1. Introduction
On 24 April 2024, the European Parliament approved a new package of legislative proposals as part of the ambitious initiative to reform capital market access regulation, the so-called Listing Act.[1] Also, part of this initiative is the proposed approval of an EU regulation (the ‘Amending Regulation’), which significantly innovates (among others) several aspects of the Market Abuse Regulation (Regulation (EU) No 596/2014 of 16 April 2014, ‘MAR’).
In particular, following the Commission’s proposal of December 2022,[2] the hypotheses for amendments to the MAR were the subject of inter-institutional negotiations that ended with a provisional agreement between the European institutions on the regulatory proposals. With the approval of the European Council the legislative process will be completed, and the final texts can be published in the Official Journal of the European Union.
The new regulatory provisions on market abuse stem from the desire to reduce the regulatory burden on issuing companies.[3] In fact, as pointed out in the European Commission’s regulatory proposal and then observed in the consultation by many stakeholders, some of the disclosure requirements of the current Market Abuse Regulation impose too high and disproportionate burdens – in particular – on smaller issuers.
2. Issuers’ disclosure obligations with respect to intermediate stages (Art. 17(1) MAR)
The Amending Regulation intervenes on one of the most relevant and problematic profiles of issuers’ disclosure obligations with respect to inside information (i.e. disclosure obligations in intermediate stages of transactions or events characterised by protracted processes).
In order to understand the scope of the new provision, it may be useful to briefly recall the current approach of MAR. When approving the MAR, the Community legislature – by adopting the orientation that emerged in the Community case law of the Court of Justice in Markus Geltl v Daimler AG of 28 June 2012 – had specified in the same provision defining the notion of inside information that “in the case of a protracted process that is intended to bring about, or that results in, particular circumstances or a particular event, those future circumstances or that future event, and also the intermediate steps of that process which are connected with bringing about or resulting in those future circumstances or that future event, may be deemed to be precise information” (Art. 7(2) of MAR). In other words, the MAR has enshrined at the regulatory level the interpretation that, in the event of an event or circumstance arising from a protracted process over time, any relevant moment of that process could constitute inside information per se. This includes, by way of example, “the state of contract negotiations, terms provisionally agreed in contract negotiations, the possibility of the placement of financial instruments, conditions under which financial instruments will be marketed, provisional terms for the placement of financial instruments, or the consideration of the inclusion of a financial instrument in a major index or the deletion of a financial instrument from such an index” (Recital 17 of MAR).
The notion of inside information, then, constitutes not only the basis of the prohibition of insider dealing, but also of the obligation of every issuer to disclose inside information directly concerning it “as soon as possible” (Art. 17). For this reason, the evolution of the approach adopted by the Community legislature on the subject of the definition of inside information had led to a substantial anticipation of the moment at which each issuer is obliged to disclose inside information concerning it.
Moreover, an anticipation of the moment of disclosure, in addition to being detrimental to the issuer, may have potentially distorting effects on the market: as recognised by the EU legislator itself in the Amending Regulation: “When information is disclosed at a very early stage and is of a preliminary nature, it may mislead investors, rather than contribute to efficient price formation and address the information asymmetry. In a protracted process, given the different iterations information has still to go through, the information related to intermediate steps is not sufficiently mature and hence should not be disclosed” (Recital 58).
The new regulatory provision introduced by the Amending Regulation repeals the obligation for issuers to disclose information concerning the so-called intermediate stages of protracted processes, without, however, affecting the definition of inside information. In particular, Art. 17(1) MAR is amended and “narrows down the scope of the disclosure obligation set out in Article 17(1) in the case of the so-called protracted process (i.e. multi-staged events, such as a merger) by setting out that the disclosure obligation does not cover the intermediate steps of that process.”
Thus, issuers will be able to maintain confidentiality with respect to information on intermediate steps without having to disclose the information, or to resort to the delay procedure; however, where the confidentiality of information on intermediate steps is breached, public disclosure will have to be made without delay (in the same way as for any inside information that has been subject to delay).
The amendment of the disclosure requirements addresses one of the most problematic aspects of the MAR and is, therefore, to be welcomed. However, the amended provision is not free from interpretative doubts and possible application problems. In particular, it is not entirely clear what the final circumstance and event of a protracted trial is, since it must be excluded that this moment coincides with the moment of formal finalisation of a trial, where the essential elements of the circumstance or event have been previously defined.
