This 23 September 2020 ESMA MAR final report follows up on the ESMA 3 October 2019 Consultation Paper MAR review report. Logwise provides below the key takeaways from the final report.

Inside information and delayed disclosure

The current inside information definition is sufficiently broad to combat market abuse. Neither should the conditions to delay disclosure be amended. ESMA is however ready to provide more detailed guidance on the inside information definition. This would also clarify delayed disclosure assessment since it is intimately interconnected to the definition of inside information. Two examples of this are intermediate steps of protracted processes and financial statements. Further practical examples in which disclosure may be delayed will be provided.

European issuers need to invest more in appropriate procedures, systems and controls, to comply with delayed disclosure (in MAR Article 17).

There will be now new obligation for issuers to notify NCAs of information which has lost its inside nature and for which disclosure was initially delayed.

Market soundings

The overall takeaway is that the market soundings regime shall indeed remain compulsory. It will be clarified in MAR Article 11 that it indeed obliges a DMP (disclosing market participant) carrying out a sounding to follow the Article 11 requirements – and that such a DMP will therethrough obtain protection against unlawful disclosure.

Pan-European, express, separate sanctions for mere violations of the market sounding requirements are to be introduced.

The obligation remains for MSRs (market soundings recipients) to carry out their own assessment, as to whether they are in possession, or cease to be in possession, of inside information.

All types of transactions currently included in the market soundings definitions remain. Also, cases are to be included where a contemplated transaction does not materialise (and hence remains unannounced). Yet, there will be certain process alleviations (initial consent/information requirements, as well as cleansing) in case of soundings in case no inside information is disclosed.

On the other hand, when inside information is indeed disclosed, the following amendments are recommended:

  1. (a) the cleansing requirement could be waived if a transaction is publicly announced;
  2. (b) clarification that where recording facilities are unavailable, written minutes of the sounding agreed and exchanged via email or other electronic means between DMP and MSR suffice (i.e. no need for more formal signatures exchange);
  3. (c) clarification that the requirement to repeat reminders of wall crossing requirements could be removed for follow up calls.

Finally, in relation to all market soundings (i.e. both with inside information disclosure and without), there are to be recommendations to MSRs modulated on the nature of the MSRs (e.g. natural vs legal persons, regulated vs non-regulated entities, SME vs large cap).

Insider lists, “delegated lists”, “sublists”, “providers”, “task performers”, “agents” etc.

Logwise has notably previously sought to clarify certain topics related to insider lists, “sublists” and “delegated lists” demarcation, respective obligations concerning “advisers” (i.e. “persons acting on the issuers’ behalf or account”; technically hence rather par excellence denominated as “agents”). The final report has notably identified the need for some more clarity in these respects – but stopped short of itself providing definite guidance crystallizing such differences or what is more precisely to be understood as merely how to adopt the existing rules (lex lata), as compared to what is to be the final outcome of the EU effort to clarify and develop MAR in the future (lex ferenda). Previous EU communications (ESMA Q&A,  EC SME growth markets amendment proposal ) notably already exemplified advisors, lawyers, consultants, accountants and rating agencies as indeed being considered such “persons acting on behalf or account of the issuer” – and hence subject to the obligation to draw up, update and provide to the respective NCA, upon request, their respective insider list. (under MAR Article 18).

As for the ESMA MAR final report the following can be noted:

Insider lists should represent the persons who effectively accessed a piece of inside information. Agents (and in due course, providers), both getting access to inside information, should include in their respective insider lists the persons who – to the best of their knowledge – have effectively accessed a piece of inside information. If an issuer or agent doubts the effective access of a person (after the application of the systems and controls currently in place), it is accepted to include such person in the insider list. That said, persons who merely theoretically could access (rather than potentially have accessed) information are not to be included.

Issuers and other relevant persons must by now already have such systems and controls as part of their regular processes.

Agents must provide the necessary data to the issuer to fulfil the issuer’s obligations regarding its insider list. Still, the issuer does not have to centralise the different lists. Instead, NCAs may make different requests to the issuer and to the agent.

The issuer shall be permitted to include only the details of one natural person (“contact person”) for each agent being a legal person having access to inside information. Each such legal person should then include in its sublist its natural persons (employees etc.) – and thereby also applying the same principle for any of that legal person’s external providers (i.e. that legal person can include one contact person per external provider).

MAR (Article 18) should hence be amended to clarify that the issuer’s responsibility strictly refers to the inclusion in its own insider list of the following persons having access to inside information:

  1. (a) employees,
  2. (b) its external service providers and, noting the external service providers are often legal persons, one contact person for each provider. Equivalently, the above clarification will also be implemented for agents’ own employees and external service providers.

MAR should specify the obligation of agents (and in due course, “persons performing tasks for the issuer”, i.e. not really referring to “delegated lists”) to provide and keep updated the contact details of the contact person (if e.g. the contact person changes job).

There will be no ‘softened’ regime for long-term service providers (such as auditors) ESMA did not find sufficient evidence to establish a ‘softened’ regime for long-term service providers (such as auditors) or to exempt emission allowance market participants from the insider list obligations.

