EUROPEAN UNION: ESMA publishes Q&A on Market Abuse Directive

Tuesday May 31 2016

As part of ESMA’s role in promoting common supervisory approaches it develops Q&As to elaborate on the provisions of certain EU legislation and guidelines.

ESMA has included a new question regarding the obligation to detect and report market abuse under Article 16(2) of the Market Abuse Regulation (MAR) and whether such an obligation applies only to investment firms under MiFID, or also to UCITS Management Companies and AIFMD Managers, amongst others.

Article 16(2) states that:

“Any person professionally arranging or executing transactions shall establish and maintain effective arrangements, systems and procedures to detect and report suspicious orders and transactions. Where such a person has a reasonable suspicion that an order or transaction in any financial instrument, whether placed or executed on or outside a trading venue, could constitute insider dealing, market manipulation or attempted insider dealing or market manipulation, the person shall notify the competent authority…without delay”

In its answer, ESMA considers that a “person professionally arranging or executing transactions” is not only limited to firms or entities providing investment services under MiFID and that Article 16(2) but applies broadly to include buy side firms such as investment management firms (UCITS and AIF Managers) as well as firms professionally engaged in trading on own account (proprietary traders).

ESMA further clarifies that detecting and reporting suspicious orders and transactions under Article 16(2) of MAR should be applied by “persons professionally arranging or executing transactions” through the implementation of arrangements, systems and procedures that are appropriate and proportionate to the scale, size and nature of their business activity

Background

In June 2014 new European legislation seeking to strengthen the fight against market abuse was agreed. At an EU level, concerns of market distortion arising through regulatory arbitrage led to the introduction of The Market Abuse Regulation (MAR), which will have direct effect in all EU Member States from 3 July 2016.

Key MAR requirements include:

• Issuers must inform their competent authority if they have delayed the disclosure of inside information and to explain why such delay was consistent with MAR;
• A new offence of ‘attempted market manipulation’;
• Introduction of specified procedures for issuers to follow when conducting market soundings; and
• The scope of the EU Market Abuse regime is extended beyond regulated markets to financial instruments traded on multilateral trading facilities (MTFs) or other organised trading facilities (OTFs) and certain OTC activities, including derivatives and credit default swaps.

Please click on the link above for further details.