On 3 July 2016, new EU rules on market integrity entered into application. The legislation consists of the Market Abuse Regulation ('MAR') and Criminal Sanctions Directive for Market Abuse ('MAD 2014'), and covers insider trading, unlawful disclosure of inside information and market manipulation. These two legal acts replace the current Market Abuse Directive ('MAD 2003'). The new rules provide a basis for deeper, more transparent and integrated markets, as well as increased investor protection and confidence in European financial markets.

Why a review is needed  

In a nutshell, insider dealing is where a person trades in financial instruments using non-public, price-sensitive inside information in relation to those instruments. Market manipulation is when the prices of financial instruments are artificially manipulated through abusive or illegitimate practices – for instance spreading false information or rumours. These sorts of practices are extremely damaging for market integrity and destroy public confidence in securities markets.

The MAD 2003 completed and updated the EU's market integrity rules. However, the market developments and technological progress that have taken place since MAD 2003 entered into force have led to considerable changes in the financial landscape. The aim of MAR is to ensure that regulation keeps pace with market developments (e.g. high-frequency trading), strengthens the fight against market abuse across commodity and derivative markets, reinforces the investigative and administrative sanctioning powers of regulators and enhances the framework for cooperation between the relevant authorities. MAR also harmonises the range of sanctions that all Member States must have available as part of their enforcement regimes and seeks to put the currently very different national sanctions regimes on the same footing across the EU. The administrative remedies under MAR will work in conjunction with the MAD 2014, which also entered into application on 3 July. MAD 2014, which will fully apply on the ground when it has been transposed by all Member States, will require EU countries (except the UK and Denmark, which have opted out) to criminalise market abuse violations and provide adequate penalties.

What will change?

In general, the basic requirements under MAR mirror the existing rules under MAD 2003. For instance, the definitions relating to insider trading and the requirement for issuers to disclose inside information as soon as possible largely remain the same. Several changes, however, will have significant implications for market participants.

Most notably, the MAR has an expanded scope. While the MAD 2003 applied only to financial instruments trading on regulated markets, the MAR also extends to new trading platforms (multilateral trading facilities and organised trading facilities), not just traditional stock exchanges. Furthermore, in the aftermath of the 2012 LIBOR manipulation scandal, the MAR and the MAD 2014 explicitly prohibit manipulation of benchmarks and make this an administrative and criminal offence, respectively, across the EU.

The MAR will also add some enhanced requirements. For instance, issuers will have to create and maintain records providing evidence that they are complying with rules for delaying disclosure of inside information. And there will be harmonised rules for the creation of lists of insiders. In addition to this, the MAR will require professionals arranging and carrying out transactions to report suspicious orders and maintain effective systems to detect suspicious orders and transactions. Furthermore, market operators and investment firms that operate a trading venue will have to set up and maintain systems for preventing and detecting market abuse and attempted market abuse.

Transparency and protection of 'whistle-blowers'

In addition, the MAR contains broad transparency requirements. These include requirements for disclosing transactions by issuers' managers. MAR also requires producers and disseminators of investment recommendations to objectively present and to disclose their conflicts of interests. Moreover, MAR introduced the concept of closed periods – extending 30 days before the announcement of required interim or year-end financial reports – during which managers generally cannot trade in the issuer’s securities or related securities. Last but not least, as part of the MAR implementation the European Commission adopted rules to protect so-called 'whistle-blowers', i.e., people who report instances of potential or actual market abuse breaches.

Finally, market integrity will remain a major focus for European regulators, and EU market abuse rules are instrumental to maintaining confidence in the financial markets.

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