Market Abuse Regulation (MAR): EU Commission's Call

Alessandro Micagni

On June 18th, 2024

The Market Abuse Regulation (MAR), Regulation (EU) No 596/2014, ensures EU financial market integrity and investor protection by addressing insider dealing, unlawful information disclosure, and market manipulation.

Market Abuse Regulation (MAR): EU Commission's Call

Introduction

The Market Abuse Regulation (MAR), formally known as Regulation (EU) No 596/2014, was adopted by the European Parliament and the Council on April 16, 2014. MAR is essential for ensuring the integrity of financial markets within the European Union (EU) and enhancing investor protection and confidence. This regulation establishes a robust and comprehensive framework to address key issues such as insider dealing, unlawful disclosure of inside information, and market manipulation.

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Objectives and Scope of MAR

MAR's primary objective is to create a level playing field across the EU's financial markets by establishing uniform regulations that prevent market abuse. This regulation covers a broad range of financial instruments and markets, including regulated markets, multilateral trading facilities (MTFs), and organized trading facilities (OTFs). By encompassing these various platforms, MAR ensures comprehensive oversight and regulation, minimizing the risk of market abuse in different trading environments.

Key Components of MAR

Insider Dealing: MAR prohibits individuals with access to non-public, price-sensitive information (insiders) from using that information to gain an unfair advantage in trading financial instruments. This includes buying or selling securities based on inside information or attempting to leverage such information indirectly.
Unlawful Disclosure of Inside Information: The regulation mandates that any inside information must be disclosed promptly to the public, preventing selective disclosure that could benefit specific individuals or entities. This requirement ensures that all market participants have equal access to crucial information, fostering transparency and fairness.
Market Manipulation: MAR targets activities that distort market prices or create misleading impressions regarding the supply, demand, or price of financial instruments. This includes practices such as spreading false or misleading information, engaging in trades that manipulate market prices, and other deceptive activities designed to interfere with market integrity.

Evolution of Market Abuse Regulation (MAR)

Regulatory Framework and Enforcement

The European Securities and Markets Authority (ESMA) plays a pivotal role in the implementation and enforcement of MAR. ESMA provides technical advice to the European Commission and develops regulatory technical standards (RTS) and implementing technical standards (ITS) to ensure uniform application of MAR across the EU. Additionally, national competent authorities (NCAs) are responsible for the local enforcement of MAR, including the investigation and prosecution of market abuse cases.

Amendments and Evolution

Since its inception, MAR has been amended several times to adapt to evolving market conditions and regulatory challenges. These amendments aim to enhance the regulation's effectiveness and ensure it remains relevant in a rapidly changing financial landscape. Notable amendments include:

Regulation (EU) 2016/1011: Focuses on indices used as benchmarks in financial instruments and financial contracts, ensuring that these benchmarks are not susceptible to manipulation.
Regulation (EU) 2016/1033: Aligns MAR with other regulations related to markets in financial instruments and securities settlement, promoting a more integrated regulatory framework.
Regulation (EU) 2019/2115: Promotes the use of SME growth markets, facilitating access to capital for small and medium-sized enterprises.
Regulation (EU) 2023/2869: Enhances the establishment and functioning of the European single access point, improving the accessibility and transparency of market data.

Importance of MAR in Modern Financial Markets

MAR's comprehensive approach is vital in maintaining market integrity, especially in the context of increasing market complexity and technological advancements. The regulation helps to prevent various forms of market abuse that could undermine investor confidence and disrupt market stability. By establishing clear rules and robust enforcement mechanisms, MAR contributes significantly to the resilience and reliability of the EU's financial markets.

Evolution of Market Abuse Regulation (MAR)

Since its adoption in 2014, the Market Abuse Regulation (MAR) has evolved to stay relevant and effective in a constantly changing financial landscape. This evolution is marked by several key amendments, each designed to address specific regulatory needs and challenges. These amendments ensure that MAR remains robust and capable of safeguarding market integrity in the European Union. Here are the significant amendments that have shaped the current framework of MAR:

Regulation (EU) 2016/1011

Regulation (EU) 2016/1011, also known as the Benchmark Regulation, was introduced to address the integrity and accuracy of benchmarks used in financial instruments and contracts. Benchmarks are critical for setting prices and values in financial markets, and their manipulation can lead to significant market distortions. This amendment ensures that benchmarks are free from manipulation and are determined based on accurate and reliable data.

