27 January 2014

Responses to ESMA discussion paper on Market Abuse Regulation: AFME, Euronext, FESE, ICMA, IMA, ISDA et al

MAR aims to enhance market integrity and investor protection by updating and strengthening the existing market abuse framework, by extending its scope to new markets and trading strategies, and by introducing new requirements. The Discussion Paper presented positions and regulatory options on those issues where ESMA will have to develop MAR implementing measures, likely to include Regulatory Technical Standards, Delegated Acts and Guidelines.

AFME

AFME does not agree that buy-backs should be restricted to being at a price which is equal to or lower than the last traded price or last current bid on the most liquid market. The best execution rule should apply. The price restriction proposed would be too complicated to apply where a share is traded on multiple venues. The price limit should be applied to the execution venue on which the shares are purchased.

Full AFME-response

Euronext

Euronext considers it is too burdensome - and in some cases even impossible - to oblige the issuer to check each and every trading venue for the trading volume. Given that adding the volumes is ultimately at the advantage of the issuer, as it increases the amount of shares that issuer can buy the issuer should be authorised to optionally add the volumes.

As to what indicators are the most pertinent to detect cross-venue or cross-product manipulation and which would cover the greatest number of situations, Euronext highlights the necessity of the clock synchronisation between all EU trading venues. Euronext also believes that the most efficient mechanism would be to allocate the responsibility for cross-market surveillance to the regulator supervising the market where an instrument was first admitted to trading.

Full Euronext reponse

FESE

FESE disagrees with the cumulative criteria for extreme low liquidity because of the significant differences of the size of markets in Member States. It would support that each local regulator is able to scale the criteria according to the specifics of the local market. This is particularly relevant for very small markets where their levels of liquidity does not reach any of the criteria stated in the discussion paper.

Full FESE-response

ICMA

ICMA points out that it does not seem plausible that only seeking buyside consent on a case by case basis will substantially impact the incidence of accidental wallcrossing. Sounders not only carefully establish the underlying information to be sounded, but also the initial approach to potential soundees and so should not be drawn beyond that in initial discussion.

According to ICMA, an obligation to proactively systematically record, and then continuously or periodically update, the wallcrossing wishes of all investors is wholly unrealistic, even if limited to just the investors on a bank’s existing list of eligible/vetted counterparties (usually arising from past and present transactions). At the very least, the obligation would need to be limited to those investors that could be compelled to cooperate further to a mirror obligation under MAR Level 2.

Full ICMA-response

IMA

IMA is concerned that the ‘cleansing’ process under the Market Soundings regime must be as clear as possible. Both the disclosing market participant and the buy-side firm should be clear on what constitutes the cleansing strategy for any particular market sounding, prior to the wall-crossing occurring. If this consistency of understanding is not achieved, there is a risk that market efficiencies are diminished as participants discuss cleansing ad infinitum, and investors (by which we mean the party who is being pre-sounded) being deterred from participating in future soundings.

The disclosing market participant should always provide details of when and how the insider information will cease to be treated as such, allowing the buy-side firm to decide whether it wishes to be wall-crossed. Any delays to cleansing should be discouraged as strongly as possible, with the disclosing market participant being required to justify this to any investor affected.

Full IMA-response

ISDA

ISDA believes that reporting every two weeks could result in over-reporting, jeopardise the accuracy of reports and make the verification of the validity of reports difficult for regulators. Often suspicion builds over time through the observation of a pattern of activity, rather than from a single event. The first event in the pattern may not, by itself, trigger suspicion and it is possible that the pattern will not become apparent until the activity has repeated over a period of days or weeks. Given the description that a firm may be held to account for not reporting the original event within two weeks ISDA would recommend taking account of the above explanation of how patterns can slowly emerge.

ISDA’s opinion is that trading venues should introduce automated surveillance systems, as they have a broader view of the market than a market participant would have and so are well placed to discover market manipulation, collusion, etc.

Full ISDA-response

All responses

Original consultation, 14.11.13

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