In our May newsletter we provided an update on the progress and status of the European proposals to replace the existing Market Abuse Directive (MAD) with a Regulation on insider dealing and market manipulation (MAR) and the Directive on criminal sanctions for insider dealing and market manipulation (CSMAD). Both MAR (Regulation 596/2014) and CSMAD (Directive 2014/57/EU) were published in the EU Official Journal on 12 June 2014. MAR, as with all Regulations, shall have direct effect, and shall automatically apply to all Member States from 3 July 2016 completely replacing the MAD regime. In the UK, MAR shall replace Part VIII (Section 118ff) FSMA (Financial Services and Markets Act 2000) and the FCA's MAR (Code of Market Conduct).
In relation to CSMAD, Member States have two years to transpose the Directive into national law. As outlined in our previous PLC Update, the CSMAD requires Member States to ensure that criminal offences, as defined in the Directive, are punishable by "effective, proportionate and dissuasive" criminal penalties and sanctions. The CSMAD expressly provides for a maximum term of imprisonment of at least four years' for insider dealing, recommending or inducing another person to engage in insider dealing and market manipulation and two years' imprisonment for the unlawful disclosure of inside information. As we previously reported, the UK has opted out of CSMAD at the present time, and as such criminal offences relating to market abuse will continue to be covered by existing domestic UK law, (e.g. the Criminal Justice Act 1993 and the Financial Services Act 2012), albeit that there may be some changes made. The Chancellor of the Exchequer announced in his Mansion House speech (on 12 June 2014) that "we will introduce tough new domestic criminal offences for market abuse, rather than opt into European rules we do not think suitable or sufficient for our needs".
This article provides an update of MAR and looks at some of the key issues within the Regulation.
Scope of MAR
The new European rules on market abuse update and strengthen the framework provided by MAD, which will now be repealed. MAR does however, specifically move the regulatory environment forward in an attempt to keep pace with technological developments in the financial system. For example, the scope of MAD covered financial instruments admitted to trading on an EU regulated market (including prescribed markets in the UK). MAR has been extended to look beyond pure financial instruments and covers products such as algorithmic and high frequency trading (HFT), over the counter trading (OTC), as well as benchmarks such as LIBOR. MAR also extends its scope to include emissions allowances, as well as extending the market manipulation prohibition to instruments whose value relates to traded instruments (for example, MAR expressly recognises an OTC credit default swap).
Market Abuse Offences
The offences for market abuse under MAR include those as under the MAD regime, being:
insider dealing; persuading others to engage in insider dealing; disclosing inside information; engaging in market manipulation. MAR however, goes further and prohibits the following:
the use of inside information to cancel or amend pre-existing orders or bids; market manipulation to secure the price of financial instruments, related spot commodity contracts or auctioned products (emission allowances), at an abnormal or artificial level; providing false or misleading information in relation to a benchmark which manipulates the calculation of a benchmark. In particular, MAR now prohibits "attempted market manipulation" as well as actual. For example, market manipulation will cover transactions and orders to trade, but also the cancellation or amendment, or the attempted cancellation or amendment, of an order to trade on the basis of inside information that is received subsequent to placing the order. Any attempted activity, where a transaction is intended for 'abusive' purposes, will be caught by MAR, even if the transaction is not actually executed.
The prohibition of market manipulation also includes the attempted or actual manipulation of benchmarks, as well as actual financial instruments, and the transmission of false or misleading information.
MAR specifically states that dissemination of false or misleading information via the internet, including social media or unattributable blogs, is equivalent to doing so via more traditional communication channels and is also prohibited.
Sanctions - Criminal and Administrative
Without prejudice to the criminal sanctions in the CSMAD, MAR provides for...