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ESMA publishes final advice on new Market Abuse Regulation

The European Securities and Markets Authority (ESMA) has published its final technical advice on various aspects of the new EU Market Abuse Regulation, due to come into force in July 2016. The advice covers disclosures that will be required by PDMRs (persons discharging managerial responsibilities) under the new regime and the exemption which allows PDMRs to deal during a close period in exceptional circumstances.

It also provides guidance on notified delays in the public disclosure of inside information, on characteristics of market manipulation and on the application of the market abuse regime to certain energy markets.

Information for subscribers

The Market Abuse Regulation will replace the 2003 Market Abuse Directive, which is implemented in the UK by the FSMA 2000 and associated FCA Rules (mainly the Disclosure and Transparency Rules). As the Regulation will be directly applicable as law in the UK, there will probably be changes to the way the new legislation is implemented. These will principally affect the following paragraphs of CSP:

  • 3.9 (Publicly traded companies: Disclosure and Transparency Rules)
  • 3.29 (Publicly traded companies: Aim – continuing obligations)
  • 4.6-4.7 (Announcements and circulars: Inside information)
  • 11.25-11.27 (Directors and the company secretary: Model code, market abuse and insider dealing)

Market Abuse Directive (MAD)

The Market Abuse Directive (2003/6/EC) introduced a framework to tackle market abuse in the form of insider dealing or market manipulation. It prohibits anyone in possession of inside information from trading in related financial instruments, and prohibits the manipulation of markets through practices such as spreading false information or rumours and conducting trades that result in abnormal prices.

The Directive also includes rules to help minimise insider dealing by requiring issuers of financial instruments traded on a regulated market to publish inside information as soon as possible, prohibiting dealings by PDMRs in periods immediately prior to the announcement of results and requiring their dealings to be disclosed. It also creates some tools to help detect market abuse, like insiders' lists, suspicious transaction reports, powers of investigation for competent authorities and the power to impose sanctions.


Market Abuse Regulation

The Market Abuse Regulation (EU/596/2014) will replace the existing Market Abuse Directive with effect from 3 July 2016. It updates and strengthens the existing framework to keep pace with market developments. The new regime will apply to all financial instruments traded on organised platforms and over the counter (OTC), and to commodity and related derivative markets. It explicitly bans the manipulation of benchmarks, such as LIBOR, and reinforces the investigative and sanctioning powers of regulators. It largely replicates the existing requirements regarding the publication of inside information and dealings by PDMRs.

The 2003 Directive sought to prohibit insider dealing and market manipulation in financial instruments traded on a regulated market. However, since the adoption of MiFID I, financial instruments have been increasingly traded on multilateral trading facilities (MTFs), on other types of organised trading facilities (OTFs), such as broker crossing systems, or traded OTC. These new trading venues and facilities have provided more competition to existing regulated markets, but have also made it more difficult to monitor for possible market abuse. The Regulation brings them all within the scope of the market abuse framework.

The Regulation also:

  • provides an indicative list of High Frequency Trading (HFT) strategies that will be treated as market manipulation, such as placing orders so as to disrupt or delay the functioning of a trading system ("quote stuffing");
  • extends the current reporting of suspicious transactions to suspicious unexecuted orders and suspicious OTC transactions;
  • requires Member States to provide for whistleblowing mechanisms for the reporting of actual or potential market abuse;
  • prohibits attempted market abuse, making it possible for regulators to impose a sanction in cases where someone tries to insider deal or manipulate the market;
  • enables the European Commission to specify in delegated legislation the information to be included on insider lists;
  • imposes less burdensome disclosure requirements on issuers traded on SME markets;
  • introduces greater harmonisation of administrative (civil) sanctions for market abuse.


In parallel, a separate Directive (2014/57/EU) on criminal sanctions for market abuse will require Member States to introduce criminal sanctions for the offences of insider dealing and market manipulation where these are committed intentionally.

The new regime will come into force in July 2016, around the same time as MiFID II. The two areas have deliberately been updated in tandem to ensure that they are fully coherent and support each other's objectives and principles. MiFID II will ensure that all types of organised trading are regulated. The MAR will apply market abuse rules to all organised trading.

