Insights

Market Abuse Directive/Regulation

On 15 July 2014, the European Securities and Markets Authority (ESMA) issued a consultation on the new Market Abuse Regulation (MAR) which entered into force on 2 July 2014.

In its press release, ESMA explained that to assist in developing the implementation of the new MAR framework which will become applicable in July 2016, it is issuing two consultation papers seeking stakeholders’ views on the draft regulatory and implementing technical standards (RTS/ITS) and Technical Advice (TA).

The new Market Abuse Regime

The purpose of the new Market Abuse regime is to ensure that regulation and practice stays abreast of and pre-empts potential abusive behaviour enabled by new technologies in financial markets, including new trading platforms.

To deter market manipulation and increase the level of investor protection, ESMA’s draft RTS/ITS and TA apply MAR to new products, venues and trading techniques and address transparency and governance issues. They also anticipate the scenario that market manipulation of financial instruments may occur by not executing orders which have been placed, as well as by executing transactions on a trading venue, or across different venues. 

ESMA’s draft technical advice on possible delegated acts concerning the Market Abuse Regulation

Technical provisions

Another scenario anticipated by the standards is that a financial instrument may be manipulated through behaviour occurring outside a trading venue or within an automated trading environment through the use of electronic means of trading, such as algorithms including high frequency trading strategies. ESMA’s standards update and strengthen the existing framework by defining how to address these new markets and trading strategies and by introducing new requirements.

The draft ESMA RTS/ITS and TA cover the following key areas:

  • market manipulation indicators;
  • prevention and detection of market abuse, including suspicious transactions and order reporting;
  • accepted market practices;
  • market soundings;
  • conditions for and disclosure of buy-back programmes and transaction stabilisation;
  • disclosure of managers’ transactions;
  • provisions for insider lists;
  • disclosure of inside information, including possible exemptions and delays; and
  • investment recommendations or other information recommending or suggesting an investment strategy by staff, including the avoidance of conflicts of interests.

Next steps

Both Consultation Papers are open for feedback until 15 October 2014. In addition, ESMA is hosting an open hearing in Paris in early October 2014. ESMA will use the answers received to draft its final RTS/ITS and TA on MAR and send them for endorsement to the European Commission. ESMA has twelve months to finalise its RTS and ITS and eight months for the TA.

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