Market Abuse Changes
The EU has been churning out the work; in addition to the proposed changes to MiFID (see previous article) they have also issued proposed changes to the Market Abuse Directive (newMAD) and a new Market Abuse Regulation (MAReg) (the previous article on MiFID II sets out the differences between a Directive and a Regulation).
As will be known, in the FSA Handbook MAR 1 provides guidance to firms on the market abuse regime and effectively combines the Code of Market Conduct (which itself derives from FSMA s119) and MAD.
The current MAD leaves Member States to decide whether or not to impose criminal sanctionsfor market abuse. According to the Commission, five Member States do not provide for criminal sanctions for disclosure of inside information by primary insiders and eight Member States do not do so for secondary insiders (primary insiders being those with a link to the company in question: in the UK there are only ‘insiders’). In addition, one Member State does not impose criminal sanctions for insider dealing by a primary insider and four do not do so for market manipulation. In order to ensure market integrity the Commission considers that minimum rules on criminal sanctions and offences are essential. newMAD defines the offences of insider dealing (Article 3) and market manipulation (Article 4), when committed intentionally, as criminal offences – and extends this to those inciting, aiding or attempting the two abuse activities.
MAReg proposes common principles including fines being not less than the profit made from market abuse and a maximum fine of not less than twice the amount of profits gained/losses avoided. For natural persons the maximum fine should be not less than €5m and for legal persons the figure is not less than 10% of annual turnover. These are minimum levels and Member States are at liberty to exceed these levels.
The provisions in MAReg have been aligned with the changes proposed in the revised MiFID (q.v.): MAReg will apply to any financial instrument on a MTF or an OTF as well as those admitted to trading on a regulated market. In addition it will include any related financial instruments traded OTC which can have an effect on the covered underlying market.
Algorithmic trading, including high frequency trading, that is to be brought within the scope of MiFID will also be recognised as a possible source of market manipulation (Article 8 (3)(c)) – on the issue of market manipulation Article 9 will now prohibit an attempt to engage in the practice. Spot commodity contracts (which are not wholesale energy products) will also fall within the market abuse regime.
For the avoidance of doubt, now that emission allowances are classified as financial instruments under the proposed MiFID revisions they will also be brought within the market abuse regime.