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The Investment Association's "MAR" clean-up

Posted by Jennifer at 09:27 on 19 Jul 2016

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On 4 July, the Investment Association (“IA”) announced that it was revising its Principles of Remuneration (the “Principles”) to reflect the Market Abuse Regulation, or “MAR” (the EU regulation designed to establish a common regulatory framework on insider dealing, market manipulation and the unlawful disclosure of inside information).

MAR replaced the previous Market Abuse Directive with effect from 3 July and is relevant for AIM and fully-listed companies. However as is the way of these things, MAR does not entirely correspond with the outgoing Directive (e.g. in particular there is a new Article 19(11) which prohibits own account transactions of “persons discharging managerial responsibility” during closed periods and had no equivalent in the Market Abuse Directive).

Previously the Principles provided that options or awards should only be made during the 42 days following “an announcement of results”. This wording has been amended to refer to 42 days following the end of a “closed period” under MAR.

While it is likely that in practice that these periods will be the same, the Financial Conduct Authority (“FCA”) felt that it was necessary to issue guidance on closed periods and preliminary results under MAR which makes it clear that where an issuer issues announces preliminary results, the closed period is immediately before the preliminary results (and not the year-end report) provided that the preliminary announcement contains all inside information expected to be included in the year-end report.

It has seemed to RM2 that the implementation process in the UK is a bit of a “mire”. It is noteworthy that the Law Society in their Q&A note dated 5 July 2016 consider that the scope of the prohibition in Article 19(11) is wide enough to include continuing to acquire shares on a monthly basis from salary under an arrangement entered into outside a MAR closed period (i.e. 30 days prior to the announcement of an interim or year-end financial report).

This could include acquiring shares under a tax-advantaged Share Incentive Plan (“SIP”). The prohibition could also include transfers of shares of the issuer following the exercise of an Save-As-You-Earn ("SAYE") option or the release of shares from a SIP into a savings scheme (e.g. an Individual Savings Account (“ISA”) investing in the relevant securities during a MAR closed period. The note then goes on to argue how the prohibition in Article 19(11) might then be able to be avoided in their view.

The take away point is really that the “MAR” implementation is still raising more questions than answers. AIM and listed companies will have to recalibrate what they thought that they knew about dealings concerning “persons regarding managerial responsibility” and take specific advice as appropriate.