Regulation 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (also known as the Market Abuse Regulation, hereinafter referred to as MAR) became directly applicable in all EU Member States on 3 July 2016, thereby introducing a new market abuse regime.

This paper provides an overview of the key implications of such regime (from a Romanian point, where relevant), also highlighting areas of difference from the regime under the Market Abuse Directive 2003/6 (MAD) (currently repealed), as it was implemented in Romania.

While MAR introduces additional compliance steps in certain regards in respect of a wider range of instruments and markets as compared to the MAD regime (see summary in Speed Read), the key principles of market abuse and the corresponding obligations and restrictions remain largely unchanged.  

SPEED READ

Key points of difference to note under MAR regime:

• expanded scope to financial instruments on a wider range of trading venues including multi-lateral trading facilities

• specific information must be included in an announcement disclosing inside information

• monitoring of any delay in the announcement of inside information and notification to a competent authority of any such delay

• insider lists have a prescribed format and include personal information

• expended requirement on persons discharging managerial responsibilities to notification of transactions in an issuer's shares or debt instruments

• additional "mid-stabilisation" announcement of stabilisation transactions details

• specific regime to be followed for market soundings, involving detailed procedural and record keeping steps

• detailed minimum standards for sanctions, harsher maximum fines and minimum rules on criminal offences and criminal sanctions for market abuse.

1. MAR APPLICATION IN ROMANIA

The majority of the MAR provisions are applicable from 3 July 2016, which is the date when the related repeal of the MAD also took effect. The European Commission has issued various corresponding implementing and regulatory technical standards (ITS and RTS) and ESMA is in the process of drawing up guidelines which provide further details in relation to many provisions of the MAR regime.

As a regulation, MAR is directly applicable in Romania, but changes are required to current Romanian legislation and rules to facilitate its application are expected. These have partially been included in the draft Issuers’ Law published on 13 May 2016 on the website of the Ministry of Finance (http://www.mfinante.gov.ro/transparent.html?method =transparenta&pagina=acasa&locale=ro) and pending submission to Parliament approval (the Draft New Law).

Under the current Romanian market abuse regime, Title VII and Chapter V of Title VI of the Capital Markets Law No. 297/2004 set out the concept of inside information, obligations related thereto and types of behaviour that constitute market abuse and are supplemented by Title V of the Romanian Financial Supervisory Authority (FSA) Regulation No. 1/2006.

While changes to current legislation are pending implementation, the FSA has created a sub-section of its website dedicated entirely to the new MAR regime (please see Romanian language information at http://asfromania.ro/supraveghere/supravegherecapital/ abuz-de-piata-2).

2. EXTENDED SCOPE

The scope of MAR is significantly wider than MAD. MAR applies not only to any financial instruments admitted to trading on an EU regulated market but also to financial instruments traded or admitted to trading on multilateral trading facilities (MTFs) in Europe (such as the Global Exchange Market (GEM) in Ireland, the EuroMTF in Luxembourg and the Professional Securities Market (PSM) in London). National listing rules will no longer need to apply specific parts of the market abuse regime to MTFs, as they will automatically be within scope of MAR. Furthermore, from January 2018 when the “MiFID II” package is expected to go live, MAR will also apply to organised trading facilities (OTFs).

Importantly, MAR also captures financial instruments which may not be traded or admitted to trading on one of the European venues, the price or value of which depends on or has effect on the price or value of financial instruments on such venues. While recital 10 of MAR provides certain examples in this respect, it is not entirely clear how it will be interpreted in practice, although it may mean that in certain circumstances instruments traded purely on non-EU venues (or indeed certain unlisted instruments) are caught by the MAR regime.

3. KEY MAR CONCEPTS

3.1 INSIDE INFORMATION

The definition of inside information under MAR is broadly unchanged, i.e. information: (a) of a precise nature¹; (b) which has not been made public; (c) relating, directly or indirectly, to one or more issuers or to one or more financial instruments; and (d) which, if it were made public, would be likely to have a significant effect² on the price of those financial instruments.

