An updated and strengthened legal framework for market abuse
The updated and strengthened legal framework concerning market abuse is a fact. On 3 July 2016, Regulation no. 596/2014 of 16 April 2014 on market abuse (hereafter “MAR”) entered into force. It replaces Directive 2003/6/EC of 28 January 2003 on insider dealing and market manipulation (market abuse). It essentially aims at enhancing market integrity and investor protection. It is further supplemented by Directive 2014/57 of 17 December 2015 on criminal sanctions for market abuse and several Delegated and Implementing Regulations setting forth technical standards.
Under MAR, market abuse (or unlawful behavior in the financial markets) should be interpreted as including:
- insider dealing;
- unlawful disclosure of inside information; and
- market manipulation.
MAR introduces some modifications to the old framework on market abuse. First of all, the scope of application of MAR is broadened in view of the changed financial landscape and especially given the fact that financial instruments are increasingly being traded on non-regulated markets. In particular, it includes any financial instruments traded on a regulated market, a multilateral trading facility or an organized trading facility and any transaction, order or behavior concerning any financial instrument irrespective of whether it takes place on a trading venue.
Further, MAR broadens the prohibition on insider dealing to include not only placing orders but also cancelling or amending such orders.
Other modifications introduced by MAR relate, amongst others, to the following subjects:
- information obligations towards the competent authority in the event of delaying the disclosure to the public of inside information (in certain events, for example, it is possible to inform the competent authority about the delayed disclosure of inside information after the information is disclosed the public);
- the obligation to report particular managers’ transactions in certain events (the competent authority should not only be notified about managers’ transactions relating to shares but also, for example, about those relating to debt instruments);
- prohibition of market manipulation (under MAR the concept of market manipulation is broadened and it includes a non-exhaustive list of indicators of manipulative behavior relating to false or misleading signals and to price securing and to the employment of a fictitious device or any other form of deception or contrivance, which are not necessarily deemed constituting market manipulation in themselves but shall be taken into account when transactions or orders are examined by market participants and competent authorities);
- notification requirements by intermediaries regarding suspicious orders and transactions (under MAR this obligation is not limited to suspicious transactions but also includes suspicious orders).
As a regulation is directly applicable in the different Member States, it prevents divergences between national laws following a transposition of a directive and hence, will contribute to creating a level playing field between the Member States.
Despite its direct applicability, MAR requires in some respects transposition into national law. More in particular, Member States are required, amongst others, to determine the competent monitoring authority and its powers as well as the administrative sanctions and other administrative measures that can be imposed by the monitoring authority in events of violations of MAR.
On 1 July 2016, the Act of 27 June 2016, amongst others partially implementing MAR, was published in the Belgian Official Gazette. The main provisions regarding market abuse entered into force on 3 July 2016. The Act of 27 June 2016 appoints the Financial Services and Markets Authority (FSMA) as the competent authority for monitoring compliance with MAR and publishing managers’ transactions. It further confirms that the FSMA may exercise its already existing investigation powers such as the power to request information, carry out inspections, request special reports from the statutory auditor, issue an order and impose administrative fines. The maximum administrative fines are increased. For natural persons, administrative fines up to EUR 5 million and for legal persons, administrative fines up to EUR 15 million or, if higher, 15% of the total annual turnover, can be imposed for reasons of market abuse (amongst others for insider dealing or unlawfully disclosing inside information). Further, the Act introduces the possibility for the FSMA to impose a temporary ban on dealing for own account for natural persons who are held responsible for a violation of certain MAR provisions. Some of the investigation powers that should be foreseen in national law but which are considered being less urgent and/or more innovative, are not included in the Act of 27 June 2016 but will be the subject of a separate bill.
Finally, the FSMA has issued a circular letter on practical instructions concerning MAR. The main objective of the circular letter is to clarify and provide implementing instructions concerning the notification and information obligations pursuant to MAR. It tackles seven subjects, being (i) insider lists, (ii) market soundings, (iii) managers’ transactions, (iv) notification of suspicious orders and transactions, (v) notification of delay of disclosure concerning inside information, (vi) safe harbors or exemptions for buy-back programmes and stabilization, and (vii) investment recommendations. Further, the FSMA has made available standard forms to use concerning insider lists, market soundings and notifying suspicious orders and transactions. Specifically for stock exchange companies on the Free Market, the FSMA has issued a circular letter concerning their obligations pursuant to MAR.
For further information on this topic, please do not hesitate to contact K law.