ESMA details new market abuse regime
The European Securities and Markets Authority (ESMA) has launched a consultation on the new Market Abuse Regulation (MAR) which entered into force on 2 July 2014. It is issuing two consultation papers seeking stakeholders’ views on the draft regulatory and implementing technical standards (RTS/ITS) and Technical Advice (TA), ESMA has to develop for the implementation of the new MAR framework which will become applicable in July 2016.
The new Market Abuse regime was introduced in order to keep pace with new trading platforms and technologies in financial markets, which, besides offering new opportunities, may also result in new possibilities for abusive behaviour. Such manipulation can ultimately result in losses for consumers and investors or distortion of the real economy if investors trade on insider information or manipulate markets by spreading false or misleading information.
MAR broadens reach of rules to new products, venues and trading techniques.
In order to increase the prevention of market manipulation, and increase the level of investor protection, ESMA’s draft RTS/ITS and TA specify the application of MAR to new products, venues and trading techniques and addresses transparency and governance issues.
ESMA’s technical provisions address the potential for a financial instrument to be manipulated not only by executing transactions on a trading venue, or across different venues, but assume that manipulation or attempted manipulation of financial instruments may also consist in placing orders which are not executed.
A financial instrument may also be manipulated through behaviour occurring outside a trading venue or within an automated trading environment through the use of electronic means of trading, such as algorithms including high frequency trading strategies. To this end ESMA’s technical work updates and strengthens the existing framework by defining how to address these new markets and trading strategies and by introducing new requirements.
The draft ESMA RTS/ITS and Technical Advice cover the following main areas:
- market manipulation indicators;
- prevention and detection of market abuse, including suspicious transactions and order reporting;
- accepted market practices;
- market soundings;
- conditions for and disclosure of buy-back programmes and transaction stabilisation;
- disclosure of managers’ transactions;
- provisions for insider lists;
- disclosure of inside information, including possible exemptions and delays; and
- investment recommendations or other information recommending or suggesting an investment strategy by staff, including the avoidance of conflicts of interests.