Market Abuse Regulation update: January 2021
UK MAR and EU MAR
With effect from 11:00 pm on 31 December 2020, the Market Abuse Regulation (MAR) was on-shored as UK MAR. UK MAR applies to all issuers with securities listed or traded on a UK market or organised trading facility (Main Market, AIM, AQSE) or which have applied for admission. The MAR itself, now labelled EU MAR in British legislation, continues to apply where securities are listed or traded on a market or organised trading facility in an EEA Member State. Companies which have listings on, for example, Euronext Amsterdam as well as the Main Market will have to comply with both UK MAR and EU MAR and they and their PDMRs (and PCAs) to make the required disclosures to both the FCA in London and the AFM in Amsterdam.
For the time being, the FCA will have regard to ESMA guidelines and Q&A when applying and interpreting UK MAR. The FCA will continue to publish its own guidance in Technical Notes, its Primary Markets Bulletin and Market Watch.
Changes from 1 January 2021
The following changes were made to EU MAR (by the SME Growth Market Regulation) and will be adopted by UK MAR when the Financial Services Bill is enacted and comes into force (those changes that are not relevant to the UK are not listed):
Under MAR as originally enacted, a PDMR and their PCAs were required to notify the issuer and the home state regulator within three business days after the date of any notifiable transaction and the issuer had to make a regulatory announcement of the transaction within those same three business days. This provision has been amended so that the issuer’s announcement must be made within two days after it has been informed of the transaction by the PDMR (or their PCA). UK MAR specifies “working” days, which excludes Saturdays, Sundays, Christmas Day, Good Friday and bank holidays in England and Wales, for both PDMRs and issuers, while EU MAR continues to specify “business” days.
Under MAR as originally enacted, the issuer was responsible both for drawing up its own insider list and for ensuring that each of its advisers kept their own insider list. It is now an express obligation on any person acting for an issuer to keep their own insider list. An issuer can request another person to draw up the issuer’s own list, but the issuer remains responsible for and must have a right of access to the list.
SME Growth Market issuers
The following additional amendments apply to issuers which have their securities admitted to AIM or the AQSE Growth Market (or to an EU SME Growth Market):
Article 17 (4) of UK MAR (and EU MAR) permits an issuer to delay disclosure of inside information where 3 conditions are satisfied:
- immediate disclosure is likely to prejudice the legitimate interests of the issuer;
- delay of disclosure is not likely to mislead the public;
- the issuer is able to ensure the confidentiality of that information.
There is now a small dispensation in that AIM and AQSE Growth Market issuers do not have to keep a written record of their reasoning where they have delayed disclosure of inside information, so long as they are “able to justify its decision to delay”. Having said that, we would always advise an issuer to keep a note of their reasons for delaying disclosure. It is always very difficult to provide a justification after the event, if there is no contemporaneous note.
An SME growth market issuer can keep only a permanent insider list, rather than having to draw up a transaction insider list for every transaction. The permanent insider list should only list those who have access at all times to inside information.
PMB 31 – FCA’s Review of Delayed Disclosure Notifications
The FCA attached a summary of the findings of their review of notifications of delayed disclosure of inside information (DDII) to the November 2020 Primary Markets Bulletin 31 (available here). They highlight a number of matters for issuers and their advisers to consider and set out a number of areas where they will be increasing their oversight.
Where an issuer delays disclosure within the conditions of Article 17(4) (see above under Delayed Disclosure), it is required to submit a delayed disclosure form (available here) at the same time as it publishes the relevant inside information. The FCA found that only a quarter of issuers had submitted a DDII notification during the period under review (4 July 2016 to 12 November 2018) and are concerned that issuers may not be aware of the requirement to submit a DDII. More widely, the FCA conclude that this suggests that issuers may be unaware of the current notification requirements under MAR and potentially how to identify and handle inside information arising from the preparation of periodic financial information.
Where there is an announcement on “unscheduled financial information” (that is trading updates, trading statements or other ad hoc announcements regarding financial performance in between the timetable for periodic financial reports) no specific “legitimate interest” has been identified in the relevant ESMA Guidelines. While the FCA note in their guidance in DTR2.2.9G that a short delay may be acceptable where an issuer encounters an unexpected event, they were surprised at the length of the delay (average 21 days) they found.
As regards periodic financial information, the FCA received a lower volume of DDIIs than they had expected. They say that issuers should begin from the assumption that information relating to financial results could constitute inside information. This is consistent with their statement in TN 506.2 (available here) that it is not appropriate for issuers to take a blanket approach to their assessment of the status of the information and they should not consider that information to be included in their periodic financial reports will always or never constitute inside information.
The FCA were also surprised that the average delay for DDIIs of director/board changes (average 16 days), given that it is not a specified legitimate interest in the ESMA guidelines.
The FCA set out the focus of their future monitoring; namely, trading statements and director/board changes and generally on the overall volume of DDII notifications.
Market Watch 63
The DDII notification form refers to this newsletter of May 2020 (available here), which sets out the FCA’s expectations of market conduct in the context of increased capital raising events and alternative working arrangements due to Covid-19. This is worth reading as a useful reminder of the need to ensure that systems and controls are effective in a homeworking environment and that anyone who has access to inside information or information that might be inside information understands their obligations under MAR and how to identify and assess what might be inside information.
For more information, please contact Victoria Younghusband.