On 3 July 2016, the EU Market Abuse Regulation (MAR) (EU 596/2014) replaced the Market Abuse Directive (MAD) and the current UK regimes for market abuse and inside information. To help guide you through the first six months under the new regime, we will be issuing fortnightly "bitesize" updates providing concise snapshots of a number of key practical areas of interest under MAR. This first "bitesize" update on MAR focuses on the impact that MAR will have on listed companies' decisions to delay the disclosure of inside information in the UK.
Delaying disclosure of inside information
Under MAR, issuers are able to delay the announcement of inside information if their legitimate interests are likely to be prejudiced by immediate disclosure, and if the delay in disclosure will not mislead the public. The confidentiality of the information must also be assured. ESMA consulted on some draft Guidelines, which have since published in final form (on 13 July 2016). They will apply 2 months after publication of translations.
1. When disclosure can be delayed: Legitimate interests of issuers and unexpected events
The guidelines provide a non-exhaustive list of situations in which the "legitimate interests" of the issuer are likely to be prejudiced by immediate disclosure of inside information. Whilst these broadly mirrored those already contained in guidance published by the FCA and ESMA under the current regime, ESMA suggests that the legitimate interest of the issuer conducting negotiations would be limited to circumstances where the outcome of the negotiations would likely be jeopardised by immediate public disclosure of that information. ESMA accepts that M&A transactions, splits, spin-offs, purchases or disposals of major assets or branches of corporate activity, restructuring and reorganisations would generally fall into this category.
Also of interest to issuers is the suggestion made by ESMA in its consultation that a "short delay" to the announcement of inside information where an "unexpected and significant event occurs" might be permissible – where it is necessary to clarify the situation and ascertain the inside information. Although ESMA considered this to be a too "wide and potential far reaching example" to include within the legitimate interests exemption, it suggested that the overarching requirement to disclose inside information is tempered by the words "as soon as possible" – and so a small degree of latitude may exist to enable a discrete and expeditious verification process to clarify the precise scope of the inside information to be disclosed after the occurrence of a significant and unexpected event.
2. New recording requirements: identification and delay
One important procedural change for issuers under MAR is the requirement to identify, and record and retain (amongst other things):
- the date and time when the inside information first existed within the issuer;
- the date and time when the decision was made to delay the announcement of that inside information (with justification for the delay – how this was in the issuer's legitimate interests, how confidentiality was assured, and why the public was not misled).
In terms of internal governance, the FCA is likely to be interested in those dates and times for two reasons:
- Firstly, how quickly did the issuer identify that information it held was inside information? The point at which inside information arises (including when a rumour is considered to be sufficiently accurate) will have to be analysed frequently and rigorously.
- Secondly, was there a reasonable period of time between the issuer identifying that it had inside information and the decision to delay making an announcement?
In practice it seems unlikely that there would be a significant gap between those two dates and times, but such a gap could elicit some regulatory inquiry.
Issuers must also ensure that when inside information is published, the announcement clearly identifies that it contains inside information.