Market Abuse Regulation: AIM Regulation consults on rule changes

Written on 14 Apr 2016

AIM Regulation has published AIM Notice 44, in which it consults on changes to the AIM Rules for Companies required in light of the introduction of the Market Abuse Regulation from 3 July 2016.

What is MAR? A reminder

MAR is a European regulation which implements a harmonised EU-wide market abuse regime, replacing the existing Market Abuse Directive. In addition to prescribing market abuse offences, MAR deals with:

  • the management and disclosure of inside information (currently set out in Disclosure and Transparency Rule (DTR) 2 for Main Market companies and AIM Rule 11 for AIM companies)
  • the maintenance of insider lists
  • the PDMR dealing notification regime (currently set out in DTR 3 and, for directors of AIM companies, AIM Rule 17)

MAR’s extended regulatory reach means that, for the first time, the control and disclosure of inside information, maintenance of insider lists and PDMR dealing notification in respect of AIM companies will be governed by MAR and enforced by the FCA.

Further background on MAR can be found here.

Disclosure of price sensitive information: AIM Rule 11

AIM Regulation is proposing to retain AIM Rule 11, which requires AIM companies to publish price sensitive information without delay. MAR contains a broadly equivalent obligation with which AIM companies will be required to comply.

The disclosure obligation in Rule 11 is, in some respects, stricter than the MAR disclosure obligation, principally because the MAR rules provide for a wider scope of situations in which the disclosure of price sensitive information may be delayed. If implemented, this policy will mean that, in the words of AIM Regulation “compliance with MAR [will] not mean that an AIM company will have satisfied its obligations under the AIM Rules and vice versa“. Whilst this dual regulation is in some respects unhelpful for AIM companies and their advisers, we think it is unlikely that there will be many instances where an analysis of each set of rules would lead to a different decision as to whether or not an announcement is required. However, AIM companies will need to be mindful of the obligation under MAR to provide information to the FCA on request relating to the decision to delay disclosure under the MAR framework (summarised here).

Disclosure of directors’ dealings: AIM Rule 17

MAR implements a disclosure regime broadly equivalent to the existing PDMR notification regime for Main Market companies under DTR 3 (DTR 3 itself implementing the Market Abuse Directive, MAR’s predecessor). Under MAR, PDMRs must notify the issuer promptly (and in any event within three days) of every transaction relating to issuer’s financial instruments (or related derivatives) conducted by:

  • the PDMR
  • their closely associated persons (CAPs):
    • spouse/civil partners
    • dependent children
    • relatives living in same household for at least one year prior to transaction
    • companies/trusts etc. benefitting and managed by any of the above

The issuer is then obliged to publish the notification promptly and in any event with three days. Both notification and publication must be made using a prescribed form, which can be found here.

In light of this MAR obligation, AIM Rule 17 will be amended to remove the requirement for directors to disclose dealings in AIM securities, and new guidance will be included to Rule 17 flagging the notification requirement under MAR.

Who are a company’s PDMRs?

PDMRs (or persons discharging managerial responsibility) are:

  • members of the issuer’s board
  • other senior managers who have:
    • regular access to inside information; and
    • the power to take managerial decisions affecting the future developments and business prospects of that entity

Usually, the first tier of non-board management are treated as PDMRs (sometimes referred to as the “executive” or “management” board). For AIM companies (and smaller Main Market companies), there may be no-one in senior management category, but issuers are best to err on the side of caution when determining their PDMRs. General counsel are generally not considered to be PDMRs, although the analysis is always fact-specific.

Restrictions on dealings: AIM Rule 21

Under AIM Rule 21, directors and employees likely to be in possession of unpublished price sensitive information are restricted from dealing in the company’s shares and related financial instruments during the two months prior the publication of its half year and full year results, and at any other time when the AIM company is in possession of unpublished price sensitive information.

MAR prescribes a mandatory close period of 30 days prior to the publication of a company annual and half year reports (it is currently unclear whether or not a company’s preliminary announcement could constitute its “annual report” for these purposes – further guidance is awaited from the FCA on this).

In light of the overlap between the MAR obligation and the existing scope of AIM Rule 21, AIM Regulation is proposing to replace AIM Rule 21 with an obligation for AIM companies to adopt a dealing policy. Whilst AIM Regulation does “not intend to prescribe the detailed content of the dealing policy“, it does “propose to set out the minimum provisions that [AIM Regulation] would expect to see in the policy“.

AIM companies will need to update the existing dealing policies to reflect this guidance (when issued) – it is likely that AIM Regulation’s approach will be influenced by the awaited FCA policy decision on the future of the Model Code in light of the mandatory close periods prescribed by MAR. The FCA is currently consulting on whether to retain Model Code as guidance for Main Market companies in granting clearance to deal outside MAR close periods, effectively reintroducing super-equivalent extended close periods. Various bodies have voiced concerns with the FCA’s approach (including the GC100, the QCA and City of London Law Society), some of whom have suggested that companies should be left to determine their own dealing policies.

Further guidance

In the notice, AIM Regulation indicates that further guidance will be issued through Inside AIM and that it will maintain a MAR FAQ section on its website.

Click here for our summary of the actions that both AIM companies and Main Market companies should be thinking about now in order to comply with MAR from 3 July 2016.

Source: AIM Notice 44 and marked-up AIM Rules for Companies