New Market Abuse Regime - Roadmap
While MAR will be directly applicable in the UK and other Member States, a number of important areas will be the subject of EU secondary legislation and ESMA guidance. Certain changes will also be required to UK legislation and, importantly, to the FCA's Handbook.
Unfortunately, while the Commission is currently adopting secondary legislation, many detailed measures/changes are not finalised yet. Indeed, a marker has been put down by the FCA that further consultations on rule changes may be necessary after 3 July 2016 and some ESMA guidance may be delayed too. This makes gearing up for the new regime challenging and market participants are concerned (see article above on scope).
We outline some of the key issues below.
Disclosure of inside information
Once an issuer has delayed disclosure of inside information, it will need to advise the FCA (or other relevant competent authority) of the delay immediately after the information has been made public and be able to justify this delay in writing to the FCA. This will mean that detailed records will need to be kept of decisions made, including the time and date on which inside information came into existence, and issuers' systems and policies will need to be updated. Proposed guidelines are more conservative in some areas than current UK market practice on what constitutes a "legitimate interest" to delay disclosure (eg when key director resignations must be announced).
Standard templates are prescribed for insider lists. These must be maintained by companies with traded securities and anyone acting on their account, eg advisers. These need to be in electronic format and made available, by the issuer, to the competent authority on request. A significant range of information is required to identify each insider. Issuers will be able to maintain separate permanent and project sections of a single insider list with the key difference being that those on the optional permanent insider list section will be deemed to have knowledge at all times of any inside information and cannot also be added to any project lists. Key issues are whether client HR departments will be able to provide the significant level of detail required about each employee that needs to go on to the list and whether software template or other systems need to be changed to accommodate the prescribed rigid formats. Issuers will need to decide whether to maintain a permanent insider list or not.
There are two key elements to the new regime: disclosure of PDMR transactions (covering transactions relating to both shares and debt instruments); and a ban (subject to limited exceptions) on PDMR transactions during MAR closed periods (which run from 30 days before announcement of interims/annual reports). While disclosure obligations and restrictions on dealings will be broadly similar under the new regime, there is a lack of clarity on the exact types of transactions which are covered in the context of dealing restrictions. This is particularly the case for various actions and events which take place in connection with employee share schemes.
The FCA has recently confirmed that the Model Code will be deleted from its rule book. Issuers will need to make changes to their share dealing policies to reflect this change in the new EU rules.
The new market-soundings safe harbour requires that onerous procedures are followed. The requirement for a person disclosing inside information to have to inform a recipient that the information has ceased to be inside information will be an administrative burden as it will apply even if the relevant transaction has been announced. Under the new rules, persons receiving information are required to assess for themselves whether they are in possession of inside information (and when they cease to be in possession of inside information). Some tricky issues may arise if the parties disagree on whether the relevant information is inside information. Provided the activity is regarded as a "sounding" (which requires that a transaction be in contemplation), the requirements apply to disclosure of non-inside information as well as inside information.
Employees who conduct soundings will need to be trained in the new regime. This may limit the number of employees who conduct soundings.
There are some changes to the stabilisation safe harbour, including a new requirement for adequate public disclosure of the details of any stabilisation transactions within seven market days of execution.