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It’s a mad, mad world

The EU Parliament has voted to adopt the Market Abuse Regulation, completing the MAD 2 legislative package. Consisting of the Market Abuse Regulation (MAR) and the Criminal Sanctions Market Abuse Directive (CSMAD), the legislation will come into force 24 months after its publication in the OJ, expected in June, at which time the original MAD will be repealed. Member states will use this period to transpose the directive onto their respective national law- the UK has decided not to opt in[1] to the CSMAD and will therefore not be bound by its strictures and sanctions, but be subject to the Regulation. The MAD II reforms update and extend the 2003 MAD, a brief reminder of the hitherto-proposed highlights follows[2]:

  •   Intended to establish a harmonised regime of minimum criminal and administrative sanctions across the EU
  •  The MAD regime is extended to instruments trading on MTFs and OTFs as well as regulated markets- note that the extension will include OTC instruments. MAR will have extra-territorial application in the case of two third-party countries who trade with each other via a European trading facility
  •  “Inside information” is redefined as non-public information that a reasonable investor would regard as relevant when deciding the terms of a transaction. This lower threshold omits the previous criteria of precision and price sensitivity and a number of defences and safe harbours have been dropped. The new definition is likely to result in many commercially-adverse consequences and be subject to extended legal challenge and clarification.
  •  The cancellation or amendment of an order on the basis of inside information will be banned
  •  Commodities markets (spot ,derivatives and emission allowances) and HFT activity will be subject to closer scrutiny
  •  Market manipulation attempts will be prohibited, irrespective of their success or failure. The manipulation of benchmarks is explicitly included
  •  MAR competent authorities will be granted enhanced powers to access documents and compel disclosure

 In common with the vast majority of recent financial regulation, the MAR will compel firms to thoroughly interrogate existing processes and systems and it is likely to require significant expenditure on upgraded monitoring /compliance procedures and equipment. However, unlike the majority of recent financial regulation, the MAR is backed by an extensive menu of criminal sanctions.

[1] Under the Lisbon Treaty, the UK and Ireland have an opt in choice in matters of Justice and Home Affairs (see Protocol 21,p. 95-98).

[2] We will post a detailed UK-specific analysis on publication of the official text

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