#15681 - Mar Article 19 - Public Limited Companies

MAR Article 19 – PDMRs should tell people when they deal in shares. They should not deal in closed periods.

Legislation relevant to PDMRs buying and selling shares

• 2016/522 EU

• 2016/523 EU

• 2016/1055 EU

• DTR 3 (just points to MAR)

• FSMA Regulations 2016 (implements a few points in the regulation)

• If a director or senior executive has dealt in company shares there may also be issues of Market Abuse

  • Is he abusing inside information?

    • Civil and Criminal abuse

Structure

• MAR Article 19(11) - PDMR’s should not deal during closed periods

  • Are they a PDMR? (MAR Article 3(25))

  • Is it a closed period?

• MAR Article 19(12) – Unless they have clearance

  • Company policy to never deal without permission

    • Or notify within a day so there is time to notify under MAR Article 19(3)

• (Even if a PDMR has dealt in a closed period without clearance)

  • Duty to notify issuer and competent authority (MAR Article 19(1) and (2))

  • Duty to notify public (MAR Article 19(3))

  • Duty to train PDMRs (MAR Article 19(5))

• Consider sanctions

Does MAR Apply?

• Apples to financial instruments submitted to a regulated market (MAR Article 2)

  • Includes AIM because MAR 2 specifies Multilateral Trading Facility

PDMR’s dealing in closed periods – Issue 1

• Claire - Marketing and Sales director buys 10,000 shares

• John - Senior Executive sells 10,000 shares

  • MAR Article 19(11) - PDMR’s should not deal during closed periods

    • Are they a PDMR? (MAR Article 3(1(25)))

      • Member of the administrative, management or supervisory body of that entity

        • (Claire is a PDMR)

      • Senior executive who has:

        • Regular access to inside information relating directly or indirectly to that entity

        • Power to take managerial decisions affecting the future development and business prospects of that entity

          • MAR Article 18 – Company must keep insider lists

          • (John is a PDMR)

    • Is it a closed period?

      • 30 calendar days before interim report and annual results

        • (This is late September; the report comes out in October)

        • DTR 4 - Annual results must be published within 4 months of the ARD

      • No PDMRs should be dealing here

  • MAR Article 19(12) – Unless they have closed period exception (i.e. clearance to deal)

    • There is an exception if the PDMR is in exceptional circumstances (2016/522 EU Article 7)

      • Legally enforceable claim against a PDMR could be an exceptional exception (2016/522 EU Article 8(3a))

        • (John is being sued by his wife)

        • Requirement is that he must still get clearance from the company to deal in the shares (MAR Article 19(11))

    • Company may have far stricter policies – for instance, do not buy any shares in anything without coming to us first and asking for permission

      • Notify us within a day so we have time to notify under (MAR Article 19(3))

      • Duty on company to ensure PDMRs understand their responsibilities (MAR Article 19(5))

        • PDMRs could be dismissed or disciplined in line with their employment contracts

The duty to notify the issuer and the competent authority of dealings exists regardless of whether you have dealt in breach or not – Issue 2

• Duty to notify issuer and competent authority of any transaction by a PDMR above the annual limit (MAR Article 19(1) and (2))

  • Is there a transaction?

    • Dealing includes buying shares (MAR Article 19(7))

    • There is some delegated legislation (MAR Article 19(14))

      • Acquiring shares is a notifiable transaction (2016/522 EU 10(2A))

  • Is the transaction above the annual limit?

    • There is reference to an annual threshold in MAR Article 19(1)

    • The limit is set at 5,000 in MAR Article 19(8)

    • The member states can choose a higher threshold of 20,000

      • DTR 3.2.1BG – FCA have chosen to adopt 5,000

  • In this instance, even though Claire wrongly dealt under MAR Article 19(11) the duty to notify is a separate breach

    • She bought 10,000 of shares i.e. over the threshold. There was a transaction above the annual limit and so a duty to notify.

• Has there been notice to the relevant people?

  • The PDMR themselves must notify the company and the competent authority (MAR Article 19(1))

    • Who is the competent authority?

      • Each member state can designate a competent authority (MAR Article 22)

      • In the UK, this is the FCA (FSMA Regulations 2016 Reg 3)

    • Make notification within 3 working days of the transaction (MAR Article 19(2))

    • The contents of the notice are found within (MAR Article 19(6))

      • Go to delegated legislation mentioned in MAR Article 19(15)

      • 2016/523 EU Annex provides the template letter for formal notice

The Company itself has the same 3 business days from breach to disclose to the public the breach (MAR Article 19(3))

• The process for disclosure in MAR Article 17(10(a))

  • Points to EU 2016/1055 Article 2

    • Notify the public in a non-discriminatory, free, simultaneous, electronic way throughout the Union

    • This means disclose via an RIS

• Duty doesn’t arise unless the company themselves have been told about it

• Unknown what happens re the company being notified late as the 3 -day period runs simultaneously on duty from both PDMR and company

Sanctions for breaching duty not to deal and certain times and duty to notify when dealings happen

• Sanctions are left to member states (but must cover certain things) MAR Article 30

  • UK delegated regulation for this is FSMA Regulations 2016

    • s123 – Fine or censure for legal person who has contravened MAR

    • s122 – Censure of whole listing so no one can trade in these shares anymore (only if FCA feel market is undermined)

    • s123A(2a) – Temporary ban in dealing shares

    • s123B(2a) – Temporary removal from office

There is a potential takeover bid due to poor performance and a profit warning. Is there any inside information John and Claire have access to?

• Not reasonably expected to happen so is not inside information yet

• Profit warning was issued under MAR Article 17 as inside information

  • This is information about the company that the public should know about

  • We can’t keep it secret, there is no reason to delay, we have got to let the market know

    • Claire buying wouldn’t trigger this, John selling might trigger, though he has a good reason.

Insider dealing is a civil and criminal offence in WS7.

AIM in relation to MAR Article 19

• Does MAR apply to AIM

  • Are we an Issuer trading on a Multilateral Trading Facility?

    • MAR Article 3 Para 21 – Issuer is defined as someone who...