The reform of market abuse law by the EU, which will directly enter into force as a Regulation on July 03, 2016 without further transposition by the German legislators will replace current German by European capital market law. The new rules are more complex and sanctions impending when violating those rules will be stricter than to date. With a view to the forthcoming change of the legal situation, this article provides an initial, albeit not complete, overview of some of the major changes.
Expanded scope of application
First of all, the Market Abuse Regulation (“MAR”) expands the scope of regulations. Whereas until now the stipulations set by the German Securities Trading Act only had to be complied with by issuers traded on the regulated market, the provisions of MAR will now also apply at least for those issuers that are traded in eligible OTC segments such as the Entry Standard in Frankfurt or the m:access in Munich. As of July 3, 2016, issuers that downlisted into these OTC segments in the past to reduce the regulatory organizational efforts and cost required in the regulated market will therefore have again the same level as prior to their downlisting and thus their goal is not really achieved.
The replacement of the Securities Trading Act by the MAR mainly concerns Ad hoc disclosure, insider trading law, and the rules on managers' transactions.Ad hoc disclosure
Current Section 15 Securities Trading Act is being replaced by Article 17 MAR.
The term inside information in the MAR largely corresponds to the existing terminology in the Securities Trading Act. Ad hoc disclosures must now specify, however, not only the date but also the time of the report and must be maintained on the issuer’s website and in the company register for a total of 5 years instead of the previously necessary one month, which will require issuers to change their practices.
The exemption option of postponing the Ad hoc disclosure will also be intensified. Both in the event of information leakage and of sufficiently precise rumors in the market the exemption option does not hold status anymore. Details will arise from a regulation to be adopted by the European Commission, in which an extension of the documentation requirements necessary for making use of the exemption option is expected as well. This will again require a change of issuers’ practices.Insider trading law
The future maintaining of insider lists by issuers will also undergo massive changes. Current Section 15b Securities Trading Act is being replaced by Article 18 MAR.
Thus the template lists previously provided by BaFin cannot be used for a correct list of insiders anymore. In the meantime, European Securities and Markets Authority (“ESMA”) that is now in charge of these issues has submitted a template that is provided as an annex in the link below: http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32016R0347
The template shows that simply the amount of information according to which an insider list must be kept under the MAR has significantly expanded. The same applies to issuers’ instruction duties. Again, issuers concerned need to adjust their practice in the short term.Managers' transactions
The situation is similar with regard to managers’ transactions. Current Section 15a Securities Trading Act is being replaced by Article 19 MAR. This will, among others, expand the terminology of managers’ transactions. Gifts or inheritance of shares is now also a case of managers' transactions (Article 19 MAR).
New templates need to be used here as well. ESMA has provided a template that is found in the annex to the following link: http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32016R0523
This template also calls for extensive expansion compared to current practice. Not only managers are to be instructed in writing, but they must in turn inform their related parties and document this accordingly.
In addition, a “closed period” will be introduced. Accordingly, managers’ transactions are prohibited in a period of 30 days prior to the publication of issuers’ interim or annual financial reports. Issuers should instruct its managers about this requirement quickly as well because the MAR includes significantly enhanced penalties.Tightened sanctions
The previous framework of fines will not only be significantly increased in total. It may now for the first time be assessed on the basis of consolidated revenue of the issuers who have committed the violation.
Moreover, “naming and shaming” will now be introduced. BaFin will not only impose fines as previously, but on its website will also publish the identity of the person concerned, together with the type and nature of the breach for a period of five years.
This selective presentation alone shows that issuers affected by the amendments in the law will not only have to address many unanswered questions, but will also face a lot of changes that need to be implemented.