The Market Abuse Regulation. The Market Abuse Regulations are part of a package of EU financial services regulation which came into force in 2005. The other principle regulations were the Prospectus Regulations and the Transparency Regulations. Each were based on a 2003 Directive.
For the purpose of the Regulations, financial instrument refers to
units in collective investment undertakings,
forward interest rate agreements,
currency and equity swaps,
derivatives and commodities and
any other instrument admitting to trading on a regulated market in the EU,
Options to acquire or dispose of any of the above instruments.
Information of a precise nature means information that indicates a set of circumstances which may exist or reasonably be expected to come into existence, or an event which has occurred or may reasonably be expected to occur and is specific enough to enable a conclusion to be drawn as to the possible effect of those circumstances or event on the price of financial instruments or related derivative financial instruments.
Inside information means information of a precise nature relating directly or indirectly to one or more issuers of financial instruments which would be likely to have a significant effect on the price of those instruments or on the price of any related derivative financial instrument. The expression also covers equivalent concepts in relation to derivatives and commodities.
Where a person is charged with execution of orders concerning financial instruments, inside information included information conveyed by a client in relation to the client\’s pending orders, which is of a precise nature, which relates directly or indirectly to one or more issuers of financial instruments and which, if it were made public, would be likely to have a significant effect on the prices of those financial instruments or related derivatives are also inside information.
Market abuse means insider dealing, or market manipulation. Market manipulation means transactions or orders to trade which give, or are likely to give, false or misleading signals as to the supply and demand for or the price of financial instruments or which secure, by a person or persons acting in collaboration, the price of one or more financial instruments at an abnormal or artificial level. This is unless the person who entered the transactions or issued the order establish that the person\’s reasons for doing so are legitimate and are transactions or orders to trade, as the case may be and conform to accepted market practices on the market concerned.
Market manipulation includes transactions and orders to trade which employ fictitious devices or any other form of deception or contrivance. It includes dissemination of information through the media, including the internet or other means, which is likely to give false or misleading signals as to instruments, including the dissemination of rumours and false or misleading news, where the person who made the dissemination knew or ought to have known that the information was false or misleading.
The following are examples of market manipulation:
- conduct by a person, or persons acting in collaboration, to secure a dominant position over the supply or demand for a financial instrument which has the effect of fixing, directly or indirectly the purchase or sale prices or creating unfair trading conditions,
- the buying or selling of financial instruments at the close of the market with the effect of misleading investors acting on the basis of closing prices,
- taking advantage of occasional or regular access to the traditional or electronic media by voicing an opinion about a financial instrument or indirectly about its issuer while having previously taken positions on that instrument and profiting subsequently from the impact of opinions voiced on the price of the instrument, without having previously disclosed that conflict of interest to the public in a proper and effective way.
Examples are set out in the Schedules to the Regulations of acts which may constitute market manipulation. They are a list of non-exhaustive signals which are taken into account when examining transactions or orders to trade for the purpose of ascertaining whether there has been market manipulation.
The Regulations apply to a financial instrument admitted to trading on a regulated market in at least one Member State or which a request for admission has been made. They apply to actions carried out in the State or abroad concerning financial instruments admitted to a regulated market or the subject of an application for admission. They apply to actions carried out in the State concerning financial instruments that are admitted to trading on a regulated market in a Member State, or for which an application is pending.
The Regulations do not apply to transactions carried out in pursuance of a monetary, exchange rate or public debt management policy by the State, European Central Bank, the Central Bank, the Minister for Finance or the NTMA.
Subject to the below, a person who possesses inside information shall not use that information by acquiring or disposing of or by trying to acquire or dispose of, on his own account or for the account of a third party, directly or indirectly, financial instruments to which the information relates.
Such a person shall not disclose inside information to any other person unless such disclosure is made in the normal course of the exercise of the first person\’s employment, profession or duties. He shall not recommend or induce another person, on the basis of inside information, to acquire or dispose of financial instruments to which that information relates.
The above applies to any person who possesses inside information by virtue of membership of an administrative management or supervisory bodies of the issuer of the instrument,
By virtue of the person\’s holding in the capital of the issuer,
By virtue of access to the information through the exercise of a person\’s employment, profession or duties, or by virtue of criminal activities.