ESMA advice on dealings by PDMRs

The Regulation clarifies the scope of the reporting obligations in relation to transactions by PDMRs and persons associated with them. It clarifies that any transaction made by a person exercising discretion on behalf of a manager of an issuer, or whereby the manager pledges or lends his shares, must also be reported to the competent authorities and be made accessible to the public. Moreover, it introduces a threshold of €5,000, which triggers the obligation to report such transactions – although competent authorities are allowed to increase this threshold to €20,000 in certain circumstances.

The ESMA advice includes a non-exhaustive list of the types of transactions that trigger the disclosure requirement. These include:  

a) Purchases and sales, including short sales, of shares or debt instruments of the concerned issuer or of related derivatives or other financial instruments linked to them, or of emission allowances or related auction products or derivatives.

b) The acceptance and the exercise of a stock-option in case of stock options granted to managers and employees as part of their remuneration package.

c) The sale of shares stemming from the exercise of a stock option (even in case of stock options granted to managers and employees as part of their remuneration package).

d) Equity swaps. The following features of an equity swap should be included in the notification: description of securities, share’s price and maturity/term of the contract.

e) Transactions related to derivatives products settled in cash (such as for instance equity swaps with a cash settlement).

f) Entering into a contract for difference on a financial instrument of the issuer.

g) Acquisition, sale or exercise of rights, put and call options, warrants traded on a regulated market, a multilateral trading facility, an organised trading facility and/or over the counter. If rights, warrants, put and call options are exercised, the date of transaction is the date of exercise.

h) The subscription to a capital increase.

i) The subscription of a debt instrument issuance.

j) Transactions on derivatives/financial instruments linked to a debt instrument, including credit default swaps.

k) Conditional trades i.e. trades which occur on the basis of a previous contract that stipulates a condition that is now met.

l) The (automatic and not automatic) conversion of a financial instrument into another financial instrument, e.g. exchange of convertible bonds to shares.

m) Gifts and donations made or received, and inheritance received. The transaction date is to be considered as the date of acceptance determined by the applicable national law.

n) Transactions executed in index-related products, baskets and derivatives based thereto, which are linked to the issuer’s shares or debt instruments.

o) Transaction executed in shares/units of investment funds (AIF and UCITS) where the clients of the fund know, or could have the knowledge of, the investment composition of the fund, and which are linked to the issuer’s shares or debt instruments.

p) Transactions executed by managers of an AIF in which the person discharging managerial responsibilities or a person closely associated with him has invested, where the manager of the AIF does not operate under a fully discretionary mandate.

q) Transactions executed by a third party under an individual portfolio or asset management mandate for the benefit of the person discharging managerial responsibilities and/or person closely associated with him.

r) Borrowing of shares or debt instruments of the issuer or other financial instruments linked thereto.

With reference to items n), o) and p), an index-related product, a basket and a share/unit of investment funds (AIF and UCITS) shall be deemed as a financial instrument linked to the issuer’s shares or debt instruments only when the weight carried by the issuer’s shares and/or debt instruments in the composition of the index, basket or investment fund is 20% or more of the total at the time of the transaction.

Circumstances where trading during a closed period may be permitted

Under Article 19(12) of MAR, a PDMR may only conduct trading during a closed period if:

  • the issuer concerned has permitted such trading;
  • one of the circumstances referred to in Article 19(12) of MAR is met; and
  • the person discharging managerial responsibilities can demonstrate that the particular transaction cannot be executed at another moment in time than during the closed period.


According to ESMA, issuers should base their decision on a case-by-case assessment conducted prior to any trading being permitted on receipt of a reasoned and motivated written request for permission by the PDMR. That request should explain the transaction envisaged demonstrating that the sale of shares is the only reasonable alternative to obtain the necessary financing, and describe the exceptional character of the particular circumstances requiring the immediate sale of shares.

Circumstances will be considered exceptional when they are extremely urgent, unforeseen and compelling and where their cause is external to the PDMR who has no control over them.

The ESMA advice also addresses other types of transactions that will be exempt, including certain transactions in connection with employee share schemes, transfers between two accounts held by the PDMR, and the acquisition of qualification shares by a PDMR.

Read the full document, Final Report: ESMA’s technical advice on possible delegated acts concerning the Market Abuse Regulationon the ESMA’s website.