3. Amendments to the rules on delay (Art. 17 MAR)
As is well known, the MAR provides for the possibility of issuers to delay – under their own responsibility and provided that certain requirements are met – the disclosure of inside information, thus allowing for a balance between the obligation of timely and early disclosure under Art. 17 MAR and the need to protect the legitimate interests of the issuer.
Specifically, Art. 17(4) MAR provides for a general delay discipline applicable to all issuers, the activation of which requires a notification to the competent authorities following the publication of the information subject to the delay, while. 17(5) provides for a specific regulation of delay for credit and financial institutions, limited to situations where recourse to delay is justified by reason of the public interest objective of protecting the financial stability of the issuer and of the financial system (the activation of which requires prior notification to and approval by the competent authorities).
With respect to the first general case of delay, under the current provision of Art. 17(4) MAR the issuer (or emission allowance market participant) may delay disclosure if all of the following three conditions are met:
- the immediate disclosure would probably prejudice the legitimate interests of the issuer (or the emission allowance market participant);
- the delay in disclosure would probably not have the effect of misleading the public;
- the issuer (or emission allowance market participant) ‘is able to ensure the confidentiality of that information.
The provisions of (a) and (b) had been further clarified by ESMA, which had issued its own Guidelines that included an illustrative list of “legitimate interests” that may justify a decision to delay disclosure, as well as situations in which delaying disclosure of inside information may mislead the public.[4]
In truth, the amendment in question does not change the preceptive content of the rule in substantive terms, but it has the merit of raising to the rank of primary rule a substantially similar interpretative indication that ESMA had provided in its guidelines concerning the notion of “misleading” envisaged by Article 17(4) MAR, letter b). The European Authority had, in fact, indicated in its Guidelines the following illustrative cases of “misleading”:
- the inside information whose disclosure the issuer intends to delay is materially different from the previous public announcement of the issuer on the matter to which the inside information refers to; or
- the inside information whose disclosure the issuer intends to delay regards the fact that the issuer’s financial objectives are not likely to be met, where such objectives were previously publicly announced; or
- the inside information whose disclosure the issuer intends to delay is in contrast with the market’s expectations, where such expectations are based on signals that the issuer has previously sent to the market, such as interviews, roadshows or any other type of communication organized by the issuer or with its approval.
Finally, the Amending Regulation also intervenes on the specific regulation of delay provided for in Art. 17(5) MAR for credit and financial institutions, extending its application also to issuers controlling a credit or financial institution.
4. Amendments to the regulation of market surveys (Art. 11 MAR)
The Amending Regulation intervenes on two important aspects of the regulation of market surveys under Art. 11 MAR.
The MAR has, first of all, introduced a normative definition of a market survey, describing it as any communication of information, by whatever means made (e.g, email, telephone calls, meetings, verbal communications), prior to the announcement of a transaction aimed at assessing the interest of potential investors in a possible transaction and its terms, such as potential size or price, to one or more potential investors, where it is made by an issuer, a secondary market offeror of a financial instrument, an emission allowance market participant or a third party acting on their behalf (such as a financial institution).
The regulatory definition of a survey, therefore, is based on the following constituent elements
- subject matter: a communication of information, which may qualify as privileged or non-privileged information;
- disclosing party (the so-called disclosing market participant or ‘DMP’): an issuer, an offeror on the secondary market of a financial instrument, an emission allowance market participant or a third party acting in the name and on behalf of the same
- addressees of the communication: potential investors;
- purpose of the communication: to assess the interest of potential investors in a possible transaction and its terms;
- time of communication: before the transaction is announced.
The legislator, then, recognising that a market survey could entail the disclosure of inside information (such as, for example, information concerning an imminent probable transaction), has provided for disclosure obligations and procedural burdens on the party promoting the survey, as well as a general obligation of confidentiality and abstention from any operations on the issuer to which the information refers on the part of those participating in such a survey (so-called wall-crossing ), as well as a general obligation of confidentiality and abstention from any operations on the issuer to which the information refers (so-called ‘wall-crossing’), so as to establish a balance between the need to protect the generality of investors and the market from market abuse and the need not to prohibit the practice of market surveys.
In particular, Art. 11(3) MAR provides for the obligation of the DMP to examine beforehand whether the survey will involve the disclosure of inside information, recording in writing its conclusion and the reasons thereof and providing such written records upon request of the competent authority.
Thus, Art. 11(5) MAR requires the DMP to (i) obtain the consent of the person receiving the survey to receive inside information; (ii) inform the person receiving the survey that he is prohibited from using that information, or attempting to use it, by acquiring or disposing of, for his own account or for the account of a third party, either directly or indirectly, financial instruments to which that information relates or by cancellation or modification of an order already placed on the same; and (iii) inform the person receiving the market survey that, by agreeing to receive the information, he assumes the obligation to keep such information confidential.
