Commission published the review of the Market Abuse Directive

19 October 2011

The proposal clarifies that market abuse occurring across both commodity and related derivative markets is prohibited, and reinforces cooperation between financial and commodity regulators.

Internal Market and Services Commissioner, Michel Barnier, said: "Market abuse is not a victimless offence. By distorting market prices, insider dealing and market manipulation undermine investor confidence and market integrity. By extending and reinforcing our legislative framework, as well as toughening up the powers and sanctions available to regulators, today's proposals will equip them with the tools to keep markets clean and transparent."

The Commission proposal seeks to adapt EU rules to the new market reality, notably by extending their scope to financial instruments only traded on new platforms and over the counter (OTC), currently not covered by EU legislation, and adapting rules to new technology. The proposal includes a number of measures to ensure regulators have access to the information they need to detect and sanction market abuse. Since the sanctions currently available to regulators often lack a deterrent effect, the proposal introduces tougher and greater harmonisation of sanctions, including possible criminal sanctions which are the subject of a separate but complementary proposal. To address concerns that the costs of EU legislation represent a barrier to accessing financial markets which is too high for small and medium-sized issuers, the proposal also tailors the rules for SME issuers in several respects.

Objectives of the review:

• Keeping pace with market developments: The regulatory framework provided by the original Market Abuse Directive has been outpaced by the growth of new trading platforms, OTC trading and new technology such as high frequency trading (HFT). The proposal extends the scope of existing EU legislation to financial instruments only traded on multilateral trading facilities (MTFs), other organised trading facilities (OTFs) and OTC so that trading on all platforms and of all financial instruments which can impact them will now be covered by market abuse legislation. It also clarifies which HFT strategies constitute prohibited market manipulation, such as submitting orders without an intention to trade but to disrupt a trading system ("quote stuffing"). Commodity markets have become increasingly global and interconnected with derivative markets, leading to new possibilities for cross-border and cross-market abuse. The scope of the legislation is therefore extended to market abuse occurring across both commodity and related derivative markets.
• Reinforcing regulators' investigative and sanctioning powers: The proposal extends the current reporting of suspicious transactions also to suspicious unexecuted orders and suspicious OTC transactions. It grants regulators the power to obtain telephone and data traffic records from telecoms operators or to access private documents or premises where a reasonable suspicion exists of insider dealing or market manipulation. A prior judicial warrant is also required for access to private premises. It also requires Member States to provide for the protection of whistleblowers, and sets common rules where incentives are offered for reporting information about market abuse. Finally, a new offence of "attempted market manipulation" is introduced to make it possible for regulators to impose a sanction in cases where someone tries to manipulate the market but does not succeed in actually trading.
• Common principles are proposed, notably that fines should not be less than the profit made from market abuse where this can be determined, and the maximum fine should not be less than two times any such profit. In parallel, a proposal for a Directive on criminal sanctions for market abuse requires Member States to introduce criminal sanctions for the offences of insider dealing and market manipulation where these are committed intentionally.
• Reducing administrative burdens on SME issuers: The disclosure requirements for issuers on SME markets will be adapted to their needs, and issuers on such markets will be exempt from the requirement to draw up lists of insiders, unless the supervisor demands otherwise. The threshold for the reporting of managers' transactions will also be raised.

MAD/MAR Links:

• FAQ on MAD - Link
• Press release on MAD - Link
• MAD - Link
• MAR - Link
• Summary of the Impact assessment - Link
• Full impact assessment -Link

© European Commission