Preventing market abuse in financial markets

SUMMARY OF:

Regulation (EU) No 596/2014 on market abuse

WHAT IS THE AIM OF THE REGULATION?

The market abuse regulation (MAR) aims to ensure that European Union (EU) legislation keeps pace with market developments to combat market abuse on financial markets, including derivative markets relating to commodities (such as gold or wheat).
It explicitly bans the manipulation of commodities and of benchmarks, such as Euribor (the euro interbank offered rate).
It strengthens the investigative and sanctioning powers of the regulators appointed by EU Member States to ensure the proper functioning of their financial markets.
It provides a single EU rule book while reducing administrative burdens on smaller and medium-sized issuers where possible.

KEY POINTS

Banning abuse in financial markets

Market abuse inhibits the full transparency required for trading in modern integrated financial markets. The rules outlaw three types of abuse:

market manipulation*
insider dealing*
unlawful disclosure of inside information*.

MAR rules apply to a person or a company committing market abuse while trading financial instruments, whether through trading platforms or negotiated privately in over-the-counter transactions, as long as it can influence:

financial instruments traded on a trading venue; or
financial instruments the price or value of which depends or has an effect on the price or value of a financial instrument traded on a trading venue.

Administrative sanctions

MAR requires Member States to ensure that competent authorities have the power to impose specified administrative sanctions or to take administrative measures in the event of infringements of MAR rules.

Strengthened investigatory powers of regulators

MAR rules reinforce the supervisory and investigatory powers of the regulators appointed by each Member State to ensure the proper functioning of their financial markets. For instance, their powers include being able to carry out on-site inspections and investigations and to request the freezing or sequestration of assets.

Amending legislation

Amending Regulation (EU) 2016/1011 on indices used as financial benchmarks (see summary):

clarifies the rules regarding the need for managers, and persons closely associated with them, to notify the issuer and the competent authority of transactions conducted on their own account relating to financial instruments that are themselves linked to shares and debt instruments of their issuer;
provides that every transaction in financial instruments above a minimum threshold must be notified to the issuer and the competent authority, but an exception is made where either the linked financial instrument provides an exposure of 20% or less to the issuer’s shares or debt instruments, or the person discharging managerial responsibilities or person closely associated with them does not and could not know the investment composition of the linked financial instrument.

Amending Regulation (EU) 2019/2115:

adapts the MAR rules to a new type of trading venue, the small and medium-sized enterprise (SME) growth market, a subcategory of multilateral trading facilities introduced under Directive 2014/65/EU on markets in financial instruments (see summary);
makes the obligations imposed on issuers in SME growth markets more proportionate, while preserving market integrity and investor protection, and promotes liquidity by allowing any issuer present on an EU SME growth market to enter into a liquidity contract.

Implementing and delegated acts

Since the adoption of the MAR, the European Commission has adopted the following acts that supplement or further clarify certain aspects of the regulation:

