There appears to be varying degrees of readiness across the breadth of MAR legislation, which reflects PwC Legal’s experience that only a small proportion of companies are totally prepared due to the uncertainties in the interpretation of MAR and related regulations. Given that some of the seven Implementing Regulations were only published late in June 2016, this is not surprising. However, by focusing on what is known and the guidance on Implementing Regulations that has been published, there are some key steps that GCs can take to help ensure their Companies, Persons Discharging Managerial Responsibilities (PMDRs) and Insiders are compliant with MAR.
There are four main areas where we have seen the most questions:
- Inside information.
- Insider lists.
- Dealings by PDMRs and persons closely associated with them (PCAs).
- Closed periods.
An issuer must inform the public as soon as possible of inside information that directly concerns the issuer (Article 17(1) MAR).
GCs will need to establish who will be responsible for keeping a record of all inside information. This could be the GC, disclosure committee/disclosure review team, company secretary or group compliance department. In establishing this responsibility, it affords the ideal opportunity to review the membership of the existing disclosure committee, formalise the structure of the disclosure committee, amend the terms of reference, formalise record keeping – with particular attention as to whether information is inside information and any decision to delay its disclosure. GCs should ensure that they fully conversant on the new provisions of the ‘market soundings’ safe harbour to the offence of unlawfully disclosing inside information when the company is consulting with advisers (brokers and nomads) and investors, as they are likely to be called upon to provide opinion and guidance.
Issuers, or any person acting on their behalf or on their account, must draw up a list of all persons who have access to inside information and who are working for them under a contract of employment, or otherwise performing tasks through which they have access to inside information (eg advisers, accountants or credit rating agencies) (Article 18(1) MAR).
Our experience shows that a large proportion of issuers will be using an external technology solution to run their company’s insider list, with a significant number using an internal system, such as excel spreadsheet, and many other issuers undecided altogether.
GCs should ensure that steps are taken to identify their permanent insiders. These will most commonly be the company’s board of directors and the executive committee who can be recorded as such in a separate and supplementary section of the insider list. We have seen that many issuers are taking the opportunity to review their insiders and reduce the number of people on their insider list.
A frequently raised question is how to comply with the requirement to include a national identification number on the template insider list. Feedback we have got from a number of forums on MAR indicates that a number of corporate secretaries are of the view that a national identification number is not applicable for UK nationals, however, around a half of those asked during informal discussions said that they would use National Insurance numbers as this number does not change. An additional area of consideration for GCs is the data protection implications of collating and maintaining such personal information.
PDMR and PCA dealings
Subject to the €5,000 minimum threshold, PDMRs and PCAs must notify the issuer and the FCA of every transaction conducted on their own account relating to the shares or debt instruments of the issuer. Notifications shall be made promptly and no later than three business days after the date of the transaction (Article 19(1) MAR).
In our conversations with clients, the majority of issuers will submit notification forms on behalf for both PDMRs and PCAs to the FCA. Feedback received from them also indicated that nearly all issuers are planning to notify the FCA of all transactions, even those under the €5,000 threshold.
Many issuers are also adopting a proactive approach including monitoring the share register and flagging accounts, requiring PDMRs to seek clearance to deal for their PCAs and extending the company’s share dealing code to PCAs, so that PCAs are required to seek clearance to deal. GCs should ensure that PDMRs and PCAs receive education and training in relation to their obligations under MAR and that appropriate processes and procedures are adopted.
Share dealing codes
The Model Code has been deleted and there is no longer a requirement for Main Market listed companies to adopt a share dealing code.
However, ICSA: The Governance Institute, GC100, the Quoted Companies Alliance and other market participants (which included PwC Legal) agreed that it would be of great benefit for listed and quoted companies to be able to turn to an equivalent version of the FCA’s Model Code, with the introduction of a single, industry-led dealing code. Accordingly, this group developed a specimen dealing code and accompanying guidance that issuers can review to reflect their own individual circumstances and requirements: https://www.icsa.org.uk/knowledge/resources.
GCs should consider the following areas when preparing a share dealing code:
- Will PDMRs be required to seek advance clearance to deal?
- Will separate dealing codes for PDMRs and non-PDMRs be adopted?
- Will the non-PDMR code apply to all employees or just ‘employee insiders’?
There is a new compulsory closed period for PDMRs who may not deal during the ‘closed period’, except in certain specified circumstances. In July 2016, the European Securities and Markets Authority (ESMA) published Q&As, including what constitutes a closed period under MAR. The Q&A confirms that the MAR closed period is the 30 day period before the announcement of an interim financial report or a year-end report (or preliminary results, if published) which the company is obliged to make public. However, this will only be the case for preliminary financial results where they contain all the key information relating to the financial results expected to be included in the year-end report. The closed period will be in addition to any period in which a PDMR is restricted from dealing in shares because they possess inside information (Article 19(11) MAR).
If the information announced changes after publication, this will not trigger another closed period, but should be addressed in accordance with Article 17 of MAR, public disclosure of inside information.
GCs will need to consider whether to change their existing practice for closed periods or whether to continue to implement the same closed period as per the Model Code. Our feedback indicate that the majority of issuers that publish preliminary results will continue with the Model Code requirement of implementing a closed period from the end of the financial year until publication of preliminary results. The timeframe for non-MAR closed periods covering publications such as interim management statements, trading updates and quarterly results will also need to be considered, with current practice ranging from 7-21 days before publication.
As a company is likely to look to their GC to provide guidance on areas of uncertainty, there are some primary considerations and areas of focus that a GC will need to identify:
- What constitutes ‘inside information’.
- Delayed disclosure of inside information –legitimate delay.
- Data protection issues in relation to insider lists.
- Training necessary for PDMRs and PCAs to understand their obligations under MAR.
MAR has created a more robust market abuse regime and GCs need to respond appropriately by ensuring that they have implemented the systems, controls, policies and procedures to guarantee that their organisation does not fall foul of the new regulation.