In practice, an entity’s consideration of what information constitutes inside information will remain largely the same, i.e., whether a piece of information constitutes inside information will remain largely an objective commercial determination made according to internal governance procedures. Participants on the market are waiting for a useful tool in this respect, since ESMA is expected to draft a non-exhaustive list of inside information which is reasonably expected to be disclosed.

Importantly, MAR picks up on a provision in the MAD Preamble and further clarifies the legal regime of inside information obtained in the context of a takeover. Thus, it shall not be deemed that a person has engaged in insider dealing, where such person has obtained that inside information in the conduct of a public takeover or merger with a company and uses that inside information solely for the purpose of proceeding with that merger or public takeover, provided that at the point of approval of the merger or acceptance of the offer by the shareholders of that company, any inside information has been made public or has otherwise ceased to constitute inside information.

3.2 MARKET ABUSE PROHIBITIONS

From 3 July 2016, MAR carried forward the concepts of market manipulation, insider dealing and unlawful disclose, also establishing the related offences (without the need for implementing legislation). As a result, it is an offence to: (a) engage or attempt to engage in insider dealing; (b) recommend that another person engages in insider dealing or induce another person to engage in insider dealing; (c) unlawfully disclose inside information; or (d) engage in or attempt to engage in market manipulation (and this offence covers the manipulation of benchmarks). This is not a novelty for Romania, as the offences are already caught by the Capital Markets Law.

Competent authorities are policing actions carried out in their territory and those carried out abroad to the extent they relate to financial instruments on a venue operating with their territory.

4. CONTINUING OBLIGATIONS

4.1 INSIDE INFORMATION DISCLOSURE

MAR carries forward the existing requirement for an issuer to inform the public as soon as possible of inside information which directly concerns that issuer. While the MAR requirements line up with the MAD provisions in a number of respects, there are certain points of departure.

MAR requires inside information to be made public “in a manner which enables fast access and complete, correct and timely assessment of the information” and EU Regulation 2016/1055 (the Disclosure ITS) requires issuers to ensure that the technical means chosen disseminate the information to as wide a public as possible on a non-discriminatory basis, free of charge and simultaneously throughout the EU. Whilst not specifically referenced in MAR or the Disclosure ITS, ESMA considers that the standards of dissemination sought here are those set out in the Transparency Directive, enabling issuers to capitalise on existing and reliable channels, already known to the market. This means that from a Romanian perspective the reporting software of the Bucharest Stock Exchange should continue to be appropriate for disseminating inside information disclosures.

New prescriptive provisions under the MAR regime specify what the inside information disclosure must contain. In particular, amongst other things, relevant disclosures need to identify not only the issuer, but also the name and position within the issuer of the person making the notification. Where a relevant market announcement covers a range of issues, including inside information, care is required in formulating the announcement so that it is in compliance with the MAR requirements relating to the inside information component.

Finally, MAR continues the requirement that an issuer shall post inside information it is required to disclose on its website for five years. Romanian issuers should also be familiar with this requirement, since, according to the current Romanian legislation, the periodical reports should be kept accessible for the public for at least five years. Also, the Disclosure ITS requires the information to be on an easily identifiable section of the website, organised chronologically and accessible free of charge. Special consideration will need to be given to this provision where the issuer is a special purpose vehicle (SPV).

4.2 DELAYING DISCLOSURE

MAR continues to provide for a “legitimate interests” exception. This allows for disclosure of inside information to be delayed in limited circumstances where the issuer’s legitimate interests would be prejudiced. ESMA is consulting on guidelines which provide a non-exhaustive list of legitimate interests that give a basis for delay (for example, negotiations where the outcome of these would likely be jeopardised by immediate public disclosure). In all cases, and as with the regime under MAD, any delay must not be likely to mislead the public and the confidentiality of the relevant information must be ensured by the issuer.

The rules under the Disclosure ITS establish a requirement on the issuer to keep detailed records about the delay, including when the inside information first existed, when the decision to delay was made and the identity of the persons responsible for decisions about delay.

