The view from OC
Late guidance meant a bit of a scramble for issuers, but market consensus has resolved many of the uncertainties
On 3 July 2016, the EU Market Abuse Regulation (MAR) finally came into effect, replacing the UK’s existing civil market abuse regime under the Financial Services and Markets Act 2000. The introduction of MAR in the UK was not particularly smooth, with finalised guidance coming out relatively late in the day, resulting in a bit of a scramble to get issuers ready for implementation day. The detailed requirements of MAR led to much
debate (and, at times, confusion) among issuers and their advisers, although we are now seeing a consensus of approach forming and clients generally becoming more comfortable with the nuances of MAR.
We recognise that this has not been an easy transition for many market participants, not least because MAR is supplemented by a raft of secondary, implementing regulations (including in relation to PDMR dealings and market soundings, for example) and further technical guidance from the European securities regulator, ESMA. As such, navigating the detail is not straightforward although, thankfully, helpful direction has been provided by both the Law Society and the CLLR in the form of Q&A (see below) and a template share dealing code issued by ICSA.
Our ECM team has spent much time with clients advising on the implementation of the necessary internal procedures (particularly around insider lists, identification of PDMRs, share dealing management etc.) to ensure compliance with MAR (and in the case of AIM quoted companies, the revised AIM Rules for Companies), as well real time, transactional situations. Many clients have already had cause to consider and adapt to the new, delayed disclosure regime and we would recommend early consultation with advisers as, in our experience, this has raised a number of challenges in practice.
One of the most significant changes introduced under MAR was the decision by the FCA to abolish the Model Code in its entirely, and with it, close periods double the length of the 30 day period prescribed by MAR. The ICSA template dealing code has resolved much of the uncertainty in the market around best practice in relation to the retention of extended close periods. Our guidance to issuers prior to the publication of the ICSA dealing code was that retention of Model Code-length close periods continued to represent prudent practice to protect PDMRS and issuers alike, and we are pleased that this was reflected in the ICSA code, which itself is becoming the market standard for both Main Market and AIM companies.
Finally, given the inconsistency of approach we have seen since July, we would like to remind issuers to ensure that any announcements containing inside information are clearly identified as such.
Below, we round up the post-implementation guidance that has been issued in relation to MAR.
Post-implementation guidance round up
FCA and AIM Regulation on preliminary announcements ending MAR close periods
One of the greatest areas of confusion in the run up to July was whether the 30 day mandatory close period prescribed by MAR in advance of the “announcement of the year-end results” of an issuer was ended by a preliminary announcement of those results (usually known as “prelims”). Prelims ended the Model Code close period for Main Market companies pre-MAR but (absent a specific derogation from AIM Regulation) the close period under the AIM Rules for Companies ended with the publication of an AIM company’s annual report, not the earlier prelims. In the worst case scenario, issuers
thought that the drafting of MAR might result in the need for two close periods (one before the announcement of the prelims, and one prior to the publication of the annual report).
The FCA put down an early marker in May that, as competent authority for MAR in the UK (and in the absence of guidance to the contrary from the EU) they would continue to treat prelims as ending the MAR year-end close period. AIM Regulation waited for the EU guidance, which was
eventually published through ESMA’s MAR Q&As on 13 July and which confirmed the FCA’s approach. Following ESMA’s confirmation, in early August AIM Regulation published an Inside AIM article which said “Given this clarification by ESMA, we do not consider it
necessary to amend the AIM Rules” to clarify that the FCA’s approach applied equally to AIM companies.
So, the position for both Main Market and AIM companies is that the year-end MAR close period is ended by a prelims announcement provided that, in ESMA’s words, the “preliminary financial results contain all the key information relating to the financial figures expected to be included in the year-end report.”
AIM Regulation MAR Q&A
On 2 August, AIM Regulation published a MAR FAQ page on its website. Amongst other topics, the FAQs deal with the application of MAR
to AIM companies, the Exchange’s approach to the dual regulation of AM companies by itself and the FCA, and the prelims issue discussed above.
It also clarifies that compliance with MAR does not automatically guarantee compliance with the AIM Rules, and vice versa.
CLLS/Law Society Joint Working Parties Q&As
The City of London Law Society and Law Society Company Law Committees’ Joint Working Parties (JWP) on Market Abuse, Share Plans and Takeovers Code have published two Q&As on MAR implementation issues.
The first Q&A, published in July, sets out suggestions for implementing various aspects of MAR. Amongst other points, the first Q&A address the following issues:
- Participation in rights issues etc.: whilst noting the uncertainty of the drafting, the Q&A sets out the JWP’s view that participation in bonus and rights issues is permissible during MAR close periods (being trading relating to “a qualification or entitlement to shares” for the purposes of Article 19(12) of MAR) provided that the transaction cannot be conducted at another time and the issuer gives clearance to deal.
- Participation in share schemes: the Q&A sets out detailed guidance on dealing under share schemes during MAR close periods. Very broadly speaking, where no decision to trade is made during a close period (e.g. acquisition of shares under a pre-planned SAYE scheme) dealing under share schemes during close periods is permitted.
- Advisers’ insider lists maintained on behalf of the issuer: staff of advisers to issuers need only be on the insider list
if they meet two tests:
- they are performing tasks through which they have access to
inside information on the issuer; and
- they are acting on behalf of or for the account of the issuer.
- they are performing tasks through which they have access to
The guidance goes on to state that “It is the deal teams and client-facing staff who generally should be included on the list, if they have access to inside information. Secretarial staff and other support staff who have access should also be included (although individuals with the ability to access IT systems but whose duties do not require them to access inside information do not need to be included unless they actually have accessed it). Senior management who receive management information or sit on review committees even if they are not involved in the transaction must be included.”
The second Q&A, published in August, looks at the interaction between MAR and common takeover-related arrangements, including the giving of irrevocable undertakings by directors. Of principal interest are Q&As on:
- Application of the market soundings/wall-crossing regime to seeking irrevocable undertakings: the Q&A confirms that seeking irrevocables from target shareholders (other than the target’s directors) will be subject to the MAR wall-crossing regime. Target directors are excluded because they will have already been involved in negotiating the form of the irrevocable (those negotiations being communications between the bidder and target and therefore outside the scope of the market soundings regime), and providing them with the final form of the irrevocable for execution is “merely ancillary” to prior communications.
- PDMRs satisfying irrevocables during a close period: discharging obligations under an irrevocable during a close period (i.e. accepting an offer) is permitted, provided the irrevocable undertaking itself has been given outside a close period. Helpfully, the JWP goes on to say that, “where a bid is announced at the same time as interims/prelims are released, irrevocables that have been signed and held in escrow for release at the time of the bid being announced will not be treated as being dealings during the immediately preceding closed period as they only become effective upon release from escrow (at which point the closed period has ended).“
- PDMRs accepting a contractual takeover offer (or undertaking to do so) during a close period: This is not generally permitted.
- PDMRs voting on a takeover by way of scheme (or undertaking to do so) during a close period: Voting in favour of a scheme or giving an irrevocable undertaking to do so during a close period is a voting, rather than a transactional, arrangement and so is permitted. However, where an irrevocable undertaking on a scheme includes an obligation to accept a contractual offer if the transaction structure is switched by the bidder, entering into the irrevocable undertaking should be treated in the same way as entering into an irrevocable undertaking in respect of a contractual offer, and so is generally prohibited during a close period.