Scope and Coverage: This regulation covers a wide range of benchmarks, including interest rate benchmarks, commodity benchmarks, and critical benchmarks that are systematically important.
Governance and Oversight: It establishes governance and oversight requirements for benchmark administrators to ensure transparency and accountability in benchmark-setting processes.
Contributors and Reporting: The regulation mandates clear guidelines for entities that contribute data to benchmarks, ensuring data integrity and accuracy.

Regulation (EU) 2016/1033

Regulation (EU) 2016/1033 amends MAR to align it with other financial market regulations, specifically the Markets in Financial Instruments Regulation (MiFIR) and the Central Securities Depositories Regulation (CSDR). This alignment aims to create a more integrated and cohesive regulatory framework for EU financial markets.

Trade Transparency: Enhances pre- and post-trade transparency requirements to ensure that market participants have access to reliable market data.
Market Infrastructure: Aligns MAR with regulations governing trading venues and post-trading infrastructures, promoting efficiency and reducing systemic risk.
Harmonization: Ensures that the regulatory requirements under MAR are consistent with those under MiFIR and CSDR, facilitating smoother implementation and compliance.

Regulation (EU) 2019/2115

Regulation (EU) 2019/2115 focuses on promoting the use of SME growth markets. Small and medium-sized enterprises (SMEs) are vital to the EU economy, and this amendment aims to improve their access to capital markets.

Reduced Burdens: Simplifies regulatory requirements for SMEs, reducing the administrative burden and making it easier for them to list and trade on public markets.
Incentives: Provides incentives for SMEs to engage in capital markets, such as tailored disclosure requirements and easier access to funding.
Investor Protection: Balances reduced burdens with investor protection measures to maintain confidence in SME growth markets.

Regulation (EU) 2023/2869

Regulation (EU) 2023/2869 enhances the establishment and functioning of the European single access point (ESAP), a centralised platform for accessing financial and non-financial information disclosed by EU companies.

Centralized Access: Provides a single point of access for investors and other stakeholders to obtain essential information about EU companies, enhancing transparency and reducing information asymmetry.
Data Standardization: Standardizes the data formats and reporting requirements, making it easier to compare and analyze information across different entities and markets.
Digital Transformation: Leverages digital technologies to improve the accessibility and usability of disclosed information, supporting better decision-making by market participants.

Understanding Market Abuse Regulation (MAR)

Market Abuse Regulation (MAR), implemented by the European Union, is a critical framework designed to prevent market abuse, ensure market transparency, and protect investors. This regulation covers a broad spectrum of activities that could compromise market integrity, including insider trading, unlawful disclosure of inside information, and various forms of market manipulation. MAR’s comprehensive approach is essential for maintaining fair, efficient, and transparent financial markets across the EU.

Key Aspects of MAR

Insider Trading

Insider trading involves the use of non-public, price-sensitive information by individuals to gain an unfair advantage in trading financial instruments. MAR explicitly prohibits such practices to maintain market integrity. Key elements include:

Definition and Scope: Insider trading under MAR encompasses any trading activity conducted based on material, non-public information. This includes buying, selling, or attempting to trade securities or related financial instruments.
Insiders: MAR identifies insiders as individuals who possess confidential information by virtue of their employment, position, or relationship with the issuer. This includes directors, executives, employees, and advisors.
Prohibited Actions: Insiders are prohibited from trading based on inside information, recommending or inducing others to trade, and unlawfully disclosing inside information.

Market Manipulation

Market manipulation refers to activities designed to deceive or mislead investors by distorting the price or volume of financial instruments. MAR aims to detect, prevent, and penalise such manipulative behaviours through:

Forms of Manipulation: Common forms of market manipulation include spreading false or misleading information, conducting trades that create artificial price levels, and engaging in activities that give a false impression of trading volume or liquidity.
Prohibited Practices: MAR outlaws various manipulative practices, such as "spoofing" (placing orders with no intention of executing them), "wash trades" (simultaneous buying and selling of the same instrument to create misleading activity), and dissemination of false or misleading information.
Detection and Enforcement: The regulation mandates robust monitoring systems and collaboration between regulatory authorities to detect and address market manipulation.