In addition MAR, as a regulation, also now hardwires the requirement (already present in Romanian legislation) on the issuer to inform the relevant competent authority that the disclosure was delayed immediately after the information is disclosed to the public.

MAR builds on the rules around delay with a new provision requiring the issuer to give the competent authority a written explanation of how the conditions leading to delay were met. This is required to be delivered along with the notification of delay, although Member States have the option to provide that the explanation need only be given when they request it. The FSA has already stated that such explanation is needed on the section of the FSA’s website dedicated to MAR (see section 1 above), also establishing the means by which issuers should communicate the delay and written notification.

Finally, MAR brings in a new ground for delay (available on a “pre-cleared” basis only) for credit and financial institutions in order to preserve the stability of the financial system. These issuers may delay the public disclosure of inside information if certain conditions are met, including receiving consent from the competent authority. This provision should not be unfamiliar to issuers subject to current Romanian regime given that such regime specifies that an issuer may have a legitimate interest to delay disclosure when the financial status of an issuer is in danger (but not in the sense of the issuer being insolvent), when the disclosure would harm the negotiations aiming to help, on a long term, improve the financial status of the issuer.

4.3 INSIDER LISTS

MAR carries forward the requirement for issuers to establish and maintain lists of individuals with access to inside information (insider lists). MAR also continues to provide that persons acting on behalf of an issuer (such as advisers, accountants or credit rating agencies) can assume the task of drawing up the list, but the issuer still retains ultimate responsibility for the list and has a right of access to it.

MAR develops the insider list regime further than MAD, however, in that it includes more detailed provisions in relation to the format and content of insider lists. Commission Implementing Regulation (EU) 2016/347 unifies the insider list format across competent authorities by providing for a template insider list, with separate sections for each piece of deal-specific or event-based inside information. Such ITS also envisages that issuers may include a supplementary permanent insiders section in their list for individuals who have access at all times to all inside information, and a template is also provided. We expect that there will be very few people at an issuer who are in this category.

A new requirement under the ITS is that the information to be included on the list about insiders must include personal information, e.g. personal telephone numbers and home address. This information will need to be managed and processed in accordance with applicable data protection legislation. The list must also be maintained in an electronic format which ensures accuracy, confidentiality and version control.

Finally, as currently, the insider lists must be updated promptly when certain trigger events occur, such as when a new person needs to be added.

4.4 PDMR TRANSACTIONS AND ISSUER OBLIGATIONS RELATED TO THEM

MAR, similarly to MAD before it, includes provisions requiring a person discharging managerial responsibilities (PDMR) within an issuer (such as a director), and persons closely associated with them (PCA), to notify the issuer and competent authority of transactions conducted on their own account in certain securities of the issuer above a threshold level.

The notification by PDMRs must be made under MAR in a shorter timeframe than under MAD, that is, no later than three business days after the date of the transaction. A notification must also follow a specific template (set out by the relevant ITS, i.e. the EU Regulation 2016/523) and be transmitted electronically.

Issuers with a share listing (and their directors) are already familiar with these provisions but, significantly, MAR expands the requirement such that the PDMR notifications must cover not only transactions in shares, but also transactions in debt instruments (or to linked derivatives or other financial instruments). This may be of particular relevance to issuers with only a debt listing in Europe, as their PDMRs will be required to notify transactions in the issuer’s debt.

A key point for a debt issuer to note is that it must then ensure that the information is made public promptly and no later than 3 business days after the transaction (and the same channels for disclosure, as covered earlier under section 4.1 above, will be relevant here). Given that the deadline for notification by PDMRs and PCAs to the issuer and competent authority is also 3 business days after the transaction, an issuer may wish to impose a shorter deadline on its PDMRs and PCAs to ensure it is able to comply with its disclosure obligation. Issuers must also notify PDMRs of their obligations and draw up a list of PDMRs and PCAs.

