*** THIS DOCUMENT AND THE INFORMATION IT CONTAINS IS NOT A SUBSTITUTE FOR
LEGAL OR OTHER PROFESSIONAL ADVICE. SPECIFIC LEGAL ADVICE SHOULD BE
TAKEN BEFORE ACTING ON ANY OF THE TOPICS COVERED ***
EU MARKET ABUSE REGULATION
On 3 July 2016, the EU Market Abuse Regulation (MAR) will come into force. MAR includes
disclosure obligations for issuers admitted to trading on regulated markets or Multilateral Trading
Facilities, and accordingly, will apply to AIM. This note examines what is changing for AIM
companies with an executive summary below and the remainder of this note considering these
changes in further detail.
Executive Summary
A summary of the key changes under MAR is set out below.
AIM Rule 11 – Disclosure of price sensitive information
In addition to AIM Rule 11 covering the disclosure of price sensitive information, AIM companies
will have a separate obligation to announce any inside information as soon as possible (subject to
certain exceptions where delay is permitted).
AIM Rule 17 – Directors’ dealings
AIM Companies obligation to notify directors’ dealings will be deleted and their obligation will be
extended to notification requirements in relation to transactions by persons discharging managerial
responsibilities (PDMRs) (which includes directors) and their closely associated persons.
AIM Rule 21 – Restrictions on dealings
AIM Rule 21 (which requires an AIM company to ensure that its directors and applicable employees
do not deal in its securities during a close period) will be deleted and a new rule will be introduced
requiring an AIM company to have a reasonable and effective dealing policy.
Market Soundings
MAR will allow inside information to be legitimately disclosed to a potential investor in the course
of market soundings undertaken to gauge interest in a potential transaction or its potential size or
pricing.
Insider Lists
Under MAR, the requirement to maintain insider lists will be extended to apply to AIM companies.
The content of this list is more detailed than previously required.
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AIM RULES CHANGES
(1)
AIM Rule 11 – Disclosure of Price Sensitive Information
Under AIM Rule 11, currently “price sensitive information” must be announced to the market. MAR
introduces a new concept of “inside information”. The two concepts set out below, although similar,
remain separate and must be complied with independently to the other.
Under MAR, AIM companies will be required to disclose inside information to the market as soon
as possible, with delay only permitted in limited circumstances. Although this is similar to the
general disclosure requirement which currently applies to AIM companies under AIM Rule 11 in
respect of the disclosure of “price sensitive information,” it is not identical and there are some
significant additional requirements that apply under MAR. The LSE guidance has confirmed that
compliance with MAR does not mean that an AIM company will have satisfied its obligations under
the AIM Rules and vice versa.
Definitions of “Inside Information” vs “Price Sensitive Information”

AIM Rule 11
o

Principles based consideration in the context of the maintenance of a fair
and orderly market (notification must be made in respect of information
which, if made public, would lead to a significant movement in the price of
a company’s AIM securities, including examples of a change in its financial
condition, sphere of activity, performance of business, expectation of its
performance).
Article 7 MAR
o
Information must be (i) precise (ii) not have been made public (iii) relate
to one or more issuers or financial instruments and (iv) if made public, be
likely to have a significant effect on the price of those financial instruments.
o
This new concept is largely similar to the AIM rule, except that it now
provides that information will only have a significant effect on price if it is
information of a kind which a “reasonable investor” would be likely to use
as part of the basis of their investment decisions.
The updated definition of inside information is likely to widen the circumstances in which information
must be reported to the market. The regime may afford greater flexibility to delay disclosure, but
will result in enhanced regulatory scrutiny in relation to the reasons for delay.
Financial institutions can delay where:

(with the prior consent of regulator) immediate disclosure is likely to undermine
the financial stability of the issuer/prejudice the legitimate interests of the issuer
and the financial system;

delay is in the public interest/delay of disclosure is not likely to mislead the public;
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
the issuer is able to ensure the confidentiality of that information;
If disclosure is delayed then the AIM company will have to refer to the MAR rules on record
keeping, specifically the timing of the decision and responsibility for the decision to delay disclosure
as well as notification to the FCA once disclosure is made.
The most significant difference for AIM companies under MAR relates to situations where a
decision has been taken to delay the disclosure of inside information – these are:
detailed record keeping requirements that will apply where disclosure is delayed – including
(amongst other things) the time and date when the decision to delay was made, the persons
responsible for deciding to delay and for ongoing monitoring of the delay and evidence of the
fulfilment of the conditions permitting delay. In this context, companies should consider whether it
might be appropriate for the board to delegate responsibility for decisions regarding inside
information and disclosure to a committee; and
a requirement to notify the FCA where a delay in the disclosure of inside information under the
MAR framework has occurred immediately following public disclosure of the information using the
prescribed FCA form. In addition, if requested by the FCA, the company will have to provide a
written explanation of how the conditions permitting delay were satisfied.
AIM companies will also need to comply with the MAR requirements around the format and content
of notification of information to the market, including a requirement to post inside information that
has been publicly disclosed on their website for a period of at least five years.
(2)
AIM Rule 17 – Director’s Dealings
Currently, AIM company directors’ dealings in shares or debt instruments of the company or
derivatives or other financial instruments relating there to, must be announced under AIM Rule 17.
MAR extends this to relate to a person discharging managerial responsibilities (PDMR’s) rather
than just directors.
Companies must:

draw up a list of their PDMRs and persons closely associated with them, and

notify their PDMRs in writing of their obligations in relation to dealings under MAR.
PDMR’s must:

notify the issuer of every transaction relating to the issuer's financial instruments
(or related derivatives) conducted by:

the PDMR; and/or

their closely associated persons:
o
spouse/civil partners
o
dependent children
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o
relatives living in same household for at least one year prior to transaction
o
companies/trusts etc. benefitting and managed by any of the above.
The issuer is then obliged to publish the notification promptly and in any event within three days.
Both notification and publication must be made using a prescribed template form.
The current Rule 17 requirement to disclose directors’ dealings will be deleted on the basis that
Article 19 provides an appropriate level of transparency.
Specific differences between MAR and the AIM rules include:
(3)

MAR applies to all PDMRs (not just to directors), which means that, depending on
the nature and size of the company, their application may be broader than Rule
17.

