At Logwise, we often receive questions from companies that use our logbook service for insiders and persons discharging managerial responsibilities (PDMRs) to meet the MAR requirements. A recurrent question is: What is really the difference between a PDMR and a permanent insider and how do the company’s obligations differ in relation to these categories?
What is a PDMR?
A PDMR is (pursuant to MAR Art. 3.25):
“(a) a member of the administrative, management or supervisory body of that entity; or
(b) a senior executive who is not a member of the bodies referred to in point (a), who has regular access to inside information relating directly or indirectly to that entity and power to take managerial decisions affecting the future developments and business prospects of that entity”.
Category (a) consequently includes Board of Directors (incl. deputies), CEO/MD, a so called “Vice MD”, typically also a President and possibly certain COOs – but typically not a Vice President. A “supervisory body” is basically a supervisory Board (i.e. such as in the German Dual Board system). Neither internal compliance nor (external or internal) auditor constitute PDMRs.
Category (b) typically consists of the other members of the group management. However, in certain cases members of group management are conceivably not included and/or even some person outside of what may be designated “group management”. In some companies a clearly defined “group management” does not exist. In the end, the assessment of who is to be regarded as a PDMR in category (b) depends on the organisation, operations and size of the company.
The bottom line is that a PDMR is a person with a particular position in the company – i.e. regardless of what information the person factually has in the individual case. Nevertheless, a PDMR basically corresponds to what was previously referred to as “insider”. Notably also, a PDMR is always an individual (i.e. a physical person). It should finally be noted that there are signs of certain movement at the new EU level in relation to which persons are indeed to be included in the PDMR definition (read more here).
Use the flow chart below as a support to identify who can be considered a PDMR.
Are not PDMRs also insiders?
The short answer is no. Yet, these two categories can for some persons and for quite substantial time periods overlap. The definition of PDMR includes that the person regularly has access to insider information, but there are two separate definitions with different obligations. A PDMR may very well not have any insider information but is still counted as PDMR and must fulfill the obligations that this status entails including a general trading prohibition during closed periods. Outside closed periods, a PDMR can trade with the company’s shares – provided of course that the person does not currently hold insider information.
What is then a permanent insider?
The definition of permanent insiders is elaborated in Commission Implementing Regulation (EU) 2016/347: “… persons who, due to the nature of their function or position, have access at all times to all inside information within the issuer...”. A permanent insider list is however optional – and supplemental to the compulsory, event-based, insider list: “…the permanent insiders section, which is of a different nature to the rest of sections of the insider list, as it is not created upon the existence of a specific piece of inside information.”.
The permanent insider list is sometimes used by smaller issuers in an attempt to reduce the administrative burden of maintaining insider lists, since the permanent insider list personal details shall not be included in the event-based lists, which lists must also be updated.
It is thereby important to note – what ESMA also strongly emphasized in its review 2019 – that a permanent insider list is merely supplementary; there still needs to be event-based lists. Using permanent insiders is not mandatory. Unfortunately, this easily creates confusion and poses more problems than it first seems. In principle, permanent insiders will have to be informed about any and all inside information at the same time as it arises and should never have to be informed by anyone else about inside information – i.e. a state of total transparency that hardly arises in reality!
ESMA has during 2019 explicitly warned against inflation in the use of permanent insiders: “In ESMA’s view, only an extremely limited group of individuals should meet that definition, including the Chief Executive Officer, in certain specific cases, the Chief Finance Officer, Executive assistant, Chairman of the Board, Head of Legal Department/Compliance Officer and Chief Technical Officers.”
We, and all advisers we have had dialogue with, advise against using permanent insiders. In principle, someone who is categorized as a permanent insider risks a trade ban on the company’s shares. Furthermore, with a good digital tool, it saves no time because it is easy to record everyone who has access to an event-based insider list and the information is maintained in all places where the person has been recorded automatically.
Should PDMRs be included in the insider list?
Yes, they also need to be included in the insider list in case they also factually possess inside information.The company must keep two independent lists:
(i) the (event-based) insider list (“logbook”) – for the persons that actually possess inside information;
(ii) The PDMR and persons closely associated (PCAs) list – based on those personspositions and associations.
What are the company’s obligations regarding PDMRs?
The company must keep a list of all PDMRs and PCAs (i.e. regardless of the logbook). There is no special format requirement for the list.
The list must state: (a) name (and appropriate position) of PDMRs and (b) names and business names regarding their PCAs in a way that makes it possible to derive who is associated to who. It is not the responsibility of the company to check which persons are considered associated or if such persons have been notified.
All PDMRs must be notified in writing of their status as PDMRs and their obligations. The notifications must then be preserved.
The company does not need to have the PDMR confirm that they have received or understood the notification. A confirmation may however still be necessary to show that the person factually received the notification. The company does not need to do anything with the transaction notifications received by the issuer.
There are certain possibilities under very special circumstances to grant a dispensation to allow trading during closed periods.
The list is not public.
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