European Union: EU Market Abuse Regulation Countdown - Are You Ready? Part II: Directors' And Senior Managers' Dealings

The new EU Market Abuse Regulation (MAR)1 will take direct effect across EU member states from 3 July 2016 onwards. It will not only extend the market abuse regime to issuers of securities traded on multilateral and organised trading facilities (ie non-EU regulated markets), but will also bring about significant changes to the reporting of directors' and senior managers' dealings.

1. In-scope persons, instruments and transactions – Key changes

As under the current market abuse framework, persons discharging managerial responsibilities ("PDMR"), as well as persons closely associated with such persons (the "Associated Persons"), will be obliged to publicly disclose any transactions conducted on their own account above an annual threshold. Key changes / clarifications under MAR include:

  1. Persons: Disclosure obligations will be extended beyond PDMR of an issuer to also cover (i) PDMR of an emission allowance market participant, or (ii) of an auction platform, auctioneer and auction monitor involved in the auctions held under Regulation (EU) No 1031/2010, in so far as their transactions involve emission allowances, derivatives thereof, or auctioned products based thereon;
  2. Instruments: from 3 July 2016 onwards, covered instruments ("Covered Instruments") will include

    • shares, derivatives or other financial instruments linked thereto (in respect of issuers);
    • debt instruments, derivatives or other financial instruments linked thereto (in respect of issuers);
    • emission allowances, auction products based thereon or derivatives relating thereto (in respect of emission allowance market participants).
  3. Transactions: The scope of notifiable transactions will be significantly extended and will include, amongst others2:

    • acquisition, disposal, short sale, subscription or exchange of Covered Instruments;
    • pledges of Covered Instruments. However, a pledge, or a similar security interest of financial instruments in connection with the depositing of the financial instruments in a custody account, will not need to be notified, if and until it is designated to secure a specific credit facility;
    • borrowing or lending of shares or debt instruments of the issuer, or derivatives or other financial instruments linked thereto;
    • acceptance or exercise of a stock option, and the disposal of shares stemming from the exercise of a stock option;
    • entering into or exercise of equity swaps;
    • transactions in or related to derivatives, including cash-settled transaction;
    • entering into a contract for difference on a financial instrument of the concerned issuer, or on emission allowances or auction products based thereon;
    • acquisition, disposal or exercise of rights, including put and call options, and warrants;
    • subscription to a capital increase or debt instrument issuance;
    • transactions undertaken by intermediaries acting on behalf of a PDMR or an Associated Person, including where discretion is exercised such as eg under an individual portfolio or asset management mandate;
    • transactions made under a life insurance policy where the investment risk is borne by the policyholder, and the policyholder has the power or discretion to make investment decisions regarding specific instruments in that life insurance policy, or to execute transactions regarding specific instruments for that life insurance policy;
    • transactions in derivatives and financial instruments linked to a debt instrument of the concerned issuer, including credit default swaps;
    • conditional transactions upon the occurrence of the conditions and actual execution of the transactions;
    • automatic or non-automatic conversion of a financial instrument into another financial instrument, including the exchange of convertible bonds to shares;
    • gifts and donations made or received, and inheritance received in relation to Covered Instruments;
    • transactions executed in index-related products, baskets and derivatives (according to ESMA's consultation paper3 only if the underlying share and/or debt instrument, at the time of the transaction, represents 20 % or more of the aggregate value of the securities in the basket or index);
    • transactions executed in shares or units of investment funds, including alternative investment funds (according to ESMA's consultation paper only if the underlying share and/or debt instrument, at the time of the transaction, represents 20 % or more of the aggregate value of the securities in the basket or index4);
    • transactions executed by the manager of an AIF in which the PDMR or an Associated Person has invested.
  4. Threshold: The obligation to notify dealings will apply once a threshold of EUR 5,000 has been reached within a calendar year. A competent authority may decide to increase such threshold to EUR 20,000 in which case it shall inform ESMA of its decision and the justification therefor. The respective threshold is calculated by adding, without netting, every transaction conducted on the relevant PDMR'/Associated Person's own account relating to the issuer's securities, or financial instruments linked to them.

2. Notifications – Key changes

The notification process as such will also be subject to change:

  1. Timeframe: the timeframe for notifications will be shortened from five to three business days.
  2. Persons obliged: PDMR and Associated Persons must notify the issuer or the emission allowance market participant and the competent authority by electronic means and by using the mandatory notification form (see below). The issuer or emission allowance market participant shall then ensure that the information is made public no later than three business days after the transaction. Alternatively, national law may provide that a competent authority may publish the information in lieu of the issuer.
  3. Mandatory notification form: notifications and public disclosure of managers' transactions need to follow the mandatory template prescribed by the European Commission (here).

3. Information and record keeping obligations – Key changes

MAR introduces information and record keeping obligations both for issuers / emission allowance market participants, as well as for PDMR:

  1. Issuers and emission allowance market participants: They must notify their PDMRs in writing of their obligations in relation to dealings under MAR. In addition, they must draw up a list of their PDMRs and persons closely associated with them.
  2. PDMRs: must inform Associated Persons of their obligations in writing and shall keep a copy of this information.

4. Trading in closed periods – Key changes

MAR introduces a general trading prohibition for PDMR in closed periods:

  1. Closed period: closed periods will be 30 calendar days before the announcement of an interim or year-end report that an issuer is obliged to make under its national law or pursuant to the rules of the trading venue on which its shares are listed.
  2. Exemptions: Despite the general trading prohibition in a closed period, the issuer has the right to permit a PDMR to trade in a closed period

    • under exceptional circumstances. Circumstances are exceptional when they are extremely urgent, unforeseen and compelling, where their cause is external to the PDMR and the PDMR has no control over them. In order for an issuer to grant its permission, the PDMR must submit a reasoned written request to the issuer, explaining why the sale of shares is the only reasonable alternative to obtain the necessary financing; or

    • under an existing employee share or savings scheme if certain conditions set forth in Art 9 of the Commission's Delegated Regulation (EU) 2016/522 of 17 December 2015 are met (here).

With less than two months to go, companies should make sure that adequate procedures as well as proper record keeping are in place to ensure that notification and announcement of managers' dealings are in accordance with MAR. We will be delighted to guide you through the new framework and related implications for your organisation. Please contact us for further details.


[1] See Art 19 paras 1 and 7 MAR and Art 10 of the Commission's Delegated Regulation (EU) 2016/522 of 17 December 2015, here.

[2] See Art 19 paras 1 and 7 MAR and Art 10 of the Commission's Delegated Regulation (EU) 2016/522 of 17 December 2015, here.

[3] ESMA's draft technical advice on possible delegated acts concerning the Market Abuse Regulation of 11 July 2014, ESMA/2014/808, no. 107, here.

[4] ESMA's draft technical advice on possible delegated acts concerning the Market Abuse Regulation of 11 July 2014, ESMA/2014/808, no. 108, here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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