The Committee of European Securities (CESR) has called for a more consistent application of the market abuse directive (MAD) across the continent’s multilateral trading facilities (MTFs) following a review of the directive’s implementation by EU member states.
While MAD affords member jurisdictions certain options and discretions when applying the directive, CESR, whose job is to ensure regulatory uniformity across EU member states, is recommending that greater convergence is applied as part of the European Commission’s ongoing review of MAD.
The European Commission implemented MAD in 2005 to harmonise the monitoring of abusive trading practices across EU member states.
CESR said its study, conducted by its review panel, uncovered the greatest level of divergence for how the MAD was applied across MTFs, noting that four CESR members applied the full set of MAD rules to MTFs, while others only apply part of the regime to alternative venues. The report also showed that nine out of CESR’s 29 members do not apply the MAD regime to MTFs.
“The results of this review panel work clearly show that use of options and discretions allowed by MAD, though legitimate, are a real source of divergence across CESR members,” said Carlos Tavares, vice-chair of CESR, chair of Portuguese regulatory body Comissão do Mercado de Valores Mobiliários (CMVM) and chair of the review panel, in a statement. “The [Market Abuse Directive] work allows CESR to identify those areas where it is within our members’ power to bring about further harmonisation and where we might focus future efforts more effectively. It also allows legislators to identify the necessary regulatory actions to achieve convergence and a real level playing field.”
The divergences between CESR’s members include the fact that some regulators publish every measure or sanction on market abuse while others do not, and variations in suspicious transaction reports, including whether additional guidance has been issued and the handling of over-the-counter (OTC) derivatives in these reports.
Based on its findings in the review, CESR has proposed that it conduct further work to increase convergence, including further efforts on the extension of MAD to MTFs – once the European Commission has looked at this issue in its review. It has also recommended that member states encourage the inclusion of OTC derivatives in suspicious transaction reports, where the underlying asset is traded on a regulated market, until it becomes mandatory due to changes to MAD.
The work conducted by the review panel will be presented to CESR-Pol, the committee’s policy group dealing with market abuse, for further consideration and to the European Commission as input into its MAD review.