The European Commission has published legislative proposals for a new Market Abuse Directive (the "New Directive") and a new Market Abuse Regulation ("MAR") to replace the current Market Abuse Directive ("MAD") which underpins the laws on insider dealing and market manipulation throughout the European Union ("EU"). MAR will introduce a single directly applicable rulebook governing market conduct throughout the EU to be enforced via Member State administrative sanction. The New Directive will require all Member States to introduce criminal sanctions for intentional insider dealing and market manipulation. As the Council of Ministers and European Parliament will require time to negotiate and finalise the proposals, the timing of the implementation of the new Directive and MAR is uncertain although it is only likely to come into effect in 2014.
More instruments, more trading venues
Currently, MAD applies to financial instruments admitted to trading on an EU regulated market. MAR will extend this to cover instruments traded on a multilateral trading facility ("MTF") and organised trading facility ("OTF") as defined in the proposed Markets in Financial Instruments Regulation ("MIFIR"). It also extends the market manipulation prohibition to instruments whose value relates to the traded instruments, e.g. an OTC derivative referenced to a security traded on the Irish Stock Exchange (under MAD, the related instruments prohibition applies only to insider dealing). MAR expressly recognises an OTC credit default swap ("CDS") as an example of a related instrument. MAR will also extend the scope of the regime to capture emissions allowances.
Investment managers will need to reconsider the scope of their trading policies and practices. In particular, those managers who operate outside the EU will need to consider their actions with respect to any instrument which simply happens to be admitted to trading on an MTF located in the EU. Moreover, in light of the requirements proposed under MIFIR that many OTC derivatives, such as a CDS, be traded on OTFs, MAR will be relevant to conduct related to any instrument, such as an unlisted debt security, referenced under a CDS traded on an OTF.
Insider dealing: no longer simply a case of price-sensitive information
Under MAD, insider dealing or improper disclosure can only occur with respect to non-public information of a precise nature that would be likely to have a significant effect on the price of the relevant...