The EU market abuse regulation, where does it leave us?

Author:Andrew Haynes
Position:Department of Law, University of Wolverhampton, Wolverhampton, UK

Purpose The purpose of this paper is to provide an analysis of the market abuse regulation to determine whether the general assumption that it has made little difference to the pre-existing UK law on market abuse is accurate. In particular, the potential impact on compliance and behaviour in financial services firms and those who potentially receive inside information is considered. Design/methodology/approach The methodology adopted is a... (see full summary)

The EU market abuse regulation,
where does it leave us?
Andrew Haynes
Department of Law, University of Wolverhampton, Wolverhampton, UK
Purpose The purpose of this paper is to providean analysis of the market abuse regulation to determine
whether the general assumptionthat it has made little difference to the pre-existing UK law on market abuse
is accurate. In particular, the potential impact on compliance and behaviour in nancial servicesrms and
those who potentiallyreceive inside information is considered.
Design/methodology/approach The methodology adopted is a combination of critical analysis and
black letter law utilised to determine the content and potential impact of the market abuse regulation. A
process of discovery made more importantby the limited assistance given by the European Securities and
Markets Authority and the FinancialConduct Authority in terms of the guidance and denitions they have
Findings The new Regulation has a wider denitionof insider dealing than under the previous law, has a
wider application in terms of the nancial instruments that it applies to, has triggered signicant new
complianceand disclosure requirements and it also extends the law to new markets.
Research limitations/implications There are limitations in that the relevant regulatory bodies,
ESMA and the FCA have made littleeffort to clarify how they interpret the new Regulation.This is a serious
problem because in the case of the FCA, their view will impact on the approach they will take in future
Practical implications This paper provides the rst real analysis of the market abuse regulations
effect and shows that, if carefully analysed in context, it has a signicant impact on rms in the nancial
services sector and those engaged in activities which can put them in receipt of inside information. It will
cause an increasein relevant compliance and has signicant cost implicationsfor affected rms.
Social implications This is not really relevant here. There will be necessary changes to compliance
Originality/value The originalitystems from the fact that there appears to be little elsepublished which
has engaged in a sustained analysis of the impactand effect of the EU market abuse regulation on the UKs
nancialmarkets and those other rms who receive inside information.
Keywords Market abuse, Market manipulation, Insider dealing, Inside information,
New EU regulation, Unlawful disclosure
Paper type Research paper
Most of the market abuse regulation (the Regulation) came into force from 3rd July 2016,
whilst in the rest of the EU the European Directive on Criminal Sanctions for Market Abuse also
came into effect. In the UK the latter has not been adopted as the area was already covered by a
range of criminal laws such the existing insider dealing laws, sections 89-91 Financial Services
Act 2012, the Fraud Act 2006 and the offence of conspiracy to defraud[1]. The purpose of the
new Regulation was to create a level playing eld across the EU and thus avoid regulatory
arbitrage whilst continuing with the aim of protecting the integrity of the nancial markets and
to enhance investor condence based on the assurance that investors will be placed on an equal
footing and be protected from the misuse of inside information by those who possess it [2].
Journalof Financial Regulation
Vol.26 No. 4, 2018
pp. 482-504
© Emerald Publishing Limited
DOI 10.1108/JFRC-08-2017-0062
The current issue and full text archive of this journal is available on Emerald Insight at:
The Regulation itself[3] makes a number of predications, not all of them necessarily
consistent, stating that the purpose of the Regulation is to preserve market integrity, avoid
potential regulatory arbitrage, ensure legal accountability and provide for more legal
certainty and less regulatory complexity for market participants. It also provides for a
widening of the law to cover tradingfacilities which previously operated outside the law and
benchmarks. These are multilateral trading facilities (MTFs)[4] and organised trading
facilities (OTFs)[5] which are discussedbelow. In addition, OTC[6] contracts which are only
traded privately are also intended to be included where market abuse could impact on the
contract. The time at which the law can have an impact is brought forward and now
activates at the pointat which an application to trade is made Pinsent Masons (2016).
This article seeks to analyse the issues arising from the new Regulation and the
uncertainty left by both partsof the wording and the unwillingness of ESMA7and the FCA
to provide clearer guidance. This will be done by examining the wording of the relevant
parts of the Regulation and the limited guidancethat has been provided on it. The impact on
research, managersdisclosure requirements, Chinese walls and investment advice are all
considered to the extent necessary to illuminate the position under the new Regulation.
Those cases and enforcement actions that assist in interpretation are also considered and
this article thus considers the content and effects of the Regulation and theimpact which it
has on those operating in the market place.
The new law is based on the denition of nancial instrumentin the Markets in
Financial Instruments Directive II (MiFID II)[8] which is wider than its predecessor (see
below)[9], and there are also revisions to the stabilisation[10] and buy back regulations[11].
Stabilisation must involve the price being kept between certain limits and must only be
carried out for a limited period of time, with disclosure of relevant information. Buy backs
must involve full details being disclosed priorto the start of trading, reports being made to
the relevant authority and with subsequent disclosure to the public. In addition, certain
types of high frequency trading and abusive algorithms are banned because of their
potential for abusing markets.
In terms of its content, the Regulation replaces[12]the pre-existing market abuse regime
in the UK which consisted of s. 118 and s.123 (1) Financial Services and Markets Act 2000
(FSMA) with the criminaloffences of insider dealing[13], unlawful disclosure[14]and market
manipulation[15] with regard to a nancial instrument. As mentioned, in some respects
the denition has a wider meaningthan under the preceding law and also has a wider scope,
but on the other hand, the misleading statementsand marketdistortionelements of the
preceding law appear to have been repealed. This will be discussed later. The existing
criminal laws relating to insider dealing[16] are still in place in the UK but in addition the
connected FCA rules have been replaced and changes made to the FCA rules at Chapters 2
and 3 together with the Disclosure and Transparency Rules and the amended Code of
Market Conduct (MAR)[17]. It should be added that issuers whose securities have been
admitted to trading on an MTF, but no other marketin the EU, without their consent are still
subject to the EU market abuse,insider dealing and market manipulation laws but not tothe
disclosure, insider lists and the directorsand senior ofcerstransaction rules. Matters
become more complex if such an issuer then engages in own account dealing in relation to
the investments as the insiderdealing laws will potentially import.
The Regulation covers nancial instruments that are traded or for which a request to
trade has been made on an MTF, an OTF or a derivative wherethe price depends on one of
the above. Essentially, it extends the scope of the law in this area to new markets and
platforms and extends the range of behaviour caught by the law. In particular, it has
resulted in signicant new disclosure and compliance requirements. The Regulation also
EU market

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