On October 20, the European Securities and Markets Authority (ESMA) published guidelines (Guidelines) on receiving market soundings (also commonly known as being “wall crossed,”) under the EU Market Abuse Regulation (MAR). The Guidelines apply to EU regulators and persons receiving a market sounding (MSR) wherever in the world they are located. They seek to ensure consistent and uniform approaches on the factors, steps and records MSRs are required to implement under MAR. The Guidelines are divided into six sections covering: 1) internal procedures and staff training; 2) notifications when MSRs do not want to receive future market soundings; 3) assessments of possession and ceasing to possess inside information as a result of a market sounding; 4) assessments of related financial instruments; 5) written minutes or notes; and 6) record keeping. 

Internal Procedures and Staff Training

The Guidelines specify that MSRs should implement internal procedures and staff training to ensure that: 1) the market participant who is disclosing a market sounding (DMP) is made aware of the MSR’s designated contact point for receiving market soundings; 2) information received as part of market sounding is communicated on a “need-to-know” basis internally, through predetermined reporting channels; 3) the persons responsible for assessing whether an MSR is in possession of inside information are properly trained; and 4) the flow of inside information is managed and controlled. The Guidelines state that staff receiving and processing inside information from a market sounding must be trained on the MSR’s procedures, and also on the MAR prohibitions on insider dealing and unlawful disclosure of inside information.

Notifications to DMPs on Future Market Soundings

The Guidelines state that MSRs should notify DMPs that have contacted them if they do not want to receive other market soundings (in respect of all future transactions or certain types).

Assessments on Possession and Ceasing To Possess Inside Information

When independently assessing whether an MSR is: 1) in possession of inside information; and/or 2) no longer in possession of inside information, the Guidelines clarify that MSRs should consider all information available to them (including the DMP’s assessment, and from other sources). The Guidelines also state that the individual, function or body responsible for making those assessments assessment must not be required to breach information barriers established by the MSR.

Assessments of Related Financial Instruments

Where a MSR determines it is in possession of inside information as a result of a market sounding, the Guidelines state that the MSR also should identify all issuers and financial instruments that the inside information relates to.

Written Minutes or Notes

The Guidelines state that MSR’s should reconcile their internal minutes or notes of unrecorded meetings and or unrecorded phone conversations with those of the DMP. The Guidelines state that on receipt of the DMP’s internal minutes or notes, MSR’s should either 1) sign those minutes or notes to indicate their agreement; or 2) provide signed versions of their own minutes or notes where they do not agree with the DMP’s content.

Record Keeping  

The Guidelines state that MSR’s should to keep records of: 1) internal market sounding procedures; 2) notifications to DMPs on future market soundings; 3) assessments of possession and ceasing to possess inside information; and 4) assessments of related financial instruments; and 5) contractors and employees with access to information communicated during a market sounding (listed in chronological order for each sounding), in a durable, accessible and readable form, for at least five years.

Next steps are for EU regulators to confirm whether they intend to comply with the Guidelines. The Guidelines otherwise will go into effect on December 20, 2016.

The Guidelines can be found here.