New Market Abuse Legislation

On 3 July 2016, the market abuse obligations and prohibitions provided in the updated EU legislation became applicable(1). The new set of legislation is composed at level 1 of a Regulation ("MAR") and of a Directive ("MAD 2").

Although many concepts used in the previous market abuse directive(2) ("MAD 1") continue to be covered in MAR and MAD 2, there are some important changes.

The extended scope of application is one of these novelties. The new market abuse legislation applies to financial instruments admitted to trading, not only on the EU-regulated markets (e.g. the Luxembourg Stock Exchange), but also on the MTF(3) and OTF(4). The scope of coverage also expands to certain financial instruments traded over-the-counter (OTC) and financial instruments traded pursuant to the EU Regulation on emission allowance(5). Any transaction, order or behaviour concerning the financial instruments referred to above is targeted, even if any such transaction, order or behaviour does not take place on a trading venue.

MAD 1 was transposed into Luxembourg law by the Law dated 9 May 2006 on market abuse ("Market Abuse Law").

Although the repealing of MAD 1 by MAR, the Market Abuse Law is not yet formally repealed. As a consequence, the Market Abuse Law and MAR coexist and the new requirements provided by MAR must be complied with as from 3 July 2016. In the Press Release 16/31, the CSSF has inserted a link to a substitution table, which lists the relevant provisions of the Market Abuse Regulation and of the Market Abuse Law.

In addition, in the same Press Release, the CSSF indicates that new circulars and/or FAQs could be issued in the future in order to detail the application of the new market abuse framework by the CSSF in Luxembourg.

This clarification exercise by the CSSF is awaited by the industry and by the investment fund industry in particular. Indeed, in Circular 07/280 (as amended by Circular CSSF 07/323), flexibility was given to certain listed UCIs and their management as regards the compliance with obligations of the Market Abuse Law, such as the obligations (i) to publicly disclose inside information, (ii) to draw up lists of insiders, (iii) to notify managers’ transactions, and (iv) to report suspicious transactions. In this particular Circular, published in 2007, the CSSF stated that the practical impact of such obligations should remain limited for largely diversified UCIs which publish their NAV on a daily or very frequent basis where, as a result, the market price is closely linked to the applicable NAV.

Given that MAR is a regulation (with direct application) which extends and strengthens the previous MAD 1 requirements, investment funds falling within the scope of the new market abuse legislation and their management may no longer benefit from the flexibility expressed in the aforesaid CSSF Circular 07/280 and may need to take measures in order to comply with the MAR obligations applying to them, e.g.:

  • to detect and report market abuse(6);
  • to adopt a Dealing Policy and/or to amend it;
  • to set up an Insider List Policy and/or complete it.

Also, persons discharging managerial responsibilities (including board members) and persons closely associated with them will have to comply with the transactions notification obligation when they invest in shares or other instruments issued by the investment fund.

(1) Some provisions related to organised trading facilities (OTFs), SME growth markets and emissions allowances will only become applicable on 1 January 2017.
(2) Directive 2003/6/CE on insider dealings and market manipulations is repealed as from 3 July 2016.
(3) "MTF" refers to multilateral trading facilities, which are the local trading venues regulated at the national level.
(4) "OTF" refers to organised trading facilities that may be formed under the recast MiFID Directive (2014/65/EU).
(5) MAR also partially applies to certain spot commodity contracts and to other types of financial instruments (including derivative contracts and instruments which will have an effect on the price or value of a spot commodity contract).
(6) In the MAR Q&A published in June 2016, ESMA confirms that UCITS management companies and AIFMs must comply with this obligation.