MAR in the UK: One Year On
On 3rd July, the Market Abuse Regulation (“MAR”) had its first anniversary. To mark the occasion, we interviewed Lucy Reeve, Counsel at Linklaters in London, to talk about how the market is dealing with the main challenges presented by MAR and to learn more about the practices that are developing in the market.
What have the main challenges been for companies implementing MAR in the UK?
On the one hand, companies had to review and implement procedures and controls for identifying when information becomes inside information and on the other, they have had to implement record-keeping and reporting where disclosure of inside information is delayed. While these don’t sound like significant changes, the reality is that they have been far fr om straightforward to implement.
Let’s go through these and see what market practices are emerging. If we start with inside information, how are you seeing companies implement the new requirements?
The need to specify the exact time and date when inside information first arises and to identify inside information as such when it is announced has led to more deliberation about what constitutes inside information. While identifying inside information is not an exact science, the key is that companies take a considered and consistent approach. Practically speaking, many companies have formalised disclosure committees and matter escalation procedures to ensure this is done.
When should companies use “this contains inside information” in their regulatory announcements and what are the implications?
Treating information as if it is inside information, even when it is not, can be the prudent thing to do. We would not however recommend using the “this contains inside information” rubric as a default as it could set an unhelpful precedent for the future. It is worth noting that fr om October, changes to DTR 6 mean that issuers in regulated markets will need to classify announcements containing inside information according to OAM categories (Morningstar in the UK) in addition to mentioning it in the announcement itself.
Companies also need to remember that badging an announcement as containing inside information means they should be able to demonstrate that it was announced as soon as possible or that there was a legitimate interest reason for delaying. If disclosure was delayed, companies should ensure that they had an insider list, that the FCA was notified of the delay in disclosure and that the requisite records were kept of when the inside information first arose.
Under what circumstances has the FCA been launching inquiries?
It has become increasingly common for the FCA to launch inquiries after significant announcements, particularly if an announcement triggers a price movement. This does not necessarily mean that the FCA thinks the company has done anything wrong, just that it merits the FCA having a more detailed look at the circumstances. Typically companies are asked to provide a copy of their insider list and a detailed chronology of events leading up to the announcement.
What is now the situation with regard to delayed disclosure of inside information?
Recently, the FCA adopted the ESMA guidance on delaying disclosure in full and confirmed that it will treat it as an indicative, non-exhaustive list of the circumstances in which an issuer may have a legitimate interest to protect in delaying disclosure. While this is a change fr om the pre-MAR position, where in practice delay was only allowed wh ere ongoing negotiations would be likely to be prejudiced by early disclosure, we don’t expect to see any major change in market practice. This is because if a company was relying on a reason which is not reflected in the ESMA guidance, they would risk the FCA not agreeing that they had a legitimate interest in delaying.
How are companies dealing with their financial results announcements?
Wh ere results are out of line with market expectation, companies should still make an announcement (e.g. a profit warning) as soon as possible. Wh ere results are in line with market expectation practice varies, but there are two schools of thought on this issue. One is that results that are in line with market expectations do comprise inside information, but that the need to preserve an orderly reporting framework gives a legitimate interest to delay for a short period, even though this is not mentioned in the ESMA guidance on legitimate interests and other European markets are applying this differently.
The other view, which is the approach Linklaters takes, is that results in line with expectations are not inside information and so there is no delay in disclosure. It may nevertheless be prudent to put in place controls and restrictions in the same way as you would if they were inside information. Either way, announcements are made on a scheduled date. The difference is in the records that are kept, the rubric on the announcement and whether the FCA is notified of a delay in disclosure.
What does “as soon as possible” mean?
If delay is not permitted, inside information must be announced “as soon as possible”. This is not new. However, the need to record the time and date when inside information first arises puts any gap between that time and the announcement under scrutiny. In practice, the FCA guidance says that a short delay is permissible to verify the facts, but in most cases issuers should be making an announcement within hours, if not minutes.
When something becomes inside information out of market hours, in the past market practice has been to announce at 7am when the market opens the next working day. Yet the trend seems to be in the direction of announcing sooner rather than later to comply with the regulation. This is particularly relevant as MAR doesn’t include the concept of a Regulatory Information Service (“RIS”) not being open for business and therefore separate “after hour” procedures existing. While not all of the FCA-approved RISs allow announcements at any time due to office hours, providers like EQS provide solutions to disseminate news 24/7.
Until regulators clarify one way or another, issuers need to consider the timing of announcements on a case-by-case basis, with input from their advisers. Those with another listing in another time zone may be more likely to announce out of hours, as they need to juggle two sets of disclosure rules and keep investors operating in two different markets informed.
How are companies managing their insider lists?
Many companies started managing their insider lists using programmes like Excel, which are not designed for insider list management and audit trails, data collection and data security have proven to be particular challenges. Consequently, many companies are opting to use external solutions such as the one provided by EQS to ensure compliance with MAR and be ready for any requests from the regulator.
Are companies disclosing sufficient information in relation to share buybacks?
To qualify for the safe harbour for share buyback programmes, extensive information has to be announced to the market, reported to the FCA and put on the company’s website for five years. This includes a detailed breakdown, trade by trade: something that not all companies appear to be including in their post-trade announcements. In terms of practical guidance, when implementing a share buyback programme, companies should be clear at the outset about what has to be announced and who will be responsible for providing the necessary data (i.e. the broker or the company). If the buyback programme is being operated by a broker acting as principal, as is commonly the case, details of the broker’s trades in the market may also need to be announced as well as the trade between the broker and the company.
Will Brexit have any impact on the current regime?
The Great Repeal Bill provides for EU regulations including MAR to continue to apply to UK-listed companies when the UK leaves the EU. The Government will have power to fix deficiencies in the way the law works which arise because of Brexit, but there are unlikely to be any material changes to the way MAR operates so far as issuers are concerned.