The European Commission has published its proposals for the revision of the Market Abuse Directive (2003/6/EC) (MAD). The proposals consist of a directly applicable Regulation to replace MAD (the proposed Regulation) and a Directive containing additional requirements for parallel criminal offences (the proposed Directive).

The proposed Regulation and the Derivative will be considered further by the European Parliament and the Council of the European Union, providing the opportunity for lobbying by industry representatives and others on issues of concern.

The proposed Regulation is broader in scope than MAD. It applies to actions relating to a broad range of derivatives and also includes various over-the-counter transactions.

The proposed definition of inside information is extended to cover information which is not publicly available, and which may be considered relevant by investors without any specific requirement for the information concerned to be price sensitive.

The expansion of the definition of inside information, and of the range of instruments covered would permit enforcement action to be brought for conduct outside of the current scope of MAD. Liability under the proposed Directive and Regulation can be mitigated if firms have effective systems in place to prevent individuals holding inside information from transmitting it to others making decisions about transactions. This formally validates and requires information barriers (so called “Chinese walls”).

The proposed Regulation covers attempted market manipulation, enabling sanctions to be imposed for a failed attempt to manipulate the market. Attempted insider dealing is already covered under MAD.

The proposed Directive contains new criminal sanctions for insider dealing and market manipulation. Member states may prescribe other misconduct as a criminal offence but, at a minimum, criminal sanctions must be enacted for committing and attempting insider dealing and market manipulation.

To encourage reporting of market abuse, the proposed Directive and Regulation require member states to have appropriate safeguards for any “whistleblower” who reports potential or actual breaches.

To review the press release, click here.

In a linked development, the United Kingdom’s government (the UK government) published The Financial Services and Markets Act 2000 (Market Abuse) Regulations 2011 on December 8.

When the UK government implemented MAD, it retained certain UK anti-market abuse prohibitions which went beyond the narrower prohibitions in MAD. These sections were subject to a sunset clause, pending the outcome of a review by Her Majesty’s Treasury (HM Treasury) to assess whether they remained justified. The sunset provisions were extended in 2008 and again in December 2009 to allow any changes to align with the outcome of the ongoing, but delayed, European Union review of MAD. The sunset provisions are due to expire on December 31, 2011. With the publication of the proposals described above, HM Treasury has decided to extend those provisions once more until December 31, 2014, to reflect the existing policy of aligning them with the outcome of the MAD review, which is expected to take approximately three years to come into effect across member states.

For more information, click here.