MAR Review: ESMA Publishes Report on Reforms to Market Abuse Regime

Following consultation published in October 2019, the European Securities and Markets Authority (ESMA) recently published its Review Report on the Market Abuse Regulation (MAR). The Review contains technical advice to the European Commission (EC) on key aspects of MAR. 

While the objective is to provide information to the EC’s own proposals on MAR, which will be made in due course, it seems likely that ESMA’s advice will feature strongly. It will, in turn, heavily influence the UK’s own market abuse regime post-Brexit.

What are the focus points of the ESMA review?

ESMA’s overall conclusion is that MAR is fit for purpose with no changes required to the main definitions of inside information, applicable to financial instruments and commodity derivatives. However, ESMA has proposed key targeted amendments as follows:

• Spot FX Markets: ESMA comes close to a recommendation that FX spot contracts are brought within the EU market abuse regime. However, it acknowledges that further analysis is appropriate given the FX Global Code of Conduct currently under revision, as well as the need for coordination with other main jurisdictions given the global nature of this market.
• Front-Running: ESMA proposes a widening of the scope beyond persons involved in the execution of orders, to include anyone aware of a future client order by virtue of their employment.
• Pre-Hedging: ESMA is keen to develop more prescriptive guidance on acceptable practices in pre-hedging.  However, it notes the need for flexibility in specific circumstances, for example in illiquid instruments.
• Market Sounding: ESMA confirmed its stance that the market soundings regime is compulsory for Disclosing Market Participants (“DMP”) and is unmoved by arguments driven by conflicts of laws and extraterritorial effect.

However, it does recommend amendments to protect DMPs from allegations of unlawful disclosure, as well as the need to cleanse those in receipt of inside information when a transaction is subsequently announced. ESMA also proposes harmonised sanctions across the EU against those that do not follow the rules.

• Insider Lists: ESMA has proposed some flexibility on the question of who should be included on insider lists, and how large a permanent insider list should be. 
• Cum/ex and Withholding Tax Reclaim Schemes: ESMA does not propose to amend MAR to require National Competent Authorities to investigate such activities. However, following recent well-publicised cases of tax fraud, it does recommend that the EC pursues legislative changes to permit them to exchange information with tax authorities.

What happens next?

The MAR Review has now been submitted to the EC to consider legislative proposals to amend MAR to be put to the European Parliament and the Council. The ball is now firmly in the EC’s court as to the next steps, but further industry lobbying may be expected on the key points above. It is worth noting that any changes to EU MAR will not automatically be adopted in the UK. 

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