The European Commission has published a package of proposals in connection with its commitment to simplify EU listing rules. The package includes a proposal for a regulation which includes amendments to the EU Market Abuse Regulation. The proposed amendments aim to strike a balance between clarifying and reducing the administrative burden of the rules whilst also safeguarding market integrity.
What does the proposal seek to change?
The key proposed changes relate to the following areas:
The most significant proposal is to clarify that the market sounding regime procedures are a “mere option” – a safe harbour from the offence of unlawful disclosure of inside information for those that comply. Those who do not comply will not be presumed to have unlawfully disclosed inside information but they will not have the protection of the safe harbour. This has long been an area of uncertainty, and the change is likely to be a welcome one.
Under the proposals, we note that, to ensure an audit trail, the requirements set out in Article 11(3) of MAR (to consider whether a proposed disclosure involves inside information and keep a record of conclusions reached) remain mandatory for all those carrying out a market sounding.
The proposals also strive to make the “cleansing” process more straightforward, by disapplying the obligation under Article 11(6) in circumstances where the information has been publicly announced.
Disclosure of inside information
Protracted process: In a protracted process, information can meet the test of inside information at a relatively early stage. It is proposed that, although the prohibition on insider dealing would still apply in respect of such information, the issuer should only be required to disclose the information to the market when it is sufficiently precise (such as when the management board has taken the relevant decision to bring about that event). This is intended to avoid issuers having to disclose information at too early a stage when it may be misleading as there are more iterations of the process to go through.
Delay: the proposals introduce further granularity to the conditions an issuer must meet in order to delay the disclosure of inside information
Share buyback safe harbour reporting
The proposals aim to simplify the post-trade reporting aspects of the safe harbour for share buybacks by:
- requiring an issuer to report information on the buy-back programme transactions only to the competent authority of the most relevant market in terms of liquidity for its shares (rather than the competent authorities of all markets where the shares are traded); and
- allowing an issuer to only disclose to the public aggregated information (rather than the detailed trade by trade data currently required). This will remove the need for the extremely long announcements that issuers currently publish.
It is proposed that the current lighter touch requirements on insider lists for SME Growth Issuers are extended to all issuers. This would significantly reduce the amount of data that needs to be collected and the administrative burden on listed companies.
The Commission proposes to reduce the administrative burden on issuers’ managers imposed by the disclosure rules around own account dealing, by substantially increasing the EUR 5,000 threshold to EUR 20,000 (with scope for competent authorities to raise the threshold to EUR 50,000).
The Proposal will now be subject to the ordinary EU legislative procedure, with the proposals scrutinised - and likely amended - by the EU co-legislators (European Parliament and Council). The average timeline from proposal to formal adoption under this procedure is around 18 months, and as such it is unlikely that binding rules will be in place before Q3 2024.
What about the UK?
Of course these proposals do not impact UK MAR, and interested parties will be watching closely to see whether the FCA will adopt corresponding changes in the UK.
You can find the EU Commission proposal here, together with its press release and Q&A
These targeted revisions of the market abuse framework will reduce legal uncertainty around the interpretation of requirements on the disclosure of inside information. The disclosure regime would, therefore, become more predictable from the investors' point of view and more conducive to effective price formation, while reducing the complexity for issuers. In addition, a more proportionate sanctioning regime for SMEs for disclosure-related infringements would avoid discouraging smaller issuers from listing or remaining listed on trading venues.