The Market Abuse Regulation (MAR) came into effect on July 3, 2016 and will have a material impact on Official List and AIM companies, in particular in respect of their internal systems and controls. There is no transitional period under MAR so companies need to focus on ensuring that their internal systems and procedures are compliant as soon as possible. These are the top five issues that companies should be aware of.
01 | Review and updating of disclosure policies and procedures
Both Official List and AIM companies will need to review and update their disclosure policies and procedures to ensure that these are aligned with MAR. In particular, these will need to reflect the detailed record keeping requirements that MAR imposes where disclosure of inside information is being delayed and the fact that, in such circumstances, the FCA will need to be notified following the information ultimately being announced. Where companies do not already have a formal disclosure committee in place, they may want to think about constituting one or otherwise ensuring that there is clarity internally as to which individuals have the authority to take decisions around assessment and disclosure of inside information. Refresher training should also be given to Directors – although the definition of inside information has not changed materially under MAR, given the requirements of the new regime and the fact that MAR requires announcements to identify if they contain inside information, it is important to ensure that relevant individuals are fully briefed.
AIM companies will also need to remember that they will still have to comply with AIM Rule 11 as well as MAR and their procedures should reflect the need for them to consult with their Nominated Adviser in relation to any proposed delayed disclosure to confirm that delay is also permitted under the AIM Rules.
02 | Review and updating of dealing procedures
MAR introduces revised requirements for disclosure of dealings by persons discharging managerial responsibilities (PDMRs) and persons closely associated with them (PCAs). The range of transactions requiring disclosure is wide ranging and includes various transactions over which the PDMR or PCA will not necessarily have active control (for example, automatic conversion of instruments). Although MAR only requires PDMRs and their PCAs to disclose dealings once a threshold of €5,000 (calculated without netting) has been reached in a calendar year, for reasons of administrative simplicity many companies may choose to require all dealings to be disclosed rather than having to monitor when this threshold has been reached. A mandatory closed period of 30 days prior to publication of annual and interim results also applies under MAR and, other than in limited circumstances, PDMRs are prohibited from dealing during this period. Companies may, however, want to consider voluntarily adopting longer periods more akin to those which currently apply under the Model Code.
Companies will need to consider what dealing procedures they want to put in place in respect of their PDMRs. Official List companies will no longer be subject to the Model Code (which is being abolished as it is incompatible with MAR) or any requirement to impose a dealing code, but we anticipate that most companies will still want to retain a form of dealing code. From 3 July 2016, AIM companies will be subject to a requirement under new AIM Rule 21 to have a dealing code in place covering their Directors and any other PDMRs. In either case, companies will need to consider what form they want their dealing code to take and how the closed periods will interrelate with the award and vesting cycles under any employee incentive schemes that apply to PDMRs.
Finally, companies will need to ensure that they keep an up-to-date list of their PDMRs and any PCAs and put arrangements in place to keep these lists updated – they will also need to notify PDMRs of their obligations under MAR and PDMRs will need to make a similar notification to their PCAs. Appropriate training should also be given to PDMRs and any other individuals responsible for granting clearance to deal in order to ensure that they understand the MAR regime and how this differs from arrangements that may previously have been in place.
03 | Ensure MAR compliant insider list procedures are in place
Under MAR, Official List and AIM companies and their advisers will be required to maintain insider lists including those individuals with access to unpublished inside information. This is a new requirement for AIM companies. For Official List companies, the amount of detailed personal information required to be kept on insider lists under MAR is much more detailed than was previously the case under DTR 2. There is a specific template that must be used for keeping insider lists, and companies may also choose to keep a “permanent” insider list with those individuals who would have access to all inside information within the company.
Companies will need to consider how best to obtain and store the relevant personal information required in respect of individuals to be placed on insider lists. They may want to consider gathering the information pre-emptively for those individuals most likely to be placed on insider lists in the future (for example, Directors, the Company Secretary, the General Counsel etc) and, to the extent that they anticipate there being any unpublished inside information in existence on 3 July 2016, they will need to gather the relevant details for those individuals internally who are aware of it.
04 | Be aware of the new rules on market soundings
A formalised regime applies under MAR where companies want to carry out so-called “market soundings”. These involve situations where information is being communicated to potential investors prior to announcement of a potential transaction to gauge their interest – this would cover, for example, a company engaging with its shareholders to gauge their interest in participating in a rights issue or placing. A prescriptive and detailed process has to be followed which imposes a greater degree of formality than has perhaps previously been the case and companies should ensure that their brokers are involved in managing such communications. The market soundings regime will also apply to certain communications of inside information in the context of takeovers and mergers.
Whilst the market soundings regime will not apply in all circumstances (for example, it would not cover a company speaking to its shareholders to gauge support for an M&A transaction unless it was also conducting an associated fundraising), care should still be taken to ensure a proper process is followed when disclosing inside information to shareholders in order to avoid inadvertently breaching the MAR restriction on improper disclosure. Again, companies should seek advice from their broker or lawyers prior to such communications to ensure that an appropriate process is followed.
05 | Consider future approach to buybacks
As is the case under the current regime, MAR provides a safe harbour from the insider dealing, unlawful disclosure of inside information, and market manipulation provisions for buyback programmes which comply with certain prescribed conditions. While the prescribed conditions have not been materially altered by MAR, certain of the requirements are different under the new regime and companies should therefore seek advice from their lawyers in relation to any existing or new buy-back programmes intended to fall within the safe harbour.
A company can still operate a share buyback programme which does not satisfy the applicable conditions provided that such company has disclosed all inside information at the relevant time, and the share buybacks are conducted in a way which does not otherwise mislead or manipulate the market. Where issuers are undertaking purchases of their own securities during MAR closed periods in these circumstances, they should consider observing certain of the restrictions as applied under the Listing Rules prior to MAR coming into effect, and undertaking those purchases under a time-scheduled or independent broker-managed buyback programme.