Where the entity above is corporate body then a natural person who takes part in the decision to carry out, for the account of that body, any transaction in financial instruments or any other person who possesses the inside information where the person knew or ought to have known, that it is inside information is also covered by the Regulation.
The above obligation does not apply to a transaction conducted in the discharge of an obligation to acquire or dispose of a financial instrument which has become due, where the agreement was concluded before the person possessed the inside information.
A person shall not engage in market manipulation.
The Central Bank requires market operators to structure their operations so that market manipulation practices are prevented and detected, and to report on it on a regular basis in accordance with arrangements drawn up by the Central Bank.
The Central Bank may impose requirements concerning transparency of transactions, total disclosure of price- regularisation agreements, fair system of order pairing, introduction of an effective atypical order detection scheme, sufficiently robust financial instrument reference price-fixing schemes and clarity of rules on the suspension of transactions.
A market operator is a person who manages the business of a regulated market; it includes a regulated market which manages its own business as a regulated market, operates its own business as a regulated market or manages or operates its own business as a regulated market.
Having access to inside information relating to another company and using it in the context of a public takeover or offer for the purpose of gaining control of that company or proposing a merger with the company in conformity with the takeover rules does not of itself constitute market abuse and does not contravene the above provisions.
The above does not preclude a company from dealing in the financial instruments of another company by reason only of information in the possession of the officer of the first-mentioned company that was received in the course of carrying out his duties as officer and consists only of the fact that the first-mentioned company proposes to acquire or attempt to acquire financial instruments of the second company. This exemption is limited to part only of the prohibition.
The prohibition does not apply to share trading in a buyback programs or trading to secure stabilisation of a financial instrument, provided that this is carried out in accordance with the Market Abuse Regulation as set out in Schedule 5 thereof or to purchase own shares as is carried out in accordance with the Companies Act.
The issuer of a financial instrument shall promptly disclose without delay inside information which directly concerns the issuer, in a manner that enables fast access and complete, correct and timely assessment of the information by the public. Without limiting the above, the issuer shall for a period not less than six months, post on the issuer\’s Internet site or sites any inside information that it is required to publicly disclose.
The issuer shall not combine, in a manner likely to be misleading, the provision of inside information to the public with the marketing of the issuer\’s activities. The issuer is deemed to have complied with the above obligation where on the coming into existence of a set of circumstances or the occurrence of an event, even if not formalised, the issuer has without delay informed the public of those circumstances and the event.
Where there is a significant change concerning already publicly disclosed inside information, the issuer shall publicly and without delay disclose the change immediately after it occurs through the same channel as the one used for public disclosure of the original information.
The issuer shall take reasonable care to ensure that the disclosure of inside information to the public is synchronised as closely as possible between all categories of investors in regulated markets in all States in which its instruments are admitted to trading, or has requested admission to trading.
The issuer may delay public disclosure of inside information to avoid prejudicing its legitimate interests provided that the failure to disclose the information would not be likely to mislead the public, and the issuer is able to ensure the confidentiality of the information.
Legitimate interests may include
- negotiations which would be likely to be affected by public disclosure in particular, in the event that the financial viability of the issuer is in grave and imminent danger, although not within the scope of the applicable insolvency law,
- public disclosure of information may be delayed for a limited period where such a disclosure would seriously jeopardise the interest of existing and potential shareholders by undermining the conclusion of specific negotiations designed to ensure the long-term recovery of the issuer,
- decisions taken or contracts made by the management which need approval of another body of the issuer in order to become effective, provided that the organisation of the issuer requires separation between those bodies, and public disclosure of the information before such approval together with the simultaneous announcement that this approval is still pending would jeopardise the correct assessment of the information by the public.
In order to ensure the confidentiality of inside information that is not disclosed to the public above, the issuer must
- control access to the information and, in particular must take effective measures to deny access to the information to persons other than those who require it for the exercise of their functions within the issuer,
- take measures necessary to ensure that a person with access to the information acknowledges the legal and regulatory duties entailed and is aware of the sanctions attached to misuse or improper circulation of the information and without prejudice to the below has in place measures which allow immediate public disclosure in case the issuer was not able to ensure the confidentiality of the information.