MAR also now embodies a restriction on PDMRs conducting transactions during closed periods and the permitted exceptions when clearance to deal may be given.

5. STABILISATION The EU

Stabilisation Regulation Commission Regulation 2273/2003, which previously provided the European safe harbour for stabilisation in respect of securities admitted to trading on a regulated market, was replaced with an RTS (i.e. EU Regulation 2016/1052) under MAR. The offences of insider dealing, unlawful disclosure and market manipulation will not apply to stabilisation conducted in accordance with MAR and the RTS. The RTS, bearing in mind the expanded scope of MAR, is equally relevant to the stabilisation of securities admitted to trading on both regulated markets and MTFs (and OTFs from 2018).

Key points of difference in respect of the stabilisation regime under MAR include:

• “Mid-stabilisation” announcement - Whilst MAR carries forward the current requirement for stabilisation managers to disclose details of stabilisation transactions to the relevant competent authority within 7 days of the transaction, the entity designated as stabilisation co-ordinator must also under the RTS publicly disclose details of stabilisation transactions. In essence this creates, in addition to the current practice of making preand post-stabilisation announcements, the requirement for a “mid-stabilisation” announcement.

• More detailed records - The RTS includes more detailed requirements about the records that each stabilisation manager must keep about stabilisation orders and transactions, for the purpose of reporting stabilisation transactions to the relevant competent authority.

Allen & Overy have been working with the International Capital Market Association on revisions to its package of stabilisation materials, including forms of pre-, post- and mid- stabilisation announcement and stabilisation legend.

6. MARKET SOUNDINGS

For the first time, MAR establishes a specific soundings regime. As set out in Article 11 of MAR a sounding is “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”.

While the new regime is not dissimilar to existing market practices in respect of soundings in certain respects, MAR involves more prescriptive procedural and record keeping requirements. As a result, market soundings procedures need to be updated to reflect MAR and the relevant RTS and ITS (i.e. EU Regulations 2016/960 and 2016/959), and banks are already considering which common communications will or will not be caught.

The new MAR regime needs to be followed when conducting a market sounding, in order that any inside information disclosed during the sounding is deemed to be in the normal exercise of a person’s employment, profession or duties and not unlawful disclosure of inside information. However, it should be noted that the MAR regime also covers soundings that do not involve inside information (and which fall within the MAR definition of market sounding in Article 11) – although the requirements that apply in that situation are different.

The soundings regime under MAR also includes the following aspects:

• Issuer mandate - A sounding under the new regime is a communication conducted under a mandate from the issuer, whether oral or written. It should be noted that in its final report, ESMA recommended that the person conducting the sounding on behalf of the issuer (disclosing market participant or DMP) should keep records of the instructions or the mandate received in order to evidence that they are “acting on behalf of” the issuer (the market sounding beneficiary). With regard to the latter, on deals involving an SPV issuer, consideration should be given to providing for such issuer to be a party to the mandate letter, with consideration being given to alternative arrangements being put in place where the issuer is not yet in existence.

• DMP consideration required - Before the sounding, the DMP should carefully consider whether the sounding will involve the disclosure of inside information and make a written record of its conclusion and reasons. This may need to be provided to a competent authority.

• New standard information requirements - The relevant RTS requires a DMP to have in place procedures for exchange of a standard set of information in a pre-determined sequence with persons receiving the sounding. The particular information to be exchanged on a specific sounding must be determined in advance of that sounding and used for all persons receiving that sounding. The RTS specifies two sets of standard information, one for inside information (i.e. wall-crossed) soundings and the other for non-inside information (i.e. non wall-crossed) soundings.

• Consent for wall-crossing - In the context of a wall-crossed sounding and before the information is disclosed, the sounding process will involve the DMP obtaining the consent of the person receiving the market sounding to receive the inside information, informing them that they cannot use the information and that they agree to keep it confidential.

• Cleansing notification - Further, for wallcrossed soundings, a DMP must notify a recipient in writing when it is “cleansed”, i.e. in the assessment of the DMP the information is no longer inside, and records must be kept of this (in a format set out in an ITS).

