On 3 July, the EU's "Market Abuse Regulation" and implementing measures (MAR) will come into force. MAR will replace the UK's current civil law offence of market abuse. It will also introduce new rules relating to issuer announcement of inside information, manager dealings, insider lists and control of "market soundings". The idea is that member states should no longer have the ability to make their own rules in these areas – a "single European rulebook" will apply. AIM Regulation has now published a consultation (see AIM notice 44) on how it proposes to amend the AIM Rules to take account of MAR.
Although worded slightly differently, the new European law of market abuse covers similar ground to the current UK offences. The offences will cover: "insider dealing" – i.e. dealing while in the possession of inside information or recommending or inducing another to do so; the "unlawful disclosure of inside information" - i.e. disclosure of inside information otherwise than in the normal exercise of employment, a profession or other duty; and "market manipulation" - including giving a false or misleading impression as to the supply, price or demand for a financial instrument. The definition of inside information remains similar i.e. information which is precise, non-public, relates directly or indirectly to a company or its financial instruments and which, if it were public, would be likely to have a significant effect on the price of those instruments or derivatives. The FCA will continue to have the power to police the new regime and impose sanctions by imposing fines or a statement of public censure.
Yes, but here MAR will introduce dual regulation and new procedural requirements. AIM rule 11 already requires the prompt announcement of price sensitive information and the Exchange has confirmed that it plans to keep this requirement. The result is that from July, companies will be subject to two regimes: one enforced by the Exchange (AIM Regulation) and another by the FCA. However, it is understood that AIM Regulation will work with the FCA to minimise duplication and, in the first instance, AIM Regulation will liaise with the nominated advisers - and then the FCA, as needed. Currently under the AIM Rules, announcement of impending developments and matters in the course of negotiation may be delayed in only very limited circumstances and where effective procedures and controls are put in place: (1) to ensure the continued confidentiality of the information; and (2) to immediately announce in the event of a potential leak. Under MAR there is much more prescription around the procedures that must be put in place. The company must keep a record - which the FCA can ask to see - of how the conditions for delaying disclosure were satisfied, the information barriers and steps to be taken if confidentiality can no longer be ensured, and of the person(s) responsible for deciding to delay, monitoring ongoing compliance with the conditions and deciding to announce. Once the information is later announced, the company must notify the FCA that the announcement was delayed and provide contact details of the person(s) responsible for the decision to delay and for keeping the records.
The AIM Rules currently require AIM issuers to notify dealings by directors (AIM Rule 17) and to ensure that directors and applicable employees do not trade in a "close period" under AIM Rule 21. AIM Regulation proposes to remove these requirements from July as they overlap, but also in some respect conflict, with the new requirements under MAR. Instead they will include high-level guidance on what companies' share dealing codes should contain. The table of key differences relating to manager dealings sets out how the new MAR rules differ from the current AIM rules on director dealings. Companies should note in particular the new dealing notices to be given by directors and certain other managers (PDMRs) and their family members and connected persons ("closely associated persons"). These must be given directly not only to the company but also to the FCA on a new prescribed form, although strictly they are only required for dealings above a new EUR5,000 threshold. Companies will need to make PDMRs aware of their obligations but also consider whether - and if so, how - to apply the threshold. In relation to the prohibition on dealings in a close period, companies should also note that the close period is shorter than it was previously (30 days before the announcement of interim or annual results as required by law), but there are fewer exemptions. There is ongoing uncertainty over whether a close period will end when any preliminary announcement of results is made - as is the position now - or continue until the end of the 30 day period. Further guidance is awaited on this. Currently dealings are also prohibited outside the closed periods before the announcement of results if the company has access to inside information even though the manager himself may not. This will no longer be the case under MAR. However, because share dealing codes are also about preventing perceived wrong-doing, companies should consider and discuss with their advisers the extent to which they should keep the current, more rigorous, AIM rules position in their share dealing codes.
The impact of these changes on dealing policies and in particular employee share plans, including the timing of the grant, vesting and exercise of share options and awards, will need careful consideration.
Unlike companies admitted to the Main Market of the LSE, AIM companies have not previously been required to keep insider lists - although in practice there may have been one, particularly ahead of transactions such as takeovers. Under MAR, however, each AIM company will be required to keep a secure electronic insider list in a prescribed format, detailing every person with access to inside information and make it available to the FCA on request. The company must also ensure that others, such as advisers, working on its account keep equivalent lists. The lists must have sections for each piece of inside information, have a section for "permanent insiders" (those with regular access to inside information) and contain personal details such as personal phone numbers and home addresses of insiders. The company must also take all reasonable steps to ensure that those on the insider list acknowledge their legal and regulatory duties and are aware of the sanctions for insider dealing and improper disclosure of inside information.
"Market soundings" involve an issuer or their advisers giving information before the announcement of a transaction to gauge the interest of potential investors and the conditions relating to it, such as size or price. It would include disclosure of inside information by persons taking irrevocable undertakings ahead of a takeover, for example, as well as soundings taken before capital raisings. From July, detailed recordkeeping in accordance with the requirements in MAR will be required, including the documentation of whether inside information is disclosed, the reason for it, the information disclosed (and to whom), and the date and time of each disclosure. The records must be given to the FCA on request and must be kept for five years. Specified information must also be given to the recipient, including obtaining their consent to receiving a market sounding involving receipt of inside information, advising how they are prohibited from using it, and informing them that it must be kept confidential. The recipient must also be notified when the information is no longer inside information, and a procedure for agreeing minutes of discussion with the recipient - including as to whether inside information is given - must be followed. As with other obligations under MAR, new prescribed formats for the minutes and records must be used. There are also separate guidelines for the recipients of market soundings advising them of their duties under MAR.