The new MAR regulatory regime Edward Grech Senior

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The new MAR regulatory regime Edward Grech Senior Manager - Securities and Markets Supervision

The new MAR regulatory regime Edward Grech Senior Manager - Securities and Markets Supervision Unit MFSA 12 April 2016

The new requirements under the Market Abuse Regulation and the Market Abuse Directive II,

The new requirements under the Market Abuse Regulation and the Market Abuse Directive II, send out a “zero tolerance warning to those engaging in insider dealing and market manipulation”. [Viviane Reding & Michel Barnier] 2

Topics 1. • Introduction – General Principles 2. • What’s new? MAD vs MAR

Topics 1. • Introduction – General Principles 2. • What’s new? MAD vs MAR 3

1. Introduction – MAD • MAD in force in 2003 & transposed into PFMA

1. Introduction – MAD • MAD in force in 2003 & transposed into PFMA in 2005 • Created a set of rules preventing insider dealing and market manipulation (market abuse) • Purpose to safeguard integrity of financial markets and enhance investor confidence. • MAD affects all firms and individuals who participate in a regulated market 4

1. Introduction – Change Needed Developments since 2005 Legislative Market Technological Considerable changes to

1. Introduction – Change Needed Developments since 2005 Legislative Market Technological Considerable changes to the financial landscape 5

1. Introduction – MAD II MAR • MAD II & MAR - into force

1. Introduction – MAD II MAR • MAD II & MAR - into force on the 2 July 2014 • MAD II & MAR - to apply from the 3 July 2016 • Purpose - strengthens MAD framework - improve market integrity & efficiency as well as investor protection, create Single Rule Book – level playing field • Scope - MAD II widens scope to all FIs (incl. commodity derivatives, EA, traded on MTFs, OTFs & OTC and adapting rules to new technology. Explicit prohibition of manipulation of benchmarks) 6

1. Introduction – General Principles of Market Abuse Insider Dealing Market Manipulation 7

1. Introduction – General Principles of Market Abuse Insider Dealing Market Manipulation 7

1. Introduction • Inside Information – non-public, relate directly/indirectly to issuer/instrument, precise and price

1. Introduction • Inside Information – non-public, relate directly/indirectly to issuer/instrument, precise and price sensitive • Reasonable investor test – would likely use as part of his or her investment decision • Example of Insider Dealing • Examples of Market Manipulation: – Wash Trades – Pump and Dump – Trash and Cash 8

1. Introduction – MAD II overview of changes The adoption of the new Directive

1. Introduction – MAD II overview of changes The adoption of the new Directive means that: (i) Common EU definitions for market abuse offences such as insider dealing, unlawful disclosure of information and market manipulation (Art 3 - 5) (ii) Common set of criminal sanctions including fines and imprisonment of at least four years for insider dealing/market manipulation and two years for unlawful disclosure of inside information (Art 7) (iii) Legal persons will be held liable for market abuse (Art 8 & 9) (v) MS need to (iv) MS need to ensure that establish judicial and law jurisdiction over enforcement these offences if authorities they occur in their dealing with country or these highly offender is a complex cases are national (Art 10) well trained (Art 11) 9

1. Introduction – MAD II - Insider dealing - Recommending or inducing another person

1. Introduction – MAD II - Insider dealing - Recommending or inducing another person to engage in insider dealing - Unlawful disclosure - Market manipulation Serious & committed Intentionally Criminal Offences 10

1. Introduction - MAR - Overview of changes The adoption of the Regulation means

1. Introduction - MAR - Overview of changes The adoption of the Regulation means that: (i) Existing market abuse rules will be broadened to include abuse on the electronic trading platforms that have proliferated in recent years; (ii) abusive strategies enacted through high frequency trading will be clearly prohibited; (iii) those who manipulate benchmarks such as LIBOR will be guilty of market abuse and face tough fines; (iv) market abuse occurring across both commodity and related derivative markets will be prohibited, and cooperation between financial and commodity regulators will be reinforced; (v) the deterrent effect of the legislation will be greater than today, with the possibility of fines of at least up to three times the profit made from market abuse, or at least 15% of turnover for companies. MS could decide to go beyond this minimum. 11

Who will be affected? RM, MTF, OTF ISSUERS JOURNALISTS PDMR INSIDERS FIRMS RESEARCHERS INVESTORS

Who will be affected? RM, MTF, OTF ISSUERS JOURNALISTS PDMR INSIDERS FIRMS RESEARCHERS INVESTORS CA 12

2. What’s new? – Scope (Art 2) MAD Scope – Financial Instruments Annex I

2. What’s new? – Scope (Art 2) MAD Scope – Financial Instruments Annex I of Mi. FID MAR Annex I of Mi. FID II Now includes emission allowances and spot commodity derivatives Behaviour in relation to benchmarks Scope - Markets FI admitted to trading on a Extended to MTF and OTF RM (Incl. Off-Exchange) (including auction platform for emission allowances) 13

