Most of the rules relating to the new European market abuse regime, consisting of two main sets of rules namely Regulation (EU) No. 596/2014 of 16 April 2014 on market abuse (the Market Abuse Regulation) and Directive 2014/57/EU of 16 April 2014 on criminal sanctions for market abuse (the Market Abuse Directive II), have just entered into force.
Whereas the Market Abuse Regulation is directly applicable from 3 July 2016, the Market Abuse Directive II was due to be implemented into national law by the same date. However, its implementation into Luxembourg national legislation has been delayed and an initial draft law has not yet been submitted to the Luxembourg parliament. This newsflash will therefore focus only on the changes introduced by the Market Abuse Regulation, in particular for issuers of debt securities listed on the well-known Euro MTF market operated by the Luxembourg Stock Exchange.
Indeed, one of the key change introduced by the Market Abuse Regulation is the extension of the scope of the market abuse regime, which has applied for some time to issuers with debt securities admitted to trading on a regulated market, to issuers with debt securities traded on a multilateral trading facility (MTF) in an EU member state, or who have applied for admission to trading of their debt securities on an MTF, including the Euro MTF (Euro MTF Issuers).
Prior to the entry into force of the Market Abuse Regulation, Euro MTF Issuers were generally not subject to any of those disclosure requirements. For instance, the Rules and Regulations of the Luxembourg Stock Exchange (the Rules) merely provided for a broader defined obligations to disclose material information to the market in certain circumstances.1 However, issuers with debt securities traded on a regulated market have already been subject to these requirements for some time. With the entry into force of the Market Abuse Regulation, Euro MTF Issuers now also need to comply with the new requirements and implement the necessary procedures to ensure proper monitoring and compliance.
This newsflash focuses particularly on the three following ongoing reporting obligations which now apply to Euro MTF Issuers:
- Disclosure requirements of inside information;
- Insiders lists; and
- Notifications of transactions by persons discharging managerial responsibilities (PDMRs).
1. Disclosure of inside information
Euro MTF Issuers are now required to inform the public as soon as possible of inside information that directly concerns them.
1.1. What constitutes inside information
The Market Abuse Regulation defines “inside information” as information of a precise nature which has not been made public, relating, directly or indirectly, to one or more issuers of financial instruments or to one or more financial instruments, and which if it were made public, would be likely to have a significant effect on the prices of those financial instruments or on the price of related derivative financial instruments.
The Market Abuse Regulation now explicitly states that an intermediate step in a multi-step process may also constitute inside information if that intermediate step by itself satisfies the criteria for qualifying as inside information. It is anticipated that the following events, depending on the circumstances at hand, will probably constitute inside information:
- any circumstances that may impact the ability of an Euro MTF Issuer to meet its obligations under the relevant debt securities (e.g. the repayment of principal or the payment of interest);
- a significant improvement in the financial situation of an Euro MTF Issuer reducing the risk of default (e.g. an injection of capital through a capital increase);
- agreements and transactions that may have an impact on the creditworthiness of an Euro MTF Issuer (e.g. a majority shareholder’s withdrawal of liquidity or an injection of capital, or triggering a change-of-control provision in the debt securities’ terms);
- refinancing measures, if those measures affect the debt securities or the securities’ ranking; and
- an unscheduled redemption of the debt securities.
This list is non-exhaustive. Whether certain events or circumstances constitute inside information needs to be carefully assessed on a case-by-case basis, and they will generally be specific to the situation of a particular issuer. It is clear, however, that the scope of disclosure requirements is considerably extended from the previously applicable disclosure obligations in the Rules.
