMPs). The Regulation describes the non-exhaustive factors that a competent authority should take into account before deciding whether or not to accept a market practice.
The competent authority must in particular consult as appropriate relevant bodies such as representatives of issuers, financial services providers, consumers, other authorities, market operators and ESMA, before officially accepting an AMP.
MAR provides for a minimum set of supervisory and investigatory powers which the national competent authorities should be entrusted with under national law. Those include, among others: (i) the access to any document or data and the right to receive or take a copy thereof; (ii) the right to carry out on-site inspections or to require recordings or data traffic held by investment firms, credit institutions or financial institutions and, insofar permitted by national law, by telecommunications operators; and (iii) the power to impose a temporary prohibition of the exercise of professional activity.
The swift cooperation between the NCAs is ensured by a clear duty to cooperate set forth in MAR. The cooperation with third countries shall take place within the framework of specific cooperation arrangements to be entered into with the relevant supervisory authorities.
Without prejudice to the criminal sanctions laid down in CS MAD, MAR provides for a set of administrative sanctions and other administrative measures.
CS MAD complements MAR by requiring all Member States to provide for harmonised criminal offences of insider dealing and market manipulation, and to impose criminal terms of imprisonment of at least two to four years, depending on the relevant offence.
MAR empowers ESMA to develop draft regulatory technical standards (RTS) and implementing technical standards (ITS). ESMA delivered a first set of technical standards on 28 September 2015, on the following items:
- the conditions, restrictions, disclosure and reporting obligations for buyback programmes and stabilisation measures (RTS);
- the arrangements, procedures and record keeping requirements for persons conducting market soundings (RTS), and systems and notification templates to be used in market soundings and the technical means for appropriate communication (ITS);
- the establishment, maintenance and termination of accepted market practices (RTS);
- the arrangements, systems, procedures and notification templates to report suspicious orders and transactions (RTS);
- the technical means for the public disclosure of inside information and its delay (ITS);
- the precise format of insider lists and the format to update them (ITS);
- the format and template for the notification of managers’ transactions (ITS); and
- the technical arrangements for the objective presentation of investment recommendations or other information recommending or suggesting an investment strategy and for disclosure of particular interests or indications of conflict of interest (RTS).
Pursuant to MAR, ESMA received two formal requests (mandates) from the European Commission to provide technical advice to assist the European Commission on the possible content of the delegated acts required by some provisions of the MAR. ESMA was required to provide technical advice by no later than eight months after the entry into force of MAR.
The first mandate was published on 21 October 2013, and it covers the following topics:
- the specification of the indicators of market manipulation;
- the establishment of a minimum threshold of carbon dioxide equivalent, and a minimum threshold of rated thermal input for the purposes of exemption, with respect to the public disclosure of inside information;
- the specification of the competent authority for the notification of delays in the public disclosure of inside information; and
- the specification of the characteristics of a manager’s transaction which trigger the notification duty, and specification of the circumstances under which trading during a closed period may be permitted by the issuer.
The second mandate was published on 2 June 2014, and refers only to the specification of procedures to enable reporting of actual or potential infringements of MAR.
ESMA published its technical advice related to those mandates on 3 February 2015.
Under Articles 7(5), 11(11) and 17(11) ESMA issues guidelines on:
- inside information for commodity derivatives markets or spot markets;
for persons receiving market sounding: the factors for them to assess whether the information amounts to inside information, the steps to take if inside information has been disclosed to them in order to comply with MAR provisions on inside information and the records to maintain in order to demonstrate such compliance, or delayis in disclosure of inside information; and
delays in the disclosure of inside information.
According to MAR ESMA should publish:
- a list of any financial instrument for which a request for admission to trading is made, which is admitted to trading, or which is traded for the first time based on notifications received the competent authorities;
- the list of thresholds that apply and the justifications provided by competent authorities for such thresholds for notification of managers’ transactions;
- an annual report on aggregated information regarding administrative sanctions or measures imposed by competent authorities as well as criminal sanctions.
In relation to AMPs, under MAR within two months following receipt of the notification, ESMA will issue an opinion assessing the compatibility of the AMP which MAR and whether it would not threaten the market confidence in the European Union’s financial market. The opinion shall be published. ESMA shall also publish the list of the AMPs established and the Members States in which they are applicable.
The AMPs currently accepted by a national authority under MAD can be found in the ESMA Library.