Disclosure of Inside Information

Transparency is a cornerstone of MAR, and the regulation sets stringent requirements for the disclosure of inside information to ensure that all market participants have equal access to material information:

Timely Disclosure: Issuers are required to disclose inside information as soon as possible to avoid information asymmetry. This prevents selective disclosure that could benefit specific parties.
Disclosure Procedures: Companies must follow standardized procedures for disclosing inside information, ensuring that the information is precise, not misleading, and includes all relevant details.
Delay in Disclosure: In certain circumstances, issuers may delay the disclosure of inside information to protect their legitimate interests, provided that this does not mislead the public and the confidentiality of the information is maintained.

Regulatory Framework and Compliance

The European Securities and Markets Authority (ESMA) and national competent authorities (NCAs) play crucial roles in the implementation and enforcement of MAR:

ESMA’s Role: ESMA develops regulatory technical standards (RTS) and implementing technical standards (ITS) to ensure a harmonized application of MAR across the EU. It also provides guidance and supports NCAs in their enforcement efforts.
NCAs' Responsibilities: National authorities are responsible for monitoring compliance, conducting investigations, and imposing sanctions for breaches of MAR. They collaborate with ESMA and other NCAs to address cross-border issues and ensure consistent enforcement.

Impact on Market Participants

MAR imposes specific obligations on various market participants to ensure compliance and uphold market integrity:

Issuers and Listed Companies: Must implement internal controls to monitor and report insider trading and market manipulation, and establish procedures for timely disclosure of inside information.
Market Operators: Required to have systems in place to detect and prevent market abuse, report suspicious transactions, and cooperate with regulatory authorities.
Investment Firms and Brokers: Obliged to monitor client activities for signs of market abuse, report suspicious transactions, and ensure that their trading practices comply with MAR.

Delegation of Power under Article 35

Initial Delegation Period

Article 35 of Regulation (EU) No 596/2014, also known as the Market Abuse Regulation (MAR), is a crucial component that empowers the European Commission to adopt delegated acts. These delegated acts enable the Commission to make necessary adjustments and updates to MAR to ensure it remains effective and responsive to evolving market conditions.

Empowerment and Duration: Article 35(2) confers the power to adopt delegated acts on the European Commission for an initial period of five years, starting from December 31, 2019. This delegation period is set to expire on December 31, 2024.
Objective of Delegation: The primary objective of this delegation is to allow the Commission to make technical adjustments, clarify specific provisions, and respond swiftly to emerging market abuse issues without the need for a full legislative process. This flexibility is essential for maintaining the relevance and efficiency of MAR in regulating market practices.
Reporting Requirement: To ensure transparency and accountability, the regulation mandates that the Commission prepares a comprehensive report on the exercise of its delegated powers. This report must be submitted to the European Parliament and the Council no later than nine months before the end of the five-year period, i.e., by March 31, 2024. The report assesses the necessity and effectiveness of the delegated powers and provides a basis for any potential extension.

Conditions for Extension

The framework for extending the delegation of power under Article 35 is designed to balance the need for regulatory agility with robust oversight by the European Parliament and the Council.

Tacit Extension Mechanism: The delegation of power can be extended tacitly for additional five-year periods. This automatic extension mechanism ensures continuity and stability in the regulatory framework. However, it also incorporates safeguards to prevent unchecked extensions.
Opposition Procedure: Either the European Parliament or the Council has the authority to oppose the extension of the delegation of power. To block an extension, opposition must be formally registered no later than three months before the end of each five-year period. This provision ensures that the legislative bodies retain control over the delegation and can intervene if necessary.
Review and Oversight: The extension mechanism includes regular reviews and oversight by the European Parliament and the Council. These reviews are critical for assessing the Commission’s use of delegated powers and ensuring that the adjustments made align with the overarching goals of MAR, such as protecting market integrity and enhancing investor confidence.

Importance of Delegated Powers in MAR

Delegated acts under Article 35 are vital for the adaptive management of the Market Abuse Regulation. The ability to swiftly implement technical standards and respond to new challenges is essential for:

Market Integrity: Ensuring that MAR remains robust and capable of addressing emerging forms of market abuse, thereby maintaining a level playing field for all market participants.
Regulatory Efficiency: Allowing the Commission to update and refine regulations without undergoing the lengthy legislative process, thus enhancing the agility and responsiveness of the regulatory framework.
Harmonization: Ensuring consistent application of MAR across the EU by providing clear and updated guidelines that national competent authorities (NCAs) can implement uniformly.

