Even with a solid understanding of the Market Abuse Regulation (MAR), it may still be difficult to understand what is considered market abuse. That’s why we decided to create this two-part guide that covers the seven behaviours that qualify as market abuse. This is an important aspect of the regulation because being accused of one of the behaviours can lead to fines which can amount to millions of euros. Furthermore, market abuse sanctions can extend to imprisonment and cessation of business.
This article (Part 1) examines MAR behaviours overall, before looking at the first four in more detail. In Part 2, we look at the remaining three behaviours, uncover the consequences of non-compliance, as well as examine some case studies to help put it all in context.
MAR is a regulatory framework. As such, it is meant to set clear expectations and that’s why it starts by defining the three categories of market abuse:
Unlawful disclosure then has three sub-categories of behaviour, also known as expectations. Insider dealing has four. By addressing these as individual items, we can more clearly address our own conduct and take steps to eliminate dangers.
Going through the full text of MAR can be quite a lengthy read. Luckily, the European Securities and Markets Authority (ESMA) has, so far, created two annual reports on, what it calls, “accepted market practices (AMPs)”. These AMPs are what we have then translated into the seven behaviours, simplifying a complex legal standard.
When we look at these behaviours, within the context of penalties and how to protect yourself from making a mistake (or being caught up in someone else’s unlawful behaviour), there’s one single overriding element of good practice. This is to keep accurate records.
Throughout this article, and Part 2, we frequently refer to the UK’s Financial Conduct Authority (FCA) but we also look at the implementation in other EU member states. We use examples from the FCA because they have a comprehensive and easy to understand handbook for businesses and individuals who need to be aware of MAR.
Let’s take a look at the seven behaviours detailed in the FCA MAR Handbook:
| FCA Handbook Section | Behaviour |
| 1.3 | Insider dealing |
| 1.4 | Unlawful disclosure |
| 1.5 | Misuse of information |
| 1.6 | Manipulating transactions |
| 1.7 | Manipulating devices |
| 1.8 | Dissemination |
| 1.9 | Distortion and misleading behaviour |
Simply put, insider dealing is using inside information that you have in your possession to deal (or attempt to deal). MAR Article 8 covers insider dealing. The Danish National Competent Authority, Finanstilsynet, also provides excellent resources for MAR understanding. Like the FCA, they break insider dealing down to three main behaviours:
Front running/pre-positioning:
This is a transaction for an individual’s own benefit in advance of an order, taking advantage of the knowledge of the upcoming order.
Takeover ‘offerer’:
This is an offerer using inside information from a proposed bid, knowing the implications on shares.
Acting for an offerer:
This is using the knowledge gained as a result of acting on behalf of an offerer for your own benefit.
To fully understand this behaviour, we need to understand what inside information is. Such information applies, both directly and indirectly, to precise information which has not been made public, but if it was, it would have a significant effect on the price of particular issuers or instruments. The European Securities and Markets Authority (ESMA) provides detailed guidelines, in a question format, to further explain what constitutes inside information in detail (see section 5).
We recommend going through the relevant MAR advice within the specific EU country. This is usually available from the local National Competent Authority, like the FCA handbook in the UK. Links to all of the local authorities can be found here. We recommend this for compliance with all seven behaviours.
Crucially, with insider dealing, you’ll discover that compliance doesn’t just refer to your own dealings. It also applies to you encouraging others to deal using inside information. Here are some quick tips for ensuring compliance:
The main route to compliance is to keep an accurate list of everyone who has inside information – an insider list. Under MAR, these lists must be maintained in a prescribed way e.g. every list must be time-stamped according to the UTC time zone and must be kept in a digital format, together with previous versions, detailing as many as four different phone numbers for each insider. The competent authority can request your insider list at any time.
Moreover, according to Article 18(2) of MAR, all people on your insider list must be notified that they have been included and confirm that they have understood their obligations.
So, you are required to keep your insider lists in a digital format and you must send notifications to insiders as soon as you include them. It’s natural to wonder,
“What kind of software can I use for insider lists?”
Some companies use spreadsheet programs for this purpose but this can be very risky for a number of reasons, namely:
The ultimate decision is yours but you do need a computer program to handle your insider lists. If you want to try software created for this very purpose, you can request a free InsiderLog demo here. Designed to help companies save time and ensure compliance with MAR, InsiderLog is already used by +500 companies in 14 countries.
MAR Article 10 deals with unlawful disclosure. As its name implies, it is the sharing of insider information with an individual who does not have the need, or the right, to have access to that information. It involves unlawful disclosure of information which is not readily available and related to an investment or one or more issuers. It could, in their possession, be used to make a trading or investment decision. If used, it could be anticipated to affect the price.
Again, we can see how an insider list is valuable to authorities as it clearly documents the flow of information as well as who has access to what information. Two notable actions are frequently identified:
This is a ‘catch-all’ set of behaviours, not covered under insider dealing or unlawful disclosure. Various articles, mostly within Chapter 2 of MAR, detail this.
As a term, misuse of information is a little harder to fully comprehend because its purpose is to clarify and complete the first two behaviours above. Section 1.5 of the FCA handbook explains it in detail:
“[This behaviour is] based on information which is not generally available to those using the auction platform but which, if available to a regular user of the auction platform, would be, or would be likely to be, regarded by him as relevant when deciding the terms on which transactions in qualifying investments should be effected, and is likely to be regarded by a regular user of the auction platform as a failure on the part of the person concerned to observe the standard of behaviour reasonably expected of a person in his position in relation to the auction platform.”
Following the tips above for inside information and unlawful disclosure, including the use of an insider list, will go a long way to complying with this section of MAR. You should also avoid dealing based on information you could reasonably be expected not to disclose.
Article 12 of MAR covers manipulating transactions. The behaviour of manipulating transactions relates to giving (or being likely to give) either misleading or false impressions regarding qualifying investments, such as relating to supply, demand or price. It also applies to securing “the price of one or more such investments at an abnormal or artificial level.”
There are multiple behaviours to avoid. These include:
BaFin, the Federal Financial Supervisory Authority in Germany has some excellent guidance in this area, including concrete examples.
Above, we have looked at the first four behaviours that qualify as market abuse. In our follow-up article, we look at the remaining three behaviours as well as the sanctions for not complying.
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