1.2. How to disclose inside information
Inside information must be publicly disclosed in a manner enabling the public’s fast access and complete, correct and timely assessment of the information. To ensure timely and consistent disclosure at all times, Euro MTF Issuers should use professional service providers to disclose and disseminate inside information. They must also disclose and ensure the maintenance of all inside information required for public disclosure on their websites for at least five years. Commission Implementing Regulation (EU) 2016/1055 of 29 June 2016 lays down the technical means for appropriate public disclosure of inside information.2
Under certain restrictive conditions Euro MTF Issuers may, on their own responsibility, delay the disclosure of inside information. This applies in particular when the Euro MTF Issuer has legitimate interests which an immediate disclosure would prejudice, where such delay will not be misleading for the public and provided that the Euro MTF Issuer is able to ensure the confidentiality of the information. Euro MTF Issuers must inform the relevant competent authorities if they decide to delay the disclosure of inside information3 and provide a written explanation of how the conditions for the delay were met immediately after the information is disclosed to the public.
2. Insider Lists
Euro MTF Issuers are now also required to prepare and keep up to date a list of all persons who have access to inside information. In particular, they must identify and maintain a list of all those who have access to inside information (including both their own employees and third parties performing tasks through which they have access to inside information, such as advisers and accountants). This list must be provided to the competent authority (such as the Commission de Surveillance du Secteur Financier (CSSF)) upon request and retained by the Euro MTF Issuer for at least five years after it is drawn up or updated.
An insider list must typically include (i) the identity of any person with access to inside information, (ii) the reason for including that person in the insider list, (iii) the date and time of day when that person obtained access to inside information, and (iv) the date when the insider list was prepared. Commission Implementing Regulation (EU) 2016/347 of 10 March 2016 lays down the precise format of insider lists.4
3. Managers’ Transactions
Euro MTF Issuers are from now on also required to ensure that transactions by PDMRs and persons closely associated with them (Managers’ Transactions) are publicly disclosed promptly, and no later than three business days after the transaction. They must prepare a list of all PDMRs and persons closely associated with them.
In practice, PDMRs or associated persons must notify the Euro MTF Issuer and the competent authority5 of every transaction conducted for their own account relating to debt securities issued by that Euro MTF Issuer (or any financial instruments linked to those debt securities). The notification of a Manager’s Transaction should include in particular (i) the person’s name, (ii) the reason for the notification, (iii) the issuer’s name, (iv) a description and the identifier of the financial instrument, and (v) the nature, date and place of the transaction. The Euro MTF Issuer must subsequently ensure that any notification of a Manager’s Transaction is publicly disclosed promptly, and no later than three business days after the transaction, in a manner enabling fast access to this information on a non-discriminatory basis.
The obligation to disclose a Manager’s Transaction only applies once the PDMR’s transactions have reached a cumulative EUR 5,000 in any calendar year (with no netting). This threshold may be increased to EUR 20,000 by the competent authority (it is not yet known whether the CSSF will increase this threshold).
The Market Abuse Regulation also introduces the concept of “closed period” for Euro MTF Issuers’ PDMRs. This means that during 30 calendar days before the publication of an interim financial report or a year-end report, a PDMR may not conduct transactions on its own or a third party’s account, directly or indirectly, relating to that Euro MTF Issuer’s debt securities, or to derivatives or other financial instruments linked to the debt securities (subject to certain limited exceptions).
Euro MTF Issuers or PDMR who breach the Market Abuse Regulation may be subject to administrative penalties, e.g. an order to cease and desist, a deprivation of profits or a public warning, as well as fines. Such decisions will in principle be published by the competent regulator, i.e. the CSSF in Luxembourg.
1 The Rules have recently been updated and this disclosure obligation has now been deleted in the context of the entry into force of the Market Abuse Regulation.
2 Commission Implementing Regulation (EU) 2016/1055 of 29 June 2016 laying down implementing technical standards with regard to the technical means for appropriate public disclosure of inside information and for delaying the public disclosure of inside information.
3 Commission Delegated Regulation (EU) 2016/522 further specifies the criteria for determining the relevant competent authority.
4 Commission Implementing Regulation (EU) 2016/347 of 10 March 2016 laying down implementing technical standards with regard to the precise format of insider lists and for updating insider lists.
5 The competent authority will be that of the Euro MTF Issuer’s registered office or, when the Euro MTF Issuer is not registered in a Member State, the competent authority of its home Member State within the meaning of Directive 2004/109/EC or in the absence thereof, the CSSF.