As previously reported, on 7 December 2022, the European Commission published the Listing Act package as part of the EU’s overarching efforts to further develop the Capital Markets Union. The Listing Act package aims at alleviating some of the regulatory burden inherent in listing, especially in so far as small and medium enterprises (‘SMEs’) are concerned. It comprises three distinct legislative proposals, including a proposal for amendments to, inter alia, the Market Abuse Regulation (Regulation (EU) 596/2014) (“MAR”). The amendments being proposed to the MAR primarily address technical adjustments to the current text so as to reduce regulatory and compliance costs while nonetheless ensuring legal certainty, investor protection and market integrity.
This article focusses on the part of the Listing Act package which would impact and amend the MAR, particularly on the effect of the proposed amendments on the ongoing requirements of companies already admitted to listing on a regulated EU market (the “Proposals”). Below, we delve into five key Proposals:
Narrowing the scope of the obligation to disclose inside information and enhancing legal clarity as to what information needs to be disclosed, and when
Article 17(1) of the MAR requires issuers to inform the public as soon as possible of inside information which directly concerns them. However, when information is disclosed at a very early stage, investors may be misled as opposed to better informed, hence detracting from the underlying purpose of article 17(1) to ensure efficient price formation and address information asymmetry.
Accordingly, the Proposals acknowledge that information on an intermediate step of a multi-staged event like a merger, which is not sufficiently mature, should not be disclosed until the moment that this information is sufficiently precise (provided its confidentiality is always maintained).
Therefore, in terms of the Proposals, an obligation to disclose information in the case of a protracted (or intermediate) process, shall only apply as regards information on the final event which the protracted process intends to bring about, and this only at the point in time when such information is sufficiently precise, such as when the board of directors of the issuer has taken the decision to bring about the final event.
Notably however, the Proposals do not amend article 7 of the MAR, which sets out the definition of the term ‘inside information’ for the purpose of prohibiting insider dealing. Thus, the prohibition of insider dealing will continue to apply even if it is carried out on the basis of inside information which includes information on the intermediate steps of a process connected with bringing about a future event.
The Proposals empower the Commission to issue delegated acts setting out a non-exhaustive list of relevant information and an indication of the moment when disclosure of this information from issuers, would be expected.
Clarification of the conditions under which issuers may delay the disclosure of inside information and modify the timing of the notification of the delay to national competent authorities
Article 17(4) of the MAR sets out the conditions which must be met in order for an issuer to be able to delay the disclosure of inside information. One such condition is that the delay of the disclosure is not likely to mislead the public. The Proposals, in an effort to instil a stronger sense of legal certainty, removes reference to this current, broadly drafted condition and replaces it with a list of three specific conditions that the inside information which the issuer intends to delay, must satisfy.
Additionally, the Proposals clarify that the point in time at which a notification to national competent authorities of a decision to delay the disclosure of inside information is made, shall be immediately after the decision has been made (as opposed to the current requirement to inform the authority immediately after the information is disclosed to the public). The Proposals also clarify that the national competent authority is not empowered to authorise (or otherwise) the delay.
Simplification of the Insider Lists regime
Article 18 of the MAR obliges issuers to draw up lists of insiders, that is all persons who have access to inside information and who are working under a contract of employment, or otherwise performing tasks through which they have access to inside information, such as advisers, accountants or credit rating agencies.
The Proposals, require issuers to draw up and maintain a less demanding ‘permanent insider list’, featuring ‘insiders’, as all persons having regular access to inside information relating to the issuer due to their function or position within the issuer, including for instance members of management bodies and executives who make managerial decisions affecting the future developments and business prospects of the issuers.
Notwithstanding the above, advisors, accountants and credit rating agencies are still expected, in terms of the Proposals, to draw up their own insider lists, and Member States, where justified by market integrity concerns, may opt out and require the drawing up of full insider lists where issuers have had their securities admitted to trading on a regulated marker for at least five years.
Lastly, whereas currently issuers (and persons acting on their behalf) are obliged to take all reasonable steps to obtain an acknowledgement in writing, from insiders on the insiders’ list, of their legal and regulatory duties in terms of MAR and the sanctions applicable to insider dealing and unlawful disclosure of inside information, the Proposals introduce minor technical adjustments to ease the compliance burden on issuers. In particular, the Proposals require issuers to merely request such acknowledgement, while placing the obligation to provide said acknowledgement without undue delay, on the respective insider.
Raising the threshold above which managers shall notify their transactions and expand the scope of exempted transactions during the closed period
Article 19 of the MAR sets the €5,000 threshold for notification by persons discharging managerial responsibilities (‘PDMRs’) and persons closely associated to them, to the issuer and national competent authority, in respect of transactions conducted on their own account and relating to the shares or debt instruments of that issuer (or derivatives or financial instruments linked thereto). The Proposals consider that the threshold is too low and may tend to lead to the disclosure of sometimes meaningless transactions, and accordingly propose to raise the threshold to €20,000 – €50,000 (with national competent authorities able to select, within that range, the threshold which would apply locally).
Additionally, the Proposals broaden the exemptions to the prohibition on PDMRs to transact during the 30-day period before the announcement of an interim financial report or year-end report which the issuer is obliged to make public (commonly known as the closed period). For instance, the entitlement to financial instruments, other than shares, and transactions where no investment decision is taken by the PDMR (such as the automatic conversion of financial instruments), is proposed to be excluded from the aforesaid transactions prohibited during the closed period.
Making administrative pecuniary sanctions for infringements of disclosure requirements more proportionate, in particular for SMEs
Article 30 of the MAR sets out the administrative penalties applicable to, inter alia, infringements of disclosure requirements. The Proposals introduce sanctions which are more proportionate to the size of the issuer by requiring them to be calculated as a percentage of the total annual turnover of that particular issuer. Although, the national competent authorities would be able to calculate sanctions based on absolute amounts in exceptional cases where it would be impossible to consider all circumstances of an infringement if calculations were based on turnover as aforesaid, in general, the Proposals introduce lower absolute values in the case of sanctions for non-disclosure of SMEs.
Since inception, the MAR established a robust framework aimed at preserving market integrity and investor confidence via the prevention of insider dealing, unlawful disclosure of inside information and market manipulation. It did so by, inter alia, subjecting issuers to a plethora of disclosure requirements. During the last six years however, stakeholders have highlighted significant compliance burdens which certain requirements under the MAR have imposed on issuers, mainly stemming from legal uncertainty and disproportionality. The Proposals seek to address these issues and alleviate the perceived burdens in order to ensure more accurate and timely compliance, which should, in turn, lead to more efficient price formation and reduced information asymmetry.
In this light, the Proposals should therefore be perceived as a positive endeavour to increase the overall attractiveness of EU capital markets, while nonetheless pursuing investor protection and market integrity.
We will continue to track the Commission’s efforts in this regard and invite stakeholders to share their views on the Proposals. Feel free to reach out to Malcolm Falzon at firstname.lastname@example.org, Diane Bugeja at email@example.com or Kyra Borg at firstname.lastname@example.org, should you wish to discuss any of the proposed amendments.