CopiedOveruse of Insider Lists Requirements Relating to Market Soundings

As MAR recently passed its 5th anniversary, market participants across the EU continue to adapt their processes and policies to ensure alignment with the requirements and adherence to best practices. ESMA and national NCAs actively work to eradicate ambiguities and set EU-wide standards by frequently updating their Q&As and guidelines. However, there are still areas where regulated entities diverge in their interpretations.

Misinterpretation of Insider List Requirements in Market Soundings Copied

Attention has been drawn to the overuse and overinterpretation among issuers and advisers regarding market soundings (Art. 11). Specifically, the Disclosing Market Participant (DMP) sometimes imposes an obligation on the Market Sounding Recipient (MSR) to be subject to insider list requirements (Art. 18).

• Art. 11 serves as a safe harbour for disclosure that would otherwise be unlawful, whereas Art. 18 applies to situations where disclosure is deemed lawful.
• In an Art. 11 disclosure, the MSR must independently assess whether they consider the received information as inside information. In contrast, under Art. 18, only the sender makes the assessment.

The takeaway is that a DMP should avoid imposing Art. 18 (insider list requirements) on an MSR during an Art. 11 (market sounding) situation.

Reasons to Avoid Imposing Insider List Requirements on MSRs Copied

There are several reasons to refrain from imposing insider list requirements on MSRs in a market-sounding context:

1. Risk of Damaging Relationships: Imposing unnecessary burdens on MSRs can jeopardize the relationship between the DMP and the MSR.
2. GDPR Risks: Collecting superfluous data carries significant GDPR risks.
3. Potential Criticism and Sanctions: Supervisory bodies may impose criticism or even sanctions for such overuse.
4. Contradiction with MAR Language: Such practices contradict the language and intent of the MAR regulations and guidelines.

Legal Basis and Clarifications Copied

The starting point is that certain information from the issuer is deemed inside information (e.g., related to a possible transaction). The initial question often revolves around how someone from the issuer’s side (e.g., a board member) can lawfully disclose this information. Art. 10 (1) stipulates that the unlawful disclosure of inside information arises when someone possessing such information discloses it to another person, except in the normal exercise of employment, profession, or duties.

If an insider can lawfully disclose under this exception, they must ensure the disclosure is secure.

• The obligation under Art. 18 to draw up insider lists applies to both issuers and anyone acting on their behalf or account.
• Logwise has elaborated in a separate article on the interpretations concerning which actors should fit into this second category. It is nearly impossible to depict a situation where a provider could also be considered an Art. 11 MSR.

Conclusion Copied

The interpretation that the recipient cannot be both an Art. 11 MSR and a provider under Art. 18 insider list obligations finds support in MAR and related ESMA publications. Issuers and advisers must be cautious to avoid unnecessary obligations that may contradict regulatory guidance and risk both compliance and relationships.

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Recommended Reading Copied

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