The European Commission (EC) has published responses to its public consultation on the Market Abuse Directive (MAD), with respondents expressing broad support for clarification of the rules that affect manipulation of equity markets and governance of trading venues.
The MAD is intended to harmonise the regulatory approach to market manipulation and insider dealing in Europe.
The consultation was opened to address concerns about regulatory gaps which had appeared. As the original rules had been published in 2003 they did not address the pan-European market that was established by MiFID in November 2007. The consultation, which has received 90 responses, opened on 28 June 2010 and closed on 23 July 2010.
The EC requested feedback on a number of issues, including proposals to extend MiFID provisions to cover attempts to manipulate the market, alterations to the definition of inside information for commodity derivatives, the perceived imbalance between regulation of MTFs and regulated markets, whether the regime for SMEs information disclosure should be altered, and the role and powers of the new European Securities and Markets Authority (ESMA) in enforcement of rules.
The Commission also asked whether participants were in favour of a single European rulebook, and whether it is necessary to further clarify the obligations of market operators to better prevent market abuse.
As previously reported, the Association for Financial Markets in Europe, the British Bankers Association and International Swaps and Derivatives Association backed the extension of the market manipulation directive to attempted activity. This would mean the intention to manipulate the market could be dealt with, regardless of whether or not it succeeded.
Exchange groups NYSE Euronext and the London Stock Exchange (LSE) also expressed support, but insisted on the need for clearer definitions of the offence. Multilateral trading facility (MTF) Chi-X Europe concurred with the exchanges on both points saying, “The present regime is effects-based, the extension should allow for enforcement actions in situations where an attempt has been made but where there has been no detrimental effect. This should increase the deterrent effect.”
Industry associations the Investment Management Association (IMA), Futures and Options Association and Alternative Investment Management Association were also supportive of an extension of MiFID to cover attempted manipulation.
However, while broadly in favour of a move towards a single rulebook across all member states, which would eliminate some options and discretions currently available in implementation of the regulation, the associations expressed concern that a single rulebook should not overwrite countries' individual discretion, especially where this might undermine the application of higher-than-usual standards. The IMA noted, “We would not like to see a lowest common denominator approach to harmonisation.”
The LSE concurred with this sentiment, saying that it considered the UK rules under which it is regulated to be rigorous. NYSE Euronext expressed support for ESMA in managing the unified approach, “As a result of MiFID, market fragmentation makes it more difficult for one operator to see the market as a whole.”
On the clarification of obligations for market operators, both exchanges and associations were agreed that that there should be a clear definition of execution venues, including MTFs, systematic internalisers and broker crossing networks. Chi-X agreed with the principle of equal requirements, and expressed some puzzlement that there was an uneven playing field. “The same standards in respect of obligations of market operators to prevent and detect market abuse should apply to both RMs and MTFs; this is already the case for some markets, and is required in the UK. It is not clear which Member States do not require this.”
The EC has said that it intends to release its final proposal on MAD by the end of the year.