Overuse of insider lists requirements relating to market soundings

As MAR recently passed its 5^th anniversary, market participants across EU continue to adapt their processes and policies to ensure they are aligned with the requirements and follow best practice. ESMA and national NCAs are doing their best to eradicate unclarities and setting EU-wide standards by frequently updating their Q&As and guidelines. Still, there are areas where regulated entities divert in their interpretations.

Specifically, attention has been drawn to certain overuse and overinterpretation among issuers and advisers concerning market soundings (Art. 11). This in the sense that the market soundings (MS) disclosing market participant (DMP) occasionally appears to – also – impose an obligation on the market sounding recipient (MSR) concerning that the MSR shall also be subject to insider list requirements (Art. 18). Basically, Art. 11 is used as a safe haven when disclosure is typically otherwise unlawful – whereas instead Art. 18 takes aim on the situation where disclosure is lawful. In case of Art. 11 disclosure, the MSR shall independently assess whether the MSR considers the received information as inside information – whereas instead under Art. 18 disclosure solely the sender instead makes its own assessment if the information is inside information.

The short takeaway is simply that a DMP – in an Art. 11 (MS) situation – shall avoid trying to also impose such an Art. 18 (insider list requirement) on an MSR.

There are several reasons for this conclusion.

Firstly, there is the obvious practical risk of jeopardizing the good relation with MSRs (in case the DMP imposes such tautological burden on them).

Secondly, there are serious GDPR risks with such superfluous data collection. 

Thirdly, the supervisory bodies might impose criticism and even sanctions.

This leads us to – last but not least – that such a tautological practice would contradict the language of the MAR regulations and guidelines:

The starting point is thereby that certain information emanating from the issuer has by the issuer been deemed to be inside information (e.g. concerning a possible transaction). Then the initial question is typically how a person on the issuer side (e.g. a board member), having obtained this information, could lawfully disclose. Art. 10 (1) thereby stipulates the basis. The main rule is that “unlawful disclosure of inside information arises where a person possesses inside information and discloses that information to any other person”. Still, there is a narrow exception when he may lawfully disclose “where the disclosure is made in the normal exercise of an employment, a profession or duties.”.

Presuming that such an insider may indeed lawfully disclose under this exception, the insider seeks to certify to the extent possible that he discloses securely.

Clearly, the obligation (Art. 18) to draw up insider lists indeed exists for both the “Issuers and any person acting on their behalf or on their account…”. Logwise has already, in a separate article (see the heading “Insider lists, ‘delegated lists’, ‘sublists’, ‘providers’, ‘task performers’, ‘agents’” etc.), elaborated on the exact interpretations, suggested clarifications etc. concerning the ultimate boundaries for which actors should reasonably be fitted into that second category. Regardless of that exact assessment, it is anyway clear that it is almost impossible to depict a situation where such a provider would somehow also constitute an Art. 11 MSR; i.e. when an issuer (or the issuer’s provider, like a corporate finance firm) seeks “to gauge the interest of potential investors in a possible transaction and the conditions relating to it such as its potential size or pricing, to one or more potential investors…”.  

This, the interpretation that the recipient shall not both constitute an Art. 11 MSR and such a provider being under the Art. 18 insider list obligation, also finds support in MAR itself and the related ESMA publications.

Recommended reading:

MAR Recital 35:

https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32014R0596

EU implementing regulation (2016/959) relating to technical standards for market soundings concerning DMPs – which notably exclusively refers to Art. 11 (not Art. 18):

https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32016R0959&from=EN

ESMA Draft technical standards, 4.7.1.:

https://www.esma.europa.eu/sites/default/files/library/2015/11/2015-esma-1455_-_final_report_mar_ts.pdf