The Market Abuse Regulation (MAR) came into effect in 2016 to ensure a uniform standard of market abuse guidelines across the EU. The regulation covers a wide range of topics, including what constitutes a market abuse offence, sanctions for breaching its laws, reporting requirements and exceptions.
What is the objective of the Market Abuse Regulation?
MAR was created by the EU to maintain the integrity of investors and the financial market. The aim is to bring transparency into capital markets by putting measures in place to tackle different forms of market abuse.
Here are the key topics covered in MAR:
Article 11.1 of MAR defines market sounding as the transfer of information to determine the interest of potential investors. This is carried out before the transaction to assess the potential interest, size or pricing of a financial instrument.
Violations covered by MAR include:
1. Illegal disclosure of confidential information: Disclosing inside information to another individual is considered unlawful unless it falls within the scope of that individual’s profession.
2. Insider trading: This offence refers to the use of illegally obtained information that is not accessible to the public to gain an unfair advantage on trades.
3. Market manipulation: This includes acting in a way that alters the supply and demand for a certain financial security, thereby misleading the market.
Disclosure of inside information
MAR also highlights what classifies inside information and the protocol for its proper disclosure. The information should be provided to the public as soon as possible.
Anyone arranging transactions must impose strict measures for identifying and reporting suspicious activities. If there is suspected foul play, the report should be forwarded to the relevant authority.
MAR outlines the protocol to follow while recommending investments. All recommendations must include a disclosure of interest and projections of the security price.
Maintaining permanent and event-based insider lists of employees and records of all conversations with investors is vital for MAR compliance.
National Competent Authorities (NCAs) are authorised under MAR to impose sanctions on breaches of market abuse, including fines, public warning, repayment of illegal profits, a cease and desist order and suspension.
Obligations for market participants
Under Article 17(1), issuers are obligated to inform the public immediately of inside information regarding them. Similarly, under Article 16, investment firms, market makers and those in charge of transactions must maintain strict protocols to identify and prevent market abuse and report any suspicious activity.
Under MAR, attempting and executing market manipulation are both considered criminal offences. The penalties for disclosing inside information have also been made stricter. Non-compliant parties will be ‘named and shamed’ with their identity, the nature of their offence and sanctions published on the responsible authority’s website for five years.