Having established, therefore, the disclosure and procedural obligations of the DMP (which obligations are further specified in Delegated Regulation (EU) 2016/960 and Implementing Regulation (EU) 2016/959), Article 11(4) MAR provides that, where these obligations are met, “the disclosure of inside information in the course of a market sounding is deemed to be made in the normal exercise of a person’s employment, profession or duties, and therefore does not constitute unlawful disclosure of inside information”, thus recalling the regulatory criterion provided for in Article 10 MAR which distinguishes a lawful selective disclosure of inside information from the case of unlawful disclosure of inside information.
With this provision, therefore, the MAR has introduced a real exemption from the prohibition of unlawful disclosure of inside information (the so-called ‘safe harbour’), which may be enjoyed by the DMP that complies with all the obligations set out in the above provisions of paragraphs 3 and 5 of Article 11 MAR.
The Amending Regulation also intervenes on the regulation of market surveys, making a distinction between requirements that must be complied with in all market surveys, and are therefore mandatory, on the one hand, and requirements that are to be considered merely optional and functional for the application of the safe harbour regime under Article 11 MAR, on the other hand.
With regard to all surveys, paragraph 3 of Article 11 MAR remains in force and unchanged, requiring that, with regard to each communication transmitted for the entire duration of the survey itself, the DMP (i) shall first verify whether the market survey will result in the disclosure of inside information by making a written record of its conclusion and the reasons for it; and (ii) provide such written records upon request of the competent authority.
5. Insider Register (Art. 18 MAR)
Article 18 MAR provides that each issuer as well as any person acting in the name and on behalf of the issuer shall establish and update from time to time a register of persons who have access to inside information and with whom a professional relationship exists, including on the basis of an employment contract “or otherwise performing tasks through which they have access to inside information, such as advisers, accountants or credit rating agencies (insider list).”
By Implementing Regulation (EU) 2016/347, the EU legislator had regulated the format of such Insider Registers, providing that a separate section of the register would be established for each piece of inside information. At the same time, Implementing Regulation (EU) 2016/347 (Article 2) had provided for the option, for all obliged parties, to provide for a permanent section of the Insider Register, in which persons who, by virtue of their employment position, have access on an ongoing basis to inside information could be entered, thus allowing for the non-repetition of the entry in the sections dedicated to each piece of inside information of the persons entered in the permanent section.
Article 18 MAR itself, in paragraph 6, initially provided, as a favourable regime for issuers with financial instruments admitted to trading on an SME growth market, for the possibility of omitting the adoption of the Insider Register provided that specific requirements were met. Subsequently, the EU legislator intervened to further simplify the regulatory regime provided for SME Issuers, also noting that the requirements to be able to omit the adoption of the Insider Register were so stringent that they discouraged its use. Therefore, with the EU Regulation 2019/2115, the legislator amended the same Article 18(6) MAR, providing that for SME Issuers it is possible to draw up an Insider Register consisting only of so-called permanent insiders. It should be recalled that a heated debate had already developed between ESMA, which was against the introduction of a simplified regime for ‘minor’ issuers, and the Commission, which was instead willing to introduce a simplification for such issuers.[5]
Pending the delegated action to ESMA and the implementing legislation proposed by the Commission, the rules set forth in Article 17 MAR and Implementing Regulation (EU) 2022/1210 will continue to apply, which provides for all issuers other than SME Issuers (in addition to persons acting on their behalf) to be required to prepare a register that includes not only the so-called permanent insiders, but also the persons acting on their behalf. so-called permanent insiders, but also persons who have access to specific inside information (so-called occasional insiders), providing for a specific section for each piece of inside information.
6. Internal dealing and transactions during closed periods (Art. 19 MAR)
The Amending Regulation intervenes on the thresholds envisaged for disclosure obligations in the area of so-called internal dealing – i.e. the disclosure obligations incumbent on persons who, in an issuer’s exercise administrative, control or management functions, conduct transactions concerning the shares or debt instruments of such issuer or derivatives or other financial instruments linked to them.
In particular, the regulation under review is amended by providing for:
- the increase of the minimum threshold of the countervalue of transactions in each calendar year triggering the disclosure obligations, from the current Euro 5,000 to Euro 20,000.
- the power of the competent authorities to increase this minimum limit up to Euro 50,000, or to reduce it down to Euro 10,000.
