Europe: revising the Market Abuse Directive - Commission consultation

The European Commission has today published a consultation paper seeking views on revisions to the Market Abuse Directive (MAD) (2003/6/EC): see here (pdf). Amongst the questions asked are:

• Should MAD be extended to cover attempts to manipulate the market?
• How can the powers of competent authorities to investigate market abuse be enhanced?
• To what extent need the sanction regimes be harmonised at the EU level in order to prevent market abuse?
• How can the system of cooperation among national and third country competent authorities be enhanced? What should the role of the European Securities and Markets Authority be in this regard?

UK: delayed disclosure of liquidity support - FSA consultation

The UK's Financial Services Authority has published a consultation paper in which it proposes amending the Disclosure and Transparency Rules (DTR) in order to clarify that, in a limited set of circumstances, financial institutions admitted to trading on a regulated market and in receipt of liquidity support from the Bank of England can delay disclosure of this fact.

There is unlikely to be unanimous support for this proposal, not least because of the argument that the proposal (which is clearly designed to support financial stability) undermines the transparency of the market. The FSA nevertheless states in its consultation paper that its proposal is consistent with Article 3 of the European Market Abuse Directive (2003/124/EC) which recognises certain circumstances in which delayed disclosure can be justified. These circumstances are reflected in the current version of DTR 2.5. 

For further information see:

FSA press release | FSA newsletter | FSA consultation paper | Online response form | 

Europe: Commission Communication on financial services regulation

The European Commission has published a Communication titled Regulating Financial Services for Sustainable Growth: see here (pdf). The Communication describes the actions already taken by the Commission as well as forthcoming proposals. The Commission intends that the vast majority of its new proposals will be presented to the Council and European Parliament by the end of 2010.

These proposals will cover derivatives, credit default swaps, short-selling, improvements in the Markets in Financial Instruments Directive, revisions to the Deposit Guarantee Schemes Directive and the Investor Compensation Schemes Directive, revisions to expand the scope of the Market Abuse Directive to include derivatives, amendments to the Capital Requirements Directive (CRD IV), a Communication on sanctions in the financial services sector to promote convergence, and further work on international accounting standard convergence.

UK: the super equivalence of the market abuse rules

In February this year, HM Treasury launched a consultation concerning the definition of market abuse within the Financial Services and Markets Act (2000). The FSMA definition is wider than that found in the European Market Abuse Directive (2003/6/EC) (it includes, for example, behaviour based on a wider set of information than the Directive).  For this reason HM Treasury sought views on the desirability of this position of "super equivalence".  HM Treasury's response to the consultation has now been published; to quote directly from the response document (para. 1.2):

Having an effective set of tools to tackle market abuse is crucial. This is a shared objective at the EU level and we are therefore keen that the EU review of the Market Abuse Directive should ultimately deliver an outcome that we consider fully satisfactory for combating market abuse. Pending this work we have decided to retain the areas in which we are superequivalent to the EU’s Market Abuse Directive until December 2009 to enable a wider consideration of their benefits for addressing identified issues with the EU regime and to minimise transition costs for industry".

For further information about the European Market Abuse Directive, see here and for discussion see Siems, M."The EU Market Abuse Directive: A Case-Based Analysis", 2007, available on SSRN here.

Postscript (11 June 2008): The Financial Services and Markets Act 2000 (Market Abuse) Regulations 2008, which will extend the super equivalent provisions until 31 December 2009, have been published and come into force on 30 June 2008. 

Europe: CESR report on MAD options and discretions

The Committee of European Securities Regulators has published a report exploring Member States' use of options and discretions under the Market Abuse Directive: see here (pdf). A summary of the report is available in the accompanying press release: see here (pdf).

UK: the Financial Services and Markets Act 2000 (Market Abuse) Regulations 2009

The Financial Services and Markets Act 2000 (Market Abuse) Regulations 2009 were made on 30 November, laid before Parliament yesterday and come into force on 31 December 2009. The Regulations have been published on OPSI: see here (html) or here (pdf). In the accompanying explanatory memorandum their purpose is explained (paras. 7.1 to 7.3): 

The United Kingdom currently has a wider definition of market abuse than that established in the EU’s 2003 Market Abuse Directive. When the Treasury transposed the Directive, the main challenge was to decide how much change was appropriate to the civil market abuse regime that had been put in place as part of Financial Services and Markets Act (FSMA) in 2000. The FSMA regime and the Market Abuse Directive cover similar ground but adopt a slightly different approach to prohibiting abusive behaviour. The original FSMA regime defined market abuse in fairly broad terms and then qualified it by the requirement that behaviour is only abusive if it is likely to be regarded as such by a ‘regular user’ of the market. The Directive set out more specific descriptions of the type of behaviour that is to be prohibited.

