27 April 2016

ESMA published the responses received to the Consultation on draft guidelines on the Market Abuse Regulation

Managed Funds Association

MFA urges ESMA to reconsider its proposal and remove the requirement for MSRs to inform DMPs of discrepancies of opinion. Under the proposed Guidelines, MSRs would need to study carefully eight scenarios in order to determine whether they must take any action to inform DMPs of a discrepancy of opinion:

1. Where the DMP informs the MSR that inside information has been provided to the MSR during the market sounding: a. and the MSR agrees with the DMP’s opinion, there is no need to inform the DMP of such agreement.

b. and the MSR disagrees with the DMP’s opinion for any reason, there is no need3 to inform the DMP of such discrepancy of opinion.

MFA’s concern is that the approach proposed in the Consultation Paper is extremely convoluted for MSRs to implement in practice, given the possible outcomes involved. As there is no obligation for DMPs and MSRs to reach an agreement on their independent assessments, we believe that requiring MSRs to notify DMPs of discrepancies of opinion would serve little purpose and, as ESMA notes in the Consultation Paper, an MSR’s assessment would in any event remain open to scrutiny by the MSR’s national regulator.

Full response

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The Investment Association

 The Investment Association notes the two areas of most significance to its members:

 The Guidelines seem to go significantly beyond the scope of the Level 1 Regulation in imposing record keeping requirements on MSRs.

 The cumulative weight of requirements imposed on MSRs by the proposed guideline may result in many of them reconsidering their participation in the market sounding process in future.

MSRs would find their being obliged, on receiving a market sounding, to identify all the issuers and financial instruments to which the inside information relates extremely onerous in theory and very difficult to comply with in practice. Even applying a blanket ban across all instrument types issued by related issuers would not necessarily be sufficient to capture all related issuers in some circumstances.

Full response

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EuropeanIssuers

 The part dealing with the legitimate interests of issuers to delay disclosure of inside information and situations in which the delay of disclosure is likely to mislead the public is of paramount importance for issuers. Firstly, because MAR recognized a single notion of inside information both for the market abuse and for the duty of disclosure to the public. This may lead to the communication of information not sufficiently mature and be manipulative in itself, as underlined by the ESME Report on 2007 amongst many others1.

Secondly, MAR clearly states that an intermediate step in a protracted process shall be deemed to be inside information if, by itself, it satisfies the criteria of inside information. As a result, the delay of the communication of inside information is an important tool to avoid disclosure of information not sufficiently mature. EuropeanIssuers  therefore agrees with the SMSG stating that “the prerequisites for delay should not be interpreted narrowly”  By contrast, ESMA proposes the opposite in stating that the option to delay is the exception rather than the rule and should be interpreted narrowly (paragraph 69.). This approach is reflected throughout the entire consultation paper. EuropeanIssuers is therefore concerned that ESMA Guidelines could erode the right for delay as granted in the Level 1-text.

It believes that ESMA should provide a framework where the conditions to meet for the delay of disclosure of inside information are very clear, and the conditions should be provided in a way that does not prevent issuers from using their right to delay the disclosure of inside information.

Full response

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Invest Europe

Given that an MSR is defined as any person who is the recipient of a market sounding, this will encompass a very wide variety of different investors ranging from large buy-side firms, who may be frequent recipients of market soundings, to investors who have only a very limited number of publicly traded investments1, who will be very infrequent recipients of market soundings.

Private equity investors only hold positions in publicly traded securities infrequently, and rarely tend to hold publicly traded securities issued by multiple issuers. In addition, it is even rarer for private equity investors to receive market soundings as a potential purchaser of other listed securities.

Indeed, the circumstances in which private equity firms will hold public securities are very limited: some may retain a minority investment in a portfolio company following its IPO; some may occasionally invest in publicly traded companies (so-called “PIPE” investments) or hold publicly traded bonds; and some may on occasion receive shares as consideration from a listed purchaser of a portfolio company. However, this is not something that private equity does predominantly and in general these investments are only likely to represent a very small number of investments held by a private equity fund. If and when private equity funds hold listed securities, this would generally only happen on a temporary basis (and for a short time) as part of the initial investment process or during the exit process.

The draft Guidelines appear designed for those investors who are likely to invest predominantly in public traded securities and so be more frequent recipients of market soundings. Consequently, some of the draft Guidelines may be unnecessarily prescriptive and onerous for firms who are infrequent MSRs and there should be appropriate flexibility in the Guidelines to address this. An explicit recognition in the Guidelines that they may be applied flexibly depending on the nature and frequency of the market soundings the MSR is likely to receive would be helpful. In particular, this concerns the Guidelines’ proposals on internal procedures.

Full response

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Full consultation paper

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