The Amending Regulation also intervenes on the provisions concerning the so-called closed period provided for by Article 19(11) and (12) MAR, extending the hypotheses of transactions that may be excluded from the prohibition in question. As is well known, under Art. 19 (11) MAR, persons performing administrative, control or management functions at an issuer (not, however, persons closely associated with them, who are excluded from this prohibition, although they remain subject to the disclosure requirements under Art. 19(1) MAR) may not engage in transactions for their own account or for the account of third parties, directly or indirectly, relating to the shares or debt instruments of such issuer, or to derivatives or other financial instruments linked to them during the 30 calendar days preceding the publication of an interim or year-end financial report, which is required to be made by the issuer under the applicable law or the rules of the trading venue applicable to the issuer. Art. 19(12) MAR then provides for certain cases in which issuers may grant an exemption from the closed period trading ban, which have been further clarified in the Second Level Regulations.
The Amending Regulation intervenes by providing in the new Article 19(12-bis) a new hypothesis of possible exemption from the prohibition in question, which may be authorised by issuers, to trade or to carry out transactions for their own account or for the account of third parties during a closed period in the case of transactions or trading activities which: (i) do not relate to active investment decisions taken by the relevant person; or (ii) arise solely as a result of external factors or the actions of third parties; or (iii) are transactions or trading activities, including the exercise of rights conferred by derivative instruments, based on predetermined conditions.
The new exemptions are intended to limit the scope of the prohibition of trading during closed periods by excluding from the prohibition those transactions in relation to which there is no active investment decision on the part of the relevant person and, therefore, no possibility for that person to influence the terms of the transaction.
Therefore, the following, by way of example, are relevant:
- transactions carried out on behalf of the relevant person by an independent third party on the basis of a discretionary management mandate;
- transactions that are a direct consequence of corporate events, such as the mandatory conversion of financial instruments;
- execution of acquisition agreements (so-called closing) signed before the start of the closed period;
- exercise of option rights agreed upon before the start of the closed period.
The Amending Regulation also integrates the types of financial instruments in relation to which issuers, in certain circumstances and with respect to certain types of transactions, may grant exemptions from the prohibition on trading during closed periods. In particular, the provision under review in the MAR now provides for the possibility that an issuer may grant such an exemption (i) in the presence of exceptional conditions, to be assessed on a case-by-case basis (e.g., severe financial difficulties), requiring the immediate sale of shares; and (ii) in connection with transactions conducted at the same time as, or in connection with, an employee stock ownership plan or a savings programme, a guarantee or rights to shares, or transactions in which the beneficial interest in the security in question is not subject to change.
7. New tools for effective supervision on a cross-border basis
The MAR introduces a number of instruments aimed at broadening and making more effective the scope of supervision by the competent authorities, also with a view to increasing coordination between financial markets.
In particular, the new Article 25-bis provides for the obligation for competent authorities supervising “trading venues with a significant cross-border dimension” to set up a facility that allows for the “timely exchange of order book data” relating to shares, bonds and futures collected on such trading venues, with the possibility of also delegating to ESMA the establishment of the facility. Through such arrangements, competent authority may transmit a request for data to another authority, which must request such data from the relevant trading venue promptly.
For reasons of proportionality, the legislator has limited the obligation to set up such devices to authorities supervising markets with a high level of cross-border activity, while providing, however, an option for Member States to provide that authorities supervising other ‘smaller’ venues may also set up such devices on an optional basis, complying with the relevant requirements.
It is also envisaged that ESMA may coordinate on-site inspections at the request of one or more competent authorities.
