The European Securities and Markets Authority (ESMA) recently issued a discussion paper (14 November 2013, ESMA/2013/1649) on the possible implementation
measures, or interpretation of, the
market abuse regulation (MAR) proposed by the EU Commission in October 2011, later amended in July 2012. The regulation is scheduled to take effect in 2015, but this date looks uncertain, as it is tied to MiFID/MiFIR time tables and the associated required
political agreements.
So why look at this now? Why should a stressed-out compliance department and legal resources put their heads together and give ESMA feedback on something that is subject to change and will take effect on EU level one – a year from now, with an added delay
while ESMA and local regulators drafts technical notes and national laws, before the changes makes real impact on the daily lives of the compliance officer?
The proposed MAR and MAD II is extensive compared to the current market abuse directive (MAD, Directive 2003/6/EU) and although an uncertain “sometime in 2015” deadline probably feels like
a distant date in the future for most readers, the magnitude of the changes warrants urgent and close attention and consideration. It is therefore very refreshing to see the consultative and open approach ESMA is taking in its discussion paper well ahead of
its implementation; market participants have a real possibility to provide detailed feedback on the implementation of a very important and ambitious regulation that will have a real impact on their business for years after it takes effect.
MAR/MAD II scope changes include:
1. Significantly extending the scope of the current market abuse regime by bringing within it emission allowances, and OTC-traded financial instruments which might have an effect on the covered underlying market, including complex instruments such
as credit default swaps and contracts for difference
2. Scope extending to include manipulation of indexes, benchmarks and market prices
3. More closely aligning the way in which the market abuse regime applies to commodities and commodity derivatives trading (including the definition of “insider dealing”) with its application to securities markets
4. Introducing of a strong emphasis on cross-product, asset-class and market manipulation
5. Introducing of a new offense of attempted market manipulation, where a person intends to manipulate the market but does not place an order or execute a transaction
6. Providing competent authorities with specified powers to enhance their ability to tackle and investigate market abuse, including the power to enter private premises, to seize documents and to access telephone records
7. Establishing a more harmonized regime in respect of criminal and administrative sanctions across the EU member states in order to reduce the possibility of regulatory arbitrage
8. Introducing of the inclusion of the provider of trading and platform facilities in investigations and potential actions if market abuse is proven
For anyone concerned with the tools, processes and organization required for a
compliance function to fully implement and match MAR and MAD II, the above list may be alarming and the 2015 horizon will no longer feel that distant.
In addition, there are a number of items that need to be considered, including from where and how you will bring in all the data needed to effectively ensure traders are not involved in the planning and/or execution of potential manipulation of all the asset
classes and markets traded by your firm; flexibility to allow for regulatory changes and updated guidelines; sizable functionality of tools; oversight, overview and reporting of different streams of trading and activity across the organization; and the ability
to spot trends over time, which is a key aspect of a surveillance function.
Whatever procurements and changes that currently are planned and budgeted, your organization must keep MAD II and MAR in sight, or any investments done today will fall by the wayside sooner than you think.