The Commission's Report and Call for Extension

On June 17, 2024, the European Commission issued a pivotal report to the European Parliament and the Council concerning the delegation of power to adopt delegated acts under the Market Abuse Regulation (MAR). This report is crucial in evaluating the necessity and effectiveness of extending the delegated powers conferred on the Commission, ensuring that MAR continues to serve its purpose in maintaining market integrity and protecting investors.

Key Points from the Report

Unused Empowerments

The report identifies specific areas where the Commission has not yet exercised its delegated powers. Highlighting these areas is essential for understanding the potential scope and impact of MAR and for making informed decisions about extending the delegation of powers.

Article 6(6) of MAR: This provision pertains to extending the exemption set out in Article 6(3) to certain designated public bodies of third countries that have entered into agreements with the European Union pursuant to Article 25 of the EU Emissions Trading Directive. This extension is significant for:
- Harmonization with Third Countries: Ensuring that public bodies in third countries, which have cooperative agreements with the EU, are subject to similar market abuse regulations. This harmonization helps in maintaining a consistent regulatory environment and prevents regulatory arbitrage.
- Environmental and Financial Integration: By aligning MAR with environmental trading systems, the EU can enhance the integrity of both financial and environmental markets. This alignment is particularly crucial in the context of global efforts to combat climate change through market mechanisms like emissions trading.
Article 38 of MAR: This article involves adjusting the thresholds laid down in Article 19(1a), points (a) and (b), which relate to the reporting requirements for transactions by persons discharging managerial responsibilities (PDMRs) and closely associated persons. The adjustment of these thresholds is vital for:
Regulatory Flexibility: Ensuring that the thresholds remain appropriate in the context of changing market conditions. This flexibility is necessary to maintain a balance between transparency and the administrative burden on market participants.
Enhanced Oversight: By periodically reviewing and adjusting these thresholds, the Commission can ensure that significant transactions are appropriately reported, thus enhancing market oversight and investor protection.

Importance of the Report

The Commission’s report serves several critical functions in the context of MAR:

Assessment of Delegated Powers: The report provides a thorough assessment of how the delegated powers have been used (or not used) over the initial delegation period. This assessment helps identify gaps and areas for improvement, ensuring that MAR remains effective.
Justification for Extension: By highlighting the unutilized empowerments and their potential benefits, the report builds a strong case for extending the delegated powers. This justification is essential for gaining the support of the European Parliament and the Council.
Guidance for Future Actions: The report outlines potential future actions that the Commission may take if the delegation of powers is extended. This forward-looking approach helps in planning and prioritizing regulatory initiatives.

Call for Extension of Market Abuse Regulation (MAR) Powers

The European Commission has recommended extending the delegation of power to adopt delegated acts under the Market Abuse Regulation (MAR) for an additional five years. This extension is critical for ensuring that MAR continues to effectively regulate market integrity and protect investors in the ever-evolving financial landscape. The extension of these powers is supported by several compelling reasons:

Continuous Adaptation

Financial markets are inherently dynamic, characterised by rapid developments and emerging challenges. The regulatory framework governing these markets must be equally adaptable to remain effective. Extending the delegation of power under MAR ensures that the European Commission can:

Respond Promptly to Market Changes: The Commission can swiftly implement necessary regulatory adjustments to address new forms of market abuse or unforeseen market developments. This agility is crucial for maintaining market integrity.
Update Technical Standards: As financial instruments and trading practices evolve, the Commission can update technical standards to reflect current market realities, ensuring that MAR remains relevant and effective in its oversight.
Incorporate Technological Advancements: The financial sector is increasingly driven by technological innovation. Extending the delegation of power allows the Commission to integrate new technologies and methodologies into the regulatory framework, enhancing the detection and prevention of market abuse.

Regulatory Certainty

For market participants, regulatory certainty is paramount. Knowing that the regulatory framework is stable yet adaptable instills confidence in the market's integrity and fairness. Extending the delegation of power under MAR provides:

Consistency and Predictability: Market participants can rely on a consistent regulatory environment, reducing uncertainty and facilitating long-term planning and investment.
Enhanced Compliance: A stable regulatory framework makes it easier for firms to comply with regulations, as they can anticipate regulatory changes and adapt their practices accordingly.
Investor Confidence: Regulatory certainty reassures investors that the market is well-regulated and transparent, encouraging investment and participation in the financial markets.