8. Interventions in the area of sanctions and favourable treatment for SMEs
The legislator also wanted to intervene with regard to the administrative sanctions regime provided for by the MAR, with the declared aim of correcting some repressive excesses and modulating the punitive approach with regard to smaller companies, specifically SMEs, in line with the Listing Act’s objective of removing obstacles that may discourage recourse to the venture capital market
The legislator thus introduces certain amendments to Article 30 MAR concerning the maximum thresholds of the financial penalty applicable to legal persons for violations of issuers’ obligations to disclose inside information (Article 17 MAR) as well as for violations of the obligations concerning the Insider Register and of the regulations concerning transactions carried out by persons exercising administrative, control or management functions (Articles 18 and 19 MAR, respectively). For these cases, the following is provided for the determination of the maximum edictal penalty threshold
- a default criterion consisting of determining the sanction as a percentage of the issuer’s total annual turnover, thus modulating the sanction according to the size of the company concerned (Respectively, 2% for violations of Article 17 MAR and 0.8% for violations of Articles 18 and 19 MAR.[6]
- the possibility that the competent authorities may apply – where the default criterion of turnover leads to the application of an excessively reduced monetary sanction (taking into account the criteria for the application of sanctions provided for in Article 31(1)(a), (b), (d), (e), (f), (g) and (h) MAR) – a minimum monetary threshold, modulated in a differentiated manner for the generality of issuers, on the one hand,[7] and for SMEs, on the other.[8]
The new sanctioning structure outlined by the Amending Regulation differs from the one currently provided for by Italian law. In fact, breaches of the disclosure obligation under Article 17 MAR by entities are punished by Article 187.ter.1, paragraph 1, of the Consolidated Law on Finance with a sanction ranging from a minimum of Euro 5,000 to a maximum of Euro 2,500,000, regardless of the size – in terms of turnover capacity – of the issuer and without providing for a lower penalty threshold for SMEs.[9] The same provision then provides that the sanction may be commensurate with the turnover (in particular, to the extent of 2 per cent of the annual turnover) when such amount exceeds Euro 2,500,000 (and the turnover can be determined pursuant to Article 195(1-bis) of the Consolidated Law on Finance).
In a similar vein, for the violation by entities of the Insider Register and Manager Transaction obligations set forth in Articles 18 and 19 MAR, Article 187.ter.1, paragraph 4, of the Consolidated Law on Finance provides for a monetary criterion (with a minimum of Euro 5,000 and a maximum of Euro 1,000,000), without providing for turnover thresholds or favourable treatment for SMEs.[10]
Finally, worthy of note is the provision introduced by the Amending Regulation to Article 31 MAR, pursuant to which the Member States are obliged to ensure that the competent authorities apply “proportionate” sanctions. Moreover, among the circumstances which the Authorities must take into account when determining the sanctions, the burden for the author of the infringement deriving from the reiteration of criminal and administrative proceedings and sanctions for the same conduct is added, with clear reference to the content of the jurisprudential orientation of the European Court of Human Rights with regard to the so-called double sanctioning track affirmed starting from the well-known Grande Stevens v Italy judgment.
References and end notes
- Directorate-General for Financial Stability, Financial Services and Capital Markets Union, ‘Listing Act’, European Commission, 15 March 2024, https://finance.ec.europa.eu/news/listing-act-2024-03-15_en. ↑
- European Commission, ‘Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL Amending Regulations (EU) 2017/1129, (EU) No 596/2014 and (EU) No 600/2014 to Make Public Capital Markets in the Union More Attractive for Companies and to Facilitate Access to Capital for Small and Medium-Sized Enterprises’, 2022, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A52022PC0762. ↑
- Technical Expert Stakeholder Group (TESG) on SMEs, ‘Empowering EU Capital Markets for SMEs – Making Listing Cool Again’, 2021, https://finance.ec.europa.eu/document/download/ebb1a257-9ef2-4416-87b5-a1235157c351_en?filename=210525-report-tesg-cmu-smes_en.pdf. ↑
- European Securities and Markets Authority, ‘MAR Guidelines – Delay in the Disclosure of inside Information’, 20 October 2016, https://www.esma.europa.eu/sites/default/files/library/2016-1478_mar_guidelines_-_legitimate_interests.pdf. ↑
- European Securities and Markets Authority, ‘Opinion On the European Commission’s Proposed Amendments to the Draft Implementing Technical Standards on the Precise Format of Insider Lists and for Updating Insider Lists Adopted under MAR’, 29 April 2022, https://www.esma.europa.eu/sites/default/files/library/esma70-449-501_opinion_its_insider_lists.pdf. ↑
- Respectively, 2% for violations of Article 17 MAR and 0.8% for violations of Articles 18 and 19 MAR. ↑
- Rispettivamente, Euro 2.500.000 per le violazioni dell’art. 17 MAR e Euro 1.000.000 per le violazioni degli artt. 18 e 19 MAR. ↑
- Rispettivamente, Euro 1.000.000 per le violazioni dell’art. 17 MAR e Euro 400.000 per le violazioni degli artt. 18 e 19 MAR. ↑
- For the same violations, if committed by natural persons, a fine ranging from EUR 5,000 to EUR 1,000,000 is provided for (para. 2). ↑
- For the same violations, if committed by natural persons, a pecuniary administrative sanction ranging from €5,000 to €500,000 is prescribed (para. 5). ↑
