The European Commission (EC) has released an updated version of the Market Abuse Directive (MAD), splitting the original MAD into a regulation and a directive that gives member states the power to impose criminal sanctions.
“By extending and reinforcing our legislative framework, as well as toughening up the powers and sanctions available to regulators, today’s proposals will equip them with the tools to keep markets clean and transparent,” said Michel Barnier, internal market and services commissioner, EC. “The updated proposals seek to align rules on market abuse and manipulation across EU member states.”
The EC has decided to transform the original MAD into a regulation – MAR – in order to address the lack of legal certainty related to MAD and close regulatory gaps. MAR will be accompanied by a separate directive that will give EU member states the ability to enforce market abuse rules through criminal sanctions.
Unlike a directive, a regulation does not give EC member states any scope to interpret the rules at the national level.
Noting that the original MAD had now been “outpaced” by the introduction of new trading venues, the updated MAR seeks to extends the scope of existing EU legislation to financial instruments only traded on multilateral trading facilities (MTFs), other organised trading facilities (OTFs) and over-the-counter (OTC) trading.
This will ensure that trading on all platforms will now be covered by market abuse legislation. It also clarifies which HFT strategies qualify as market abuse, such as quote stuffing.
The proposal includes a number of measures to guarantee regulators have access to the information they need to detect market abuse and extends suspicious transaction reporting to OTC transactions.
It also clarifies that regulators can obtain existing telephone and data traffic records from telecoms operators where there is a reasonable suspicion of insider dealing or market manipulation. It also grants competent authorities access to private documents or premises where there is a reasonable suspicion of insider dealing or market manipulation.
The accompanying directive defines insider dealing and market manipulation and allows member states to criminalise those that incite, aid and abet insider dealing and market manipulation.
A new offence of “attempted market manipulation” is also included in the proposal, making it possible for regulators to impose a sanction in cases where someone tries to manipulate the market but does not succeed.
According to the EC, an assessment of existing sanctions showed that the current regime lacks impact and is insufficiently dissuasive, resulting in an ineffective enforcement of MAD.
Initially introduced in 2003, the MAD was designed to increase investor confidence and market integrity by prohibiting individuals who possess inside information from trading on it. It was also intended to deter participants from spreading false information and deliberately entering trades to produce abnormal prices.
The proposal will now pass to the European Parliament and the Council for negotiation and adoption. Once adopted, market participants will have 24 months to prepare before it is enforced.