Europe: Proposal on an EU Directive on Insider Dealing and Market Manipulation

The European Parliament voted on the first reading of the proposed regulation on insider dealing and market manipulation (market abuse) (the "New Directive") in its plenary session on 10 September 2013. The New Directive will replace Directive 2003/06/EC of 28 January 2003 of the same name, and focuses, in particular, on the amendment of the reporting obligations for listed companies, as well as potential fines.

Overview of Provisions of New Directive

The New Directive is designed to cover more financial instruments than was previously the case, in order to take account of on-going developments in the securities transaction area. It also expressly states that buyback programmes of a company's own shares and stabilisation measures do not constitute market abuse. These provisions will apply in place of the currently applicable Regulation 2273/2003/EC, and will have to be taken into account when implementing buy-back programmes in future.

According to the New Directive, issuers of financial instruments that are traded in a growth sector for small and medium-sized businesses will not be obliged to maintain an insider list under certain circumstances. These issuers will, however, have to take appropriate measures to ensure that persons with access to insider information recognise their legal obligations with respect to insider trading and are aware of the applicable sanctions. In addition, they will have to provide the regulatory authority with an insider list on request.

The provisions on so-called 'directors' dealings' have furthermore been reviewed, and now provide for the standardised reporting of such transactions by directors and related parties within two days, if the value of same equals or exceeds EUR 20,000. The commission is empowered to pass delegated acts to clarify the definition and scope of persons qualifying as directors, which will prove to be important in practice.

The definition of insider information, which was heavily influenced by the jurisprudence of the European Court of Justice (ECJ judgment of 28 September 2012, case no.: C-19/11), was not amended by the New Directive.

Fines and Powers of Sanction

Member States are directly authorised to impose administrative sanctions pursuant to the New Directive, including the conduct of searches on the basis of reasonable grounds, and the issuing of prohibitions to assume executive functions. This may also entail the imposition of fines. In the case of individuals, fines up to an amount of EUR 5,000,000 can be imposed; in the case of juristic persons / legal entities, fines commence with an amount of EUR 15,000,000, and can increase up to 15% of the total annual turnover of the concerned entity (note that the published version of the New Directive still provides for a limit of 10% of the turnover).  

Long-term Transitional Provisions

A transitional period of 24 calendar months is expected to apply in relation to provisions of the New Directive that will apply to market participants. In consequence, market participants should have sufficient time to prepare for the changes that will be brought about by the New Directive.

Hendrik Thies, Jan Henning Martens