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August may be a quiet month in Europe, but in the second month after the Market Abuse Regulation (MAR) came into force, publications from national regulators and market operators continued.
On 2 August 2016, AIM Regulation published a short Inside AIM referring to the ESMA’s updated Q&A on MAR that an announcement of year-end financial results ends the MAR 30 day closed period provided that “the preliminary financial results contain all the key information relating to the financial figures expected to be included in the year-end report”. The AIM Rules do not provide for preliminary results although the Exchange stated in Inside AIM Issue 5 that it is routinely able to agree that a closed period for accounts ends upon the publication of preliminary results. Since the AIM Rules were amended, close periods for AIM companies are now the MAR closed periods and so this is no longer relevant.
AIM Regulation states that, given the clarification by ESMA, they do not consider it necessary to amend the AIM Rules but they see compliance with the FCA’s Listing Rule 7A.1 by AIM companies as the benchmark in relation to the preparation of a preliminary results announcement. This provides that the statement must be published as soon as possible after it has been approved by the board (consistent with the obligation under MAR Article 17 to publish inside information as soon as possible) and must be agreed with the auditors prior to publication.
At the same time AIM Regulation published FAQs on MAR. The bulk of the FAQ deals with the interaction between the FCA, as national competent authority under the MAR, and AIM Regulation as the market operator. However, the FAQ also contain useful links to the PDMR notification of dealings form and the delayed disclosure form on the FCA’s website. There are also links to the Level 2 Regulations on the precise format of insider lists and the technical means for delayed disclosure.
AIM Regulation also attempts to deal with the awkward distinction between an AIM company’s obligations under MAR, where the FCA is a competent authority, and with the disclosure obligations under the AIM Rules and in particular disclosure of unpublished price sensitive information under AIM Rule 11, which are supervised by AIM Regulation, as market operator.
The FAQ make it clear that compliance with MAR does not automatically mean an AIM company will have satisfied its obligations under AIM Rules or vice versa but “an AIM company must comply with the AIM Rules and MAR at all times”. The Exchange is at pains to state that consideration of AIM Rule 11 disclosure obligations should be undertaken in conjunction with the advice and guidance of the company’s Nomad and should not be “overly narrow or technical”. It will not be defence to a breach of the AIM Rules that an AIM company has received legal advice that it was MAR compliant.
For the time being, Nomads and AIM companies have to work through how this works in practice, but the message from AIM Regulation is that it will not be sufficient simply to determine that information is not “inside information” for the purposes of the MAR. AIM companies must also discuss with their Nomad whether it might nevertheless be price sensitive information for the purposes of AIM Rule 11 and, if so, whether there are circumstances which prompt them to delay disclosure. Delayed disclosure of information required to be disclosed under AIM Rule 11 will not require completion of the FCA’s delayed disclosure form as and when the price sensitive information (which is not MAR inside information) is announced.
Later in August, the Company Law Committee’s Joint Working Parties on market abuse, share plans and Takeovers Code published a further set of Q&A relating to takeovers covering the circumstances in which the market soundings regime applies; stake-building on a takeover, when due diligence information may cease to be inside information and the impact of MAR closed periods on PDMR irrevocable undertakings. A link to the Q&A is here.
In Primary Bulletin 16, the UKLA asked for comments on its proposed changes to various existing Technical Notes by 10 August 2016.
Those Technical Notes that require changes because of the implementation of MAR are:
Previously, these Technical Notes would only have been of interest to companies with a listing on the Official List (both premium and standard listings). In future, when issued, as amended, they should be considered by all issuers who are subject to the MAR, including AIM and ISDX companies.
On 16 September 2016, the Council of the EU published a corrigendum to the text of the MAR to correct “obvious errors in all language versions”. The errors are to correct references to footnotes and to grammar in the definition of “person closely associated”.
On 28 September, the FCA published the 51st edition of the Market Watch newsletter and the first since MAR came into force, Market Watch 51 sets out the FCA’s high level observations following their recent review of the market abuse systems and controls currently employed at market makers, which focused on small and mid-cap equity market makers. However, the FCA notes that their findings will be of interest to all firms undertaking market making activities. Under the heading “Ongoing work”, the FCA state that they will continue to monitor the effectiveness of market abuse systems and controls at authorised firms as part of their risk based supervisory approach, placing as strong an emphasis on identifying weaknesses in regulated firms’ controls as they do in pursuing market abuse.
The other item considered in Market Watch 51 is Payment for Order Flow (PFOF), which is outside the scope of this briefing and will be significantly impacted by MiFID II.
The market maker review focused on four key areas:
The FCA also observed several examples where details recorded on insider lists were either inaccurate or, in some cases, missing entirely. They refer to the requirements of Article 18 of MAR and “would encourage firms to consider if their insider lists are accurately documented and suitably detailed”. The FCA say that it is important that firms consider the “need to know principle” when determining which individuals need to be wall-crossed on a transaction and consequently included on an insider list and point out that this principle helps to ensure that inside information is only disclosed where it is in the “normal exercise of an employment, a profession or duties” and so guards against unlawful disclosure prohibited by Articles 10 and 14 of MAR. The number of people privy to inside information should be kept to the minimum necessary to perform a particular role or task to the appropriate standards.
While accepting that the sophistication of post-trade surveillance tools will vary according to a firm’s size and activities, the FCA noted that some firms in their review were unable to demonstrate how the market abuse surveillance tools they currently employ are effective and fit for purpose. They state that firms need to be particularly careful when selecting suitable surveillance tools and setting alert parameters given the “unique” dynamics of the UK’s small and mid-cap equity market, which can include periods of very high volatility. They refer to the FCA’s observations on the calibration of surveillance systems in Market Watch 48.
 Charles Russell Speechlys’ corporate partner, Victoria Younghusband, is chairing the Market Abuse Joint Working Party.
For more information, please contact Victoria Younghusband on + 44 (0)20 7427 6707 or firstname.lastname@example.org