2. What’s new? – Notification of List of Financial Instruments (Art 4) MAD Notifications

2. What’s new? – Notification of List of Financial Instruments (Art 4) MAD Notifications and list of financial instruments to competent authorities RM MAR RM, MTF & OTF ESMA draft RTS & ITS 14

2. What’s new? – Exemption for buy-back programmes & stabilisation (Art 5) MAD Buy-back

2. What’s new? – Exemption for buy-back programmes & stabilisation (Art 5) MAD Buy-back programmes & Stabilisation exemptions MAR Commission Regulation EC Revisions to the existing 2273/2003 framework for conducting buy-back programmes and stabilisation measures. ESMA Draft RTS 15

2. Buy-back programmes & Stabilisation exemptions Conditions contained in Draft RTS • Buy-back Programmes

2. Buy-back programmes & Stabilisation exemptions Conditions contained in Draft RTS • Buy-back Programmes – Limit of Buy-backs (shares) – max 25% of avg. daily vol. of shares on each relevant venue – Disclosure requirements • Stabilisation (to ease selling pressure) – Disclosure – Record keeping 16

2. What’s new? – Insider dealing (Art 7, 8, 14) MAD Inside information Precise

2. What’s new? – Insider dealing (Art 7, 8, 14) MAD Inside information Precise nature Not public Significant effect on price MAR ESMA guidelines: nonexhaustive list of information (Reasonable investor test) Insider dealing Prohibited use of inside information Also includes the cancelling or amending an order where order is placed before having inside information 17

2. What’s new? – Legitimate behaviour (Art 9) Legitimate behaviour MAD MAR Transactions conducted

2. What’s new? – Legitimate behaviour (Art 9) Legitimate behaviour MAD MAR Transactions conducted in the discharge of an obligation resulting from an agreement (e. g. exercising a share option) Expands on this principle (Incl. market makers, public take-overs). 18

2. What’s new? – Unlawful Disclosure of Inside Information (Art 10) MAD Unlawful disclosure

2. What’s new? – Unlawful Disclosure of Inside Information (Art 10) MAD Unlawful disclosure of inside information MAR Prohibited except for in the Exception includes normal exercise of an disclosures qualifying as employment, a profession Market Soundings or duties. 19

2. Market Soundings - Definition • Article 11(1) of MAR - The communication of

2. Market Soundings - Definition • Article 11(1) of MAR - The communication of information, prior to the announcement of a transaction, 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 by: • An issuer; • A secondary offeror of a financial instrument; • Emission allowance market participant; or • A third party acting on behalf or on account of any of the above. Draft Guidelines of Market Abuse Regulation https: //www. esma. europa. eu/sites/default/files/library/2016 -162. pdf 20

2. What’s new? – Market Soundings (Art 11) Market Soundings MAD MAR N/A MAR

2. What’s new? – Market Soundings (Art 11) Market Soundings MAD MAR N/A MAR introduces a framework for persons to make legitimate disclosures of inside information in the course of market soundings. (consent of person receiving sounding, confidentiality & recordkeeping arrangements) ESMA Draft RTS & ITS as well as Guidelines 21

2. Market Soundings - Requirements • Inside Information? (Maintain records of determination) • Records

2. Market Soundings - Requirements • Inside Information? (Maintain records of determination) • Records of disclosure of information (eg. Telephone recordings) (consent of recipient) • Inform recipient when information is no longer inside information • Records for 5 years • Inform recipient of confidentiality requirements 2 Draft RTS – (include templates) 22

2. What’s new? – Market manipulation (Art 12, 15) Market manipulation MAD MAR Market

2. What’s new? – Market manipulation (Art 12, 15) Market manipulation MAD MAR Market manipulation on a Regulated Market Examples provided in MAR Commission Delegated Acts specifying the Indicators of manipulative behaviour relating to false or misleading signals, to price securing and employment of a fictitious device or any other form of deception or contrivance (Annex I) 23

2. What’s new? – Accepted Market Practices (Art 13) MAD Accepted Market Practices -

2. What’s new? – Accepted Market Practices (Art 13) MAD Accepted Market Practices - to be (AMP) accepted by CA MAR Permits CA to establish an accepted market practice which is subject to certain criteria and conditions. [ESMA Link: http: //www. esma. europa. eu/page/accepted-markets ESMA Draft RTS -practices] CA to notify ESMA of existing AMPs within 3 months of entry into force of RTS. ESMA to provide its opinion. 24

