Together with the Market Abuse Directive (MAD II), the Market Abuse Regulation (MAR) is now intended to supersede the existing Market Abuse Directive.
Together with the Market Abuse Directive for Financial Markets (2003), the REMIT (Regulation on Wholesale Energy Market Integrity and Transparency), which came into force in 2013, is intended to prevent market abuse on the financial and energy wholesale markets. Together with the Market Abuse Directive (MAD II), the Market Abuse Regulation (MAR), which was published in 2014 and which came into force on 3 July 2016, is now intended to supersede the existing Market Abuse Directive while expanding its scope to encompass a wide range of financial instruments and trading venues and adapting it to reflect the revised Markets in Financial Instruments Directive (MiFID II), which will be adopted in the near future.
This will also have consequences for the provisions of the German Securities Trading Act (WpHG). While MAR has already come into force, MAD II, which includes a strict catalogue of sanctions, still has to be transposed into national law. MAR and MAD II will intensify the existing regulations and duties with regard to market abuse and expand the scope of application to encompass new transactions and trading venues.
MAR now focuses on all instruments that are classified as financial instruments in accordance with MiFID II and traded on a "regulated market", an OTF (Organized Trading Facility) or an MTF (Multilateral Trading Facility). In addition, MAR applies to instruments that are not traded on the aforementioned markets but whose price depends on financial instruments that are traded on the aforementioned markets.
This has significant consequences, as finding financial instruments traded in the EU that are not covered by MAR or REMIT when it comes to the requirements to prevent market abuse is likely to become difficult. In particular, this affects a wide range of financial instruments found in a typical treasury. Small and medium-sized utility companies with additional financial instruments will also fall within the scope of MAR, as coal, oil and CO2 trading is also affected.
MAR introduces two main provisions for the financial instruments falling within the scope of the regulation:
The prohibition covers attempted market manipulation and incitement as well as actual market manipulation. The terms "insider trading" and "inside information" are defined for this purpose. This prohibition also extends to certain strategies, such as algorithmic trading or the deliberate placement and cancellation of limit orders. The duty of disclosure provides for the publication of inside information as well as proprietary trading by managers. Both of these provisions must be observed as soon as an entity trades in financial instruments covered by MAR that do not already fall within the scope of REMIT.
The extended scope of MAR, which came into force recently, compared with the Market Abuse Directive means that clients should start by performing an impact analysis as soon as possible in order to establish whether they have financial instruments that fall within the scope of MAR and/or trading operations at affected trading venues. Depending on whether this is the case, suitable measures should be implemented for the respective groups of transactions in order to meet the requirements of MAR. This mostly involves process-side adjustments in terms of trade settlement and the control environment, as well as employee training.
Ideally, the analysis should take into account whether financial instruments are concluded that are already affected by the older Market Abuse Directive or REMIT, i.e. wholesale products for electricity and gas. If an entity has financial instruments that are affected by MAR but not already covered by REMIT, it must examine the additional measures, processes and controls that need to be realised and implemented. It should also be noted that, although there is a defined demarcation between MAR and REMIT, the most recent information from the German Federal Financial Supervisory Authority (BaFin) states that MAR serves to intensify the provisions of REMIT and hence may override them in case of doubt. This could impede the operational implementation of MAR for gas and electricity trading.
If you require further information, please do not hesitate to contact Prof. Christian Debus at firstname.lastname@example.org.
Source: KPMG Corporate Treasury News, Edition 57, July 2016
Author: Bardia Nadjmabadi, Senior Manager, Finance Advisory, email@example.com
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