• Record keeping requirements - There are detailed record keeping requirements, with records needing to be retained for 5 years. Records have to be kept of persons sounded, with a separate list for each sounding, and a list of potential investors that do not wish to receive soundings (whether generally or in specific contexts, retained as a single list). Where the sounding has not taken place on recorded telephone lines, via video or in writing, the RTS requires minutes (on the basis of the ITS template) to be produced and signed by both parties.

• Assessment by sounding recipient - The person receiving the market sounding is also required to assess for itself whether it has inside information, taking into account the total “mix” of information it may hold from sources other than the DMP. ESMA are consulting on guidelines for persons receiving market soundings, which will likely cater for the process to be followed where there is a difference in opinion between the DMP and recipient over whether information is inside.

7. SANCTIONS

7.1 ADMINISTRATIVE OFFENCES

A primary motivation behind MAR was to drive increased uniformity across the EU and this aim extends to sanctions – as a result, MAR contains detailed minimum standards. Member States are therefore required to ensure that they have powers that meet or exceed those listed in MAR. These include the power to force those culpable of market abuse to disgorge any profits resulting from their abusive behaviour, the power to withdraw or suspend the authorisation of a firm and to impose bans on those performing management functions.

Member States are also obliged to ensure that they have power to impose maximum pecuniary sanctions which vary in accordance with the offence as well as the person involved. For example, natural persons who fail to comply with MAR disclosure obligations may be fined up to EUR 1,000,000, while for unlawful disclosure, insider dealing and market abuse the fine goes up to EUR 5,000,000³. At the same time, legal persons may be fined up to EUR 2,500,000 or up to 2% of their total annual turnover, for failure to comply with MAR disclosure obligations, while for unlawful disclosure, insider dealing and market abuse the fine can be as high as EUR 15,00,000 or 15% of their total annual turnover.⁴

As regards the Romania regime, the Draft New Law provides for a specific section implementing MAR sanctions and provides for similar values for fines, calculated in RON.

MAR also confers very extensive powers on competent authorities for the purposes of investigating potential market abuse infringements.

7.2 CRIMINAL OFFENCES

MAR is complemented by Directive 2014/57/UE which introduces minimum rules on criminal offences and criminal sanctions for market abuse. This is a change to the previous EU market abuse framework in the sense that it currently requires Member States to adopt administrative sanctions which are “effective, proportionate and dissuasive”, but gives them the freedom to decide whether or not to impose criminal sanctions.

While the current Romanian legislation already provides for criminal sanctions for market abuse offences (imprisonment from 6 months to 5 years), further changes implementing MAR are to be passed by the Draft New Law (the form of which currently provides for imprisonment from 1 year to 5 years).

1 Similar to MAD and the FSA Regulation 1/2006, information is precise if it indicates circumstances that exist or may reasonably be expected to come into existence or an event that has occurred or may reasonably be expected to occur, where it is specific enough to enable a conclusion to be drawn as to the possible effect of those circumstances or that event on the price of the financial instruments or related derivative financial instrument. It should also be noted that MAR codifies the assessment of inside information in the context of “protracted process” where certain intermediate steps of that process may be deemed to be precise information.

2 As under the MAD regime implemented in Romania, information would be likely to have a significant effect on price if it is information a “reasonable investor” would be likely to use as part of the basis of its investment decision.

3 As opposed to the current Romanian law sanctions of fines of RON 10,000 to 100,000 for some offences and from 50% to 100% of the transaction value or, in case of no transaction, from RON 10,000 to 100,000 in case of insider dealing, unlawful disclosure of inside info, market manipulation.

4 As opposed to the current Romanian law sanctions of fine amount to 0.1% to 10% of net turnover achieved in the previous financial year, for some offenses, and fines of 50% to 100% of the transaction value or, in case of no transaction, from RON 10,000 to 100,000 in case of insider dealing, unlawful disclosure of inside information, market manipulation.