Suspicious Transaction Report 25

Suspicious Transaction Report 25

2. What’s new? – Prevention and detection of market abuse – STOR (Art 16)

2. What’s new? – Prevention and detection of market abuse – STOR (Art 16) MAD Obligations on person STR (Schedule II) professionally arranging or executing transactions MAR STOR – market operators, Investment Firms operating a trading venue and persons professionally arranging and or executing transactions (report suspicious orders whether or not they have been executed) ESMA – Draft RTS 26

2. What’s new? – Public Disclosure of Inside Information (Art 17) MAD Issuer disclosure

2. What’s new? – Public Disclosure of Inside Information (Art 17) MAD Issuer disclosure of inside information Issuers on RM MAR Issuers on RM, MTF or OTF Disclose inside information asap on RM and Issuer’s asap on OAM and issuer’s website Delayed disclosure allowed Commission Delegated Acts - emission allowances ESMA Draft ITS, ESMA Guidelines – indicative list of reasons for delayed disclosure 27

2. Disclosure of Inside Information • Publicly disclosed - enabling fast access and complete,

2. Disclosure of Inside Information • Publicly disclosed - enabling fast access and complete, correct and timely assessment of the information by the public. • Ensure effective dissemination. • Posted on the issuer’s website and maintained there for a minimum of five years – in an easily identifiable location and clearly indicate the date and time of the disclosure. • Delayed disclosure of information. 28

2. Disclosure of Inside Information • Delayed disclosure of information 1. Legitimate interest 2.

2. Disclosure of Inside Information • Delayed disclosure of information 1. Legitimate interest 2. Delay not likely to mislead public 3. Ensure confidentiality (Points 1 to 3 are all met ) Or 4. To preserve the stability of the financial system (Credit & Financial Institutions) Notify competent authority in writing and provide explanations how conditions are met 29

List of insiders 30

List of insiders 30

2. What’s new? – Insider List (Art 18) MAD List of Insiders LOI (Schedule

2. What’s new? – Insider List (Art 18) MAD List of Insiders LOI (Schedule III) MAR To include the date and time of obtaining access to inside information Persons on LOI ack. the legal and regulatory duties entailed Persons on LOI ack. in writing the legal and Updated promptly regulatory duties entailed Kept for 5 years SME growth market exemption Also applies to EA market participants ESMA Draft ITS 31

PDMR Notification 32

PDMR Notification 32

2. What’s new? – PDMRs (Art 19) MAD Persons Discharging Managerial Responsibilities (PDMR) (and

2. What’s new? – PDMRs (Art 19) MAD Persons Discharging Managerial Responsibilities (PDMR) (and persons closely associated) Shares Only (Schedule I) Applicable to transactions in shares on RM Notification within 5 working days Public disclosure Include persons closely associated MAR Shares and debt, related derivatives, EA on RM, MTF, OTF (Incl. pledging) Notification 3 business days Public disclosure 30 day closed period - Commission DA ESMA Draft ITS - Eur 5, 000 per year reporting notification & public threshold disclosure 33

2. What’s new? – Investment recommendations & disclosure in the media (Art 20 &

2. What’s new? – Investment recommendations & disclosure in the media (Art 20 & 21) MAD Journalists, Researchers, disseminators of Financial information, recommendations Identification Relevant competent authority Fair presentation Disclosure of conflicts of interests MAR Continues to require persons producing or disseminating investment recommendations to ensure information is objectively presented, & to disclose any conflicts of interest Applies to written and non- ESMA Draft RTS written recommendations 34

2. What’s new? – Reporting of Infringements (Whistleblowers) (Art 32) MAR Reporting of Infringements

2. What’s new? – Reporting of Infringements (Whistleblowers) (Art 32) MAR Reporting of Infringements Whistleblower Act – in force on the 16 July 2013 MS to establish effective mechanisms to enable reporting of actual or potential infringements Financial Services providers must have internal procedures in place for the reporting of actual or potential infringements. Commission Implementing Acts 35

3. Preparing for change • Do you fall within scope? • Are your policies

3. Preparing for change • Do you fall within scope? • Are your policies and procedures in line with the new requirements: – – – LOI PDMRs Market Soundings Disclosure of inside information Buy-back and Stabilisation procedures 36

Thank you! 37

Thank you! 37

Contact Email: egrech@mfsa. com. mt 38

Contact Email: egrech@mfsa. com. mt 38

Links: ESMA: http: //www. esma. europa. eu/page/Market-abuse European Commission: http: //ec. europa. eu/finance/securities/abuse/index_en. htm

Links: ESMA: http: //www. esma. europa. eu/page/Market-abuse European Commission: http: //ec. europa. eu/finance/securities/abuse/index_en. htm MFSA: http: //mfsa. com. mt/pages/viewcontent. aspx? id=486 39