Alignment with International Standards

In the globalised financial market, alignment with international standards is essential for maintaining the EU's competitive edge. By extending the delegation of power, the Commission can:

Harmonize Regulations: Ensure that MAR is in line with international regulatory standards, promoting consistency and cooperation across global markets.
Facilitate Cross-Border Transactions: Aligned regulations reduce the barriers to cross-border financial activities, making the EU markets more attractive to international investors.
Strengthen Global Market Integrity: Contribute to the global effort to prevent market abuse, enhancing the overall integrity and stability of international financial markets.

Additional Empowerments Under the Listing Act

As part of the Listing Act legislative proposal, the Commission has also proposed maintaining existing empowerments and granting additional powers to adopt delegated acts. The European Parliament and the Council have agreed to this proposal, extending these powers for another five years. These additional empowerments include:

Second Subparagraph of Article 17(1): This provision deals with the disclosure of inside information. By extending this empowerment, the Commission can ensure that disclosure practices remain transparent and up-to-date, reflecting best practices and technological advancements.
Article 25a(5), (5a), and (6): These articles address various aspects of market abuse, including the roles and responsibilities of market operators and participants. Extending these powers allows the Commission to fine-tune regulations, ensuring comprehensive oversight and robust enforcement mechanisms.

Implications of the Extension of Market Abuse Regulation (MAR) Powers

Extending the delegation of power under the Market Abuse Regulation (MAR) carries several significant implications for the integrity and stability of the European Union's financial markets. This extension ensures that the regulatory framework can adapt to new challenges, protect investors, and maintain fair market practices. Here are the key implications in detail:

Enhanced Market Integrity

Extending the delegation of power under MAR enables the European Commission to continuously refine and update the regulation to combat new forms of market abuse. This is crucial for maintaining market integrity and protecting investors. Key aspects include:

Adaptive Regulations: As financial markets evolve, new forms of market abuse can emerge. The delegation of power allows the Commission to swiftly address these issues by updating existing regulations or introducing new measures.
Proactive Measures: With extended powers, the Commission can implement proactive measures to prevent market abuse before it occurs, rather than merely reacting to incidents. This includes developing advanced monitoring systems and enforcement mechanisms.
Strengthened Enforcement: The ability to refine regulations also strengthens the enforcement capabilities of national competent authorities (NCAs), ensuring that they have the tools and resources needed to detect and penalize market abuse effectively.

Regulatory Certainty

For market participants, regulatory certainty is essential for fostering confidence and stability in financial markets. The extension of delegated powers under MAR provides:

Consistent Regulatory Environment: Market participants can rely on a stable regulatory framework that is consistently updated to reflect current market conditions. This predictability helps firms plan their activities with confidence.
Reduced Compliance Costs: A clear and up-to-date regulatory framework reduces the compliance burden on firms, as they can better understand and meet their obligations. This is particularly important for smaller firms and new market entrants.
Investor Confidence: Regulatory certainty reassures investors that the market operates under robust and transparent rules, encouraging investment and participation in the financial markets.

Alignment with International Standards

The extension of MAR’s delegated powers ensures that the regulation remains aligned with international standards, which is vital for maintaining the EU's competitive edge in global financial markets. Benefits include:

Global Competitiveness: By aligning with international best practices, the EU can attract global investors and firms, enhancing the competitiveness of its financial markets.
Harmonized Regulations: Alignment with international standards facilitates cross-border trading and investment, as firms face similar regulatory requirements in different jurisdictions.
Collaborative Enforcement: Coordinated regulatory standards enable better collaboration between the EU and other international regulatory bodies, enhancing the effectiveness of global market abuse prevention efforts.

Monitoring and Reporting

The extension of delegated powers under MAR allows the Commission to leverage technological advancements to improve monitoring and reporting systems. This includes:

Big Data and AI: Using big data analytics and artificial intelligence to detect patterns of market abuse that might be missed by traditional methods. These technologies can analyze vast amounts of data in real-time, providing early warnings of potential abuse.
Automated Reporting: Implementing automated reporting systems that reduce manual processes, increase accuracy, and provide timely information to regulatory authorities. This improves the overall efficiency of compliance and enforcement activities.
Blockchain Technology: Exploring the use of blockchain technology to enhance the transparency and traceability of transactions, making it more difficult for market abuse activities to go undetected.