Where the issuer or a person acting on its behalf discloses inside information to a third party in the normal exercise of its employment, profession or duties, it shall make complete and public effective disclosure of that information, simultaneously in the case of an intentional disclosure and without delay in the case of a non-intentional disclosure. This does not apply where the third party receiving the information is under an obligation of confidentiality.
The following obligation applies to an issuer, a person acting on its behalf or on its account.
Each such person shall draw up a list of persons working for it under a contract of employment or others who have access to inside information relating directly or indirectly to that issuer and containing information set out in Schedule to the Regulation. The relevant person shall regularly update the list. The Central Bank may request a list be drawn up by any such person.
This does not apply to the issuer of the financial instrument where the issuer neither has made a request for the financial instrument to be admitted to a regulated market or approved the admission of the instrument to a regulated market.
Persons discharging managerial duties within the issuer and persons closely associated with them, shall notify to the Central Bank of transactions conducted on their own account relating to shares and the issuer or derivatives or other financial instruments linked to them. Such persons within the issuer of a financial instrument not registered in the State or where applicable, persons closely associated, shall also notify transactions so conducted if the issuer is registered in another State, in accordance with the rules of notification applicable to that State. If it is not admitted, registered in another State, it is notified to the competent authority of the Member State to which the issuer is required to file the annual information return under EU law. Notification of transactions must take place within 5 working days of the transaction.
The Bank may provide that, where the total amount of the transactions is €5,000 at the end of a calendar year, no notification is required, or notification may be delayed until 31 January in the following year.
There are provisions for the aggregation of transactions. There are provisions setting out what must be contained in the notice.
A person closely associated in relation to a person discharging managerial responsibilities means the spouse of the person, dependent children, other relatives of the person who have shared the same household as that person for at least one year. It also covers any person directly or indirectly controlled by the person concerned or arrangements for its benefit or equivalent.
A person discharging managerial responsibilities means a person who is a member of the administrative, management or supervisory body of the entity concerned and a senior executive not a member of such body but having regular access to inside information relating, directly or indirectly, to the issuer, having the power to make managerial decisions affecting the future development and business prospects of the issuer.
Any prescribed person who reasonably suspects that a transaction might constitute market abuse must notify the Central Bank without delay. The person shall decide on a case-by-case basis whether there are reasonable grounds for suspecting that a transaction involves market abuse taking into account the elements of market abuse.
Upon receipt the Central Bank is to transmit the notification to the competent authority of the regulated market in which the instrument is admitted to trading or has applied to be admitted to trading.
The prescribed person must give details of the transactions concerned, reasons for the suspicion, names or means of identification of persons, the capacity in which the prescribed person operates and any other information that are significant to reviewing the transactions. Where the above information is not available the information must include at least the reason or reasons why the person suspects there might be abuse.
A prescribed person is not liable for anything done in good faith pursuant to this obligation. An act does not contravene any restriction on the disclosure of information.
Prescribed person means a person including any investment firm, credit institution or market operator professionally arranging transactions in financial instruments who is registered in the State, or is a branch operating in the State.
A person notifying the Central Bank must not inform any other person, by way of tip off, in particular the persons concerned in the transactions unless he is under an obligation to do so under law. The Bank shall not disclose to any person the identity of the notifier if the disclosure would be likely to harm it.
There is provision for cooperation and assistance between the competent authorities of the EU States for the purpose of the market abuse regulations. They are obliged to exchange information. There are limited grounds for refusal. There are provisions designed to restrict the use of information supplied. Information may be given subject to agreement that it is used only for the purpose of the authority’s functions under relevant community acts.
The Bank must give notice to the competent authority of another State, , if it believes that acts contrary to the relevant EU legislation are being undertaken within its territory or the acts are affecting financial instruments traded on a regulated market in its State.
On receipt of the information on an inwards complaint the Bank is to take appropriate action and inform the notifying competent authority of the outcome and any significant interim developments.
The Bank may refuse to initiate an investigation or permit the personnel of another competent authority to accompany its personnel where it might affect the sovereignty, security or public policy of the State; judicial proceedings already in being or the final judgment of the court has been delivered in relation to the matter. Grounds of refusal of cooperation above must be notified.