Rule 17 currently requires disclosure of all dealings, but MAR includes a de
minimis threshold below which transactions will not require disclosure. This is set
at €5,000 per calendar year.

Disclosure under MAR (by the PDMR to the company and the FCA and by the
company to the market) must be made in the form of a mandated template.
AIM Rule 21 – Restriction on Dealings
Under the current AIM Rule 21 an AIM company must ensure that its directors and applicable
employees do not deal in its securities during a close period.
Article 19 of MAR prohibits trading in the company's securities by PDMRs during MAR closed
periods (being the 30 days prior to announcement of an interim financial report or a year-end
report), which is shorter than the two month period provided for under the “close period” of the AIM
Rules. The exceptions to the prohibition on dealing during a MAR closed period relating to
acceptances of takeovers or rights issues as currently permitted under AIM Rule 21 are also
narrower in scope than those provided for under the current Listing Rules Model Code (which many
AIM companies adopt a version of as their share dealing code).
In light of the overlap between the MAR obligation and the existing scope of AIM Rule 21, AIM
Regulation is proposing to replace AIM Rule 21 with an obligation for AIM companies to adopt a
dealing policy and to require nominated advisers to consider this as part of their responsibilities.
Although most AIM companies will have share dealing codes in place, these will need to be
reviewed for compliance with the revised AIM Rules and also to ensure they are aligned with the
relevant provisions of MAR. In this context, Inside AIM notes that AIM companies and nominated
advisers are expected to consider the design and implementation of share dealing codes in a
meaningful way, to ensure they are capable of working in practice taking into account the
nominated adviser’s knowledge of the company and its management.
The LSE has set out the minimum provisions that would be expected to be included in the policy:
proposed AIM Rule 21 requires such dealing policies to set out (i) the AIM company’s close periods
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during which directors/PDMR’s cannot deal; (ii) when a director/PDMR must obtain clearance to
deal; (iii) appropriate person(s) within the AIM company to grant clearance requests; (iv)
procedures for obtaining clearance for dealing; (v) the appropriate timeframe for a director/PDMR
to deal once they have received clearance; (vi) how the AIM company will assess whether
clearance to deal may be given; and (vii) procedures on how the AIM company will notify deals
required to be made public under MAR. The notes to the Rule provide that, in determining whether
it is appropriate to give clearance to deal, AIM companies will be expected to consider their wider
obligations under MAR. It is also noted that AIM would expect companies to appoint independent
staff of sufficient seniority to grant clearance requests and that the procedures should give
consideration as to an alternate person where they are not independent in relation to a particular
request.
Issuers are also obliged to compile a list of the managers affected by this measure and of their
close associates. Issuers also now have to inform directors and senior managers in writing about
their obligations under the market abuse regulation. Directors and senior managers of the issuer
are also required to inform relevant family members in writing about their obligations under the new
regulation.
(4)
Market sounding
The market abuse regulation contains for the first time statutory provisions on market sounding.
Market soundings consist of approaches to selected investors in advance of new issues in the
capital market in order to sound out the likelihood of an issue’s success. This can easily conflict
with the prohibition of the disclosure of unauthorised insider information.
Thus, prior to the market sounding, the participant disclosing the information must:

obtain the agreement of the recipient to obtaining insider information;

inform the recipient about the prohibitory provisions relating to insider trading
contained in the market abuse regulation; and

place the recipient under an obligation of confidentiality. Once the market
sounding is over, the market abuse regulation requires that the recipient be
informed as soon as the information it received no longer constitutes insider
information.
MAR contains safe harbour provisions that allow companies to consult market participants
regarding their view on certain matters. To fall within the safe harbour, the issuer must:
Assess whether the market sounding will involve disclosure of inside information;
Obtain the consent of the person to whom the disclosure is made to receive that information;
Inform that person that they will be restricted from MAR from trading or acting on that information
and that they will be obliged to keep that information confidential.
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MAR also identifies certain categories where the possession of inside information will not give rise
to a presumption of insider dealing - safe harbours for “legitimate behavior” and “accepted market
practice.”
(5)
Insider Lists
Under MAR, the requirement to maintain insider lists (which currently only applies to Main Market
issuers) will be extended to apply to AIM companies.
The format of the insider list is prescribed by EU regulation and includes fields to capture the
following information on each insider:

personal details (name, birth name, date of birth, NI number)

work contact details

function within the issuer and the reason for becoming insider

date and time access to inside information started and ended

personal address and phone numbers (home and mobile)
MAR envisages that companies will be able (if they want) to keep their insider lists in two sections
– one which contains deal or event specific lists and another which sets out the company’s socalled “permanent” insiders, being people who (if inside information exists within the company)
would have access to it.
MAR also requires companies to take all reasonable steps to ensure that any individuals added to
insider lists acknowledge their legal and regulatory duties and are aware of the sanctions for insider
dealing/improper disclosure of inside information. The company will need to provide its insider lists
to the FCA on request.
(6)
Insider Dealing
Article 8 of MAR broadens the scope of insider dealing as attempted breaches are now also
covered with a new offence of cancelling or amending orders whilst in possession of inside
information. Previously, these did not constitute infringements of insider trading rules, as no
securities were acquired as a result of insider information.
____________________________________
Schofield Sweeney LLP | June 2016
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