The obligation to elaborate an insider list always appears immediately when inside information is generated – regardless of being published immediately or subject to delayed disclosure (and regardless of possibly later losing its price sensitiveness component). Inside information is obviously generated before its disclosure. There is no interdependency between the disclosure (MAR Article 17) and insider list (MAR Article 18) obligations. Insider lists exist both for issuers to manage insider information and to facilitate authorities’ subsequent investigations.

When inside information is spread across several persons, those persons should be obliged to record the additional individuals who accessed that particular piece of inside information.

A “persons acting on behalf or on the account of the issuer” (i.e. an “agent”) are engaged in a fiduciary relationship with the issuer, whereby the agent act as its agent under its (written or oral) mandate. On the other hand, a person providing any other professional service to the issuer (directly or through other persons), not acting as the agent of the issuer, should be considered as “performing a task for the issuer” (“provider”) – and therefore, subject to the obligation to draw up and maintain its own insider list when accessing insider information.

The following can hereby be highlighted: “ESMA notes that neither the performance of tasks for the issuer nor ‘acting on behalf or on the account of the issuer’ are terms defined in MAR. For these purposes, ESMA considers relevant to differentiate who should be considered as ‘persons acting on behalf or on the account’ of the issuer from those who would be performing tasks for the issuer.

The following persons who act independently from the issuer could qualify as “providers”:

  1. (a) auditors (appointed by the issuer);
  2. (b) notaries;
  3. (c) consultants;
  4. (d) credit institutions and financial intermediaries involved in financing relevant deals or in the offering of the issuer’s financial instruments;
  5. (e) financial intermediaries acting under the rules of a trading venue in an independent role (which could include liquidity providers, specialists or firms assisting a company through the admission process and are responsible for assessing the appropriateness of a company seeking admission).

MAR should specifically contemplate the obligation of the issuers to inform its providers (and also to the providers’ agents) when they qualify a piece of information as inside information, to enable them to establish their own lists.

The obligation to elaborate insider lists is intrinsically linked to the existence of a collective of individuals having access to a piece of inside information. Examples include natural persons performing tasks through which they have access to inside information, but not sharing it with anybody else inside or outside their organisation. These should be included in the issuer’s own insider list (or in the agents’ or providers’ lists, as appropriate), but should not be forced to keep and maintain their own lists.

Still, any person accessing inside information due to a professional relationship with the issuer, that has been informed by the issuer about getting access to a piece of inside information and has shared that information with other persons should keep an insider list.

It is concluded that the reference to “persons acting on behalf or on the account of the issuer” (MAR Article 18) could be complemented by a reference to external service providers, with the addition of “or otherwise performing tasks for the issuer, through which they got access to a piece of inside information and shared it with other persons”. That reference could be completed with a recital clarifying that such a reference encompasses the performance of any professional services for the issuer, directly or indirectly or for persons acting on its behalf or on its account, including the activities performed by auditors, notaries and the other categories mentioned above.

Permanent insider section of the insider list

The permanent insider section of the insider list is merely an option, not an obligation. If used, it should only include a limited group of individuals and should under no circumstances substitute the event-based insider list.

Insider lists admin reduction for issuers

It is allowed to store personal data separately. Issuers have the capacity to determine the means or the format used to store the data as long as they can immediately generate the insider list according to the legal requirements when requested by the NCA. For clarity, the MAR Article 18 words “in writing” are replaced by “in a durable medium”.

Issuers and agents (and, in due course, providers) should request, in a durable medium, the acknowledgment of their legal and regulatory duties from the persons included in the insider lists. Persons included in the insider list should have the obligation to acknowledge immediately, in a durable medium, their legal and regulatory duties.

The time horizon for an issuer to update its insider list should be very limited, i.e. simultaneous to the identification of a piece of inside information as such. Notably, template 1 of Annex I of Commission Implementing Regulation (EU) 2016/347 already specifies that the date and time of creation of a section of the insider list corresponds to the date and time when the inside information was identified. There is no difference between the issuer and its external service providers and agents in the sense that they should all draw up and update their respective insider lists ‘promptly’. The only difference between them should be a practical one. This, since the obligation of the agents (and, in due course, providers) should be triggered, at the latest, by the issuer’s notification about the qualification of a piece of information as inside information.

Next steps

This ESMA MAR Review final report was initially due for delivery in spring of 2020. It was however postponed due to work-stream reprioritisation stemming from the Covid-19 pandemic. The report is per late September indicated to be submitted to the EC and is expected to feed into their review of MAR. ESMA will provide further technical assistance to develop the legislative amendments suggested in the report and further guidance in particular in relation to the application of the definition and for specific scenarios concerning delayed disclosure. The final report is the detailed basis for the coming MAR amendments. It is hence important to already now absorb its content and ESMA’s recommendations. This in order to assess whether any of those probable amendments will affect existing operations and take necessary measures.

ESMA is notably also (in line with the SME Growth Market Regulation mandate) drafting regulatory technical standards and implementing technical standards on liquidity contracts and insider lists. ESMA has thereby issued a 6 May 2020 consultation paper.

Finally, the high-level forum on the Capital Markets Union, which issued its 10 June 2020 final report. That entailed some important MAR amendments recommendations.

Logwise is closely monitoring the developments, in particular regarding the fact that ESMA clearly acknowledged the need for certain additional clarifications and guidelines.