On balance, it was decided to retain the scope of the existing market abuse prohibitions to the extent that these go beyond the prohibitions in the Directive (the new sections 118(4) and 118(8) of FSMA) but to make them subject to a sunset clause whereby the provisions would expire after a period of three years pending the outcome of a review by HM Treasury to assess whether they remain justified.

It was initially decided to extend the sunset clauses until 31 December 2009 until the outcome of the EU’s review of the Market Abuse Directive became known. This was done in the 2008 Regulations. The EU’s review of the Market Abuse Directive was subsequently delayed. The call for evidence was only launched on 20 April 2009, and the Commission has not yet published proposals to amend the Directive. It has therefore been decided to extend the sunset clauses further until 31 December 2011".

Europe: legislation under review

In a speech delivered this week at the annual dinner of the Quoted Companies Alliance, European Commissioner Charlie McCreevy outlined work currently being undertaken concerning the operation of the Prospectus, Transparency and Market Abuse Directives. In this regard, Mr McCreevy observed:

We are currently carrying out an evaluation of the functioning of the EU Prospectus regime, five years after it was put in place. Overall, our assessment is positive; however, we have identified a number of areas where the regime does not work as efficiently as we would like. Also we have found a number of unintended consequences nobody thought about when the text was agreed. Employee shares schemes are one example. But there are others. These are the areas where we want to propose changes to reduce the administrative burden on issuers, without lowering investor protection standards.

One thing that we have heard so far is that the way Member States have implemented the [Transparency] Directive has not helped. My services are currently conducting research on the extent of the national gold plating. The preliminary findings show that problems with the Directive may not always be Brussels' fault. Interestingly, in the UK there are some slightly more stringent transparency measures in place because some obligations from a previous regime were maintained when transposing the Directive. Actually, when they were consulted, market participants had expressed a preference for the older rules they already knew. So, the UK chose to listen to market participants and did not to take all the opportunities for simplification offered by the Directive.

At the moment, we are commissioning an independent study on the way in which the Transparency Directive operates in practice. A survey on stakeholders' perceptions will be an important component of this study. And we will be listening carefully to smaller quoted companies. This study will help the Commission evaluate the Directive in 2009. I hope that it will help us identify any problems and how best to address them.

Our review of the Market Abuse Directive is well underway. It will look at the efficiency of the Market Abuse framework and, more precisely, its scope of application, insider dealings, market manipulations, the powers of national administrative authorities and the sanctioning process. This review will give us an excellent opportunity to simplify some provisions of the Directive".

Note: Research undertaken by the Commission concerning the operation of the Prospectus Directive was published in June and is available here.

Europe: ECJ considers the market abuse directive

The opinion of the European Court of Justice in Spector Photo Group NV, Chris Van Raemdonck v Commissie voor het Bank, Financie- en Assurantiewezen (CBFA) (Case C-45/08) was given last week. The case, referred from the hof van beroep te Brussel (Court of Appeal of Brussels), required the ECJ to interpret, for the first time, the Market Abuse Directive (2003/6/EC). Article 2 provides:

1. Member States shall prohibit any person referred to in the second subparagraph who possesses inside information from using that information by acquiring or disposing of, or by trying to acquire or dispose of, for his own account or for the account of a third party, either directly or indirectly, financial instruments to which that information relates.

The first subparagraph shall apply to any person who possesses that information: [a] by virtue of his membership of the administrative, management or supervisory bodies of the issuer; or [b] by virtue of his holding in the capital of the issuer; or [c] by virtue of his having access to the information through the exercise of his employment, profession or duties; or [d] by virtue of his criminal activities".

The ECJ was required to consider, inter alia, whether making use of information for the purposes of Article 2 would be satisfied by the mere fact that a person in possession of inside information, acquires or disposes of, or tries to acquire or dispose of, for his own account or for the account of a third party, financial instruments to which that inside information relates. The ECJ held that this would amount to the use of inside information but recognised the right to rebut the presumption. In reaching this position, the ECJ made clear that the questions before it:

... must be determined in the light of the purpose of [the] directive, which is to protect the integrity of the financial markets and to enhance investor confidence. That confidence is based, in particular, on the assurance that they will be placed on an equal footing and protected from the misuse of inside information. Only usage which goes against that purpose constitutes prohibited insider dealing".

Further information is available in the ECJ's press release, available here (pdf).