Implementing Directive (EU) 2015/2392 on reporting to competent authorities of actual or potential infringements of the regulation;
Implementing Regulation (EU) 2016/378 on technical standards for the timing, format and template of the submission of notifications to competent authorities;
Delegated Regulation (EU) 2016/522 as regards an exemption for certain non-EU countries’ public bodies and central banks, the indicators of market manipulation, the disclosure thresholds, the competent authority for notifications of delays, the permission for trading during closed periods and types of notifiable managers’ transactions, as amended by Regulation (EU) 2019/461 exempting the Bank of England and the United Kingdom Debt Management Office from the scope of Regulation (EU) No 596/2014;
Implementing Regulation (EU) 2016/523 on technical standards for the format and template for notification and public disclosure of managers’ transactions;
Delegated Regulation (EU) 2016/908 on regulatory technical standards on the criteria, the procedure and the requirements for establishing an accepted market practice and the requirements for maintaining it, terminating it or modifying the conditions for its acceptance;
Delegated Regulation (EU) 2016/909 on regulatory technical standards for the content of notifications to be submitted to competent authorities and compiling, publishing and maintaining the list of notifications;
Delegated Regulation (EU) 2016/957 on regulatory technical standards for the appropriate arrangements, systems and procedures, along with notification templates, to be used for preventing, detecting and reporting abusive practices or suspicious orders or transactions;
Delegated Regulation (EU) 2016/958 on regulatory technical standards for the technical arrangements for objective presentation of investment recommendations or other information recommending or suggesting an investment strategy and for disclosure of particular interests or indications of conflicts of interest;
Implementing Regulation (EU) 2016/959 on technical standards for market soundings* regarding the systems and notification templates to be used by disclosing market participants and the format of the records;
Delegated Regulation (EU) 2016/960 on regulatory technical standards for the appropriate arrangements, systems and procedures for disclosing market participants conducting market soundings;
Delegated Regulation (EU) 2016/1052 on regulatory technical standards for the conditions applicable to buy-back programmes* and stabilisation measures;
Implementing Regulation (EU) 2016/1055 on technical standards for the means for appropriate public disclosure of inside information and for delaying the public disclosure of inside information;
Implementing Regulation (EU) 2017/1158 on technical standards for the procedures and forms for competent authorities exchanging information with the European Securities and Markets Authority (ESMA);
Implementing Regulation (EU) 2020/1406 on technical standards for procedures and forms for exchange of information and cooperation between competent authorities, ESMA, the Commission and other entities;
Delegated Regulation (EU) 2021/1783 on regulatory technical standards containing a template document for cooperation arrangements with non-EU countries;
Implementing Regulation (EU) 2022/1210 on technical standards for the application of Regulation (EU) No 596/2014 with regard to the format of insider lists and their updates;
Delegated Regulation (EU) 2022/1959 on regulatory technical standards setting out a contractual template for liquidity contracts for the shares of issuers whose financial instruments are admitted to trading on an SME growth market.

Repeal

Regulation (EU) No 596/2014, along with Directive 2014/57/EU which requires all Member States to harmonise their laws on criminal offences for market abuse (see summary), replaces the original market abuse Directive 2003/6/EC.

FROM WHEN DOES THE REGULATION APPLY?

It has applied, except for specified rules, since 3 July 2016.

BACKGROUND

For further information, see:

Ensuring the integrity of securities markets (European Commission).

KEY TERMS

Market manipulation. Entering into a transaction or behaviour that: gives or is likely to give false or misleading signals as to the supply of / demand for / price of a financial instrument; secures or is likely to secure the price of a financial instrument at an abnormal or artificial level. It may also consist of: a transaction or behaviour by using a fictitious device or other form of deception; disseminating misleading information; transmitting false or misleading information; providing false or misleading inputs; or any action that manipulates the calculation of a benchmark.

Insider dealing. Arises where a person uses inside information by conducting a transaction, on their own account or for the account of a third party, in a financial instrument to which that inside information relates. Inside information is of a precise nature, which is not public, relating to issuer(s) of financial instruments and which, if made public, would have a significant effect on prices.

Unlawful disclosure of inside information. Arises when a person possesses inside information and discloses it to another person (e.g. through leaking confidential documents containing inside information), except if the disclosure is made in the normal exercise of an employment, a profession or duties.

Market soundings. A communication of information prior to the announcement of a transaction, in order to gauge the interest of potential investors in a possible transaction, and the conditions relating to it such as its potential size or pricing to one or more potential investors.

Buy-back programmes. When companies buy back their own shares from the marketplace, either themselves or through a person acting in their own name but on the company’s behalf. This most frequently arises when companies feel their shares are undervalued.

MAIN DOCUMENT

Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC (OJ L 173, 12.6.2014, pp. 1–61).

Successive amendments to Regulation (EU) No 596/2014 have been incorporated into the original text. This consolidated version is of documentary value only.