The Market Abuse Regulation – A Challenge for the Management of Public Companies
Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (known simply as the Market Abuse Regulation) has implemented a number of changes with respect to the information duties incumbent upon publicly traded companies. The management boards of public companies still have some time to achieve compliance with the new rules.
The Market Abuse Regulation was adopted on 16 April 2014 and published in the Official Journal of the European Union on 12 June 2014. It has been effectively in force since 2 July, although many of its key provisions will not come into force until July 2016, upon conclusion of a 24-month interim period ( vacatio legis ). Under the legal order of the European Union, Regulations such as this one are directly applicable within the national laws of individual Member States, with no need for any further transposition measures.
The Market Abuse Regulation within the Polish legal system
Of the various changes introduced by the Market Abuse Regulation with respect to information duties, the following are particularly worthy of note:
The rules counteracting abuse now apply not only to financial instruments admitted to trading in the regulated market, but also to dealing in alternative systems and in dark pool trading;
Newly elaborated definitions relating to confidential information;
Improved “user friendliness” from the perspective of small and medium-sized enterprises;
Newly differentiated criteria for imposition of administrative penalties for selected abuses by public companies;
Proscription of abuses in commodities markets and in their related derivatives markets.
The Market Abuse Regulation also introduces the possibility of imposing fines on publicly listed companies in an amount corresponding to at least three times the profit accruing from the market abuse thus penalised or to at least 15% of a business enterprise’s turnover. These penalties are formulated as a minimum which can be increased by individual Member States at the level of their national laws.
From the perspective of the Polish securities market, particular regard should be had to the new rules governing confidential information at publicly listed companies. The Market Abuse Regulation implements a single category of confidential information, thus putting an end to the dualism hereuntil persisting in the Polish market whereunder the information released by public companies in their current statements was subdivided into confidential information and current information, released to the public under two distinct sets of rules. As matters now stand, companies listed in Poland release current statements if there arise circumstances referred to in the Polish regulation concerning current and periodic information as well as if the given event is of material importance to the company because it meets the definition of confidential information but is not expressly mentioned in the Polish regulation.
Once the Market Abuse Regulation becomes effectively applicable in Poland, public companies will discharge their information duties exclusively under the confidential information regime, not the Polish regulation concerning current and periodic information. In other words, it will now be incumbent upon the company itself to decide whether or not a given event constitutes confidential information which warrants publication; the previous duty to publish current statements upon occurrence of one of the events mentioned in the regulation concerning current and periodic information shall expire, and the scope of a public company’s information duties will be determined exclusively by the definition of confidential information laid down in the Market Abuse Regulation. Thus, managers at publicly traded companies will bear greater responsibility with respect to classifying a given event as confidential information. In this connection, we might picture two extreme scenarios – a company which communicates with the market by way of periodic reports only because it does not discern any events which, in its view, would merit classification as confidential, and another company which bombards the market with a relentless barrage of current statements “just in case”. Clearly, both such scenarios are inimical to the companies concerned, to their actual and prospective investors, and to the market as a whole.
In order to comply with the new regulatory regime implemented by the Market Abuse Regulation, many companies will need to put in place new legal solutions. It is for this reason that public companies will receive the benefit of a two-year interim period within which they can establish appropriate reporting mechanisms. At least initially, some companies may find it helpful to refer to the catalogue of events set out in the repealed Polish regulation concerning current and periodic information.
Recommendation for public companies
At this early stage, it would be difficult to discuss all the practical consequences of the coming into force of the Market Abuse Regulation. It is clear enough, however, that the new rules will translate into increased risk for the management boards of public companies with respect to discharge of information duties, especially seeing as there does not seem to be much guidance in this area. In light of these circumstances, public companies may consider drawing up catalogues of items which will be deemed to constitute confidential information for purposes of the given company’s disclosure duties. In this context, the hypothetical public company may find it prudent to analyse its performance of information duties to date and the specific characteristics of its business operations; the results of such an analysis may then serve as a basis for some unified plan or set of guidelines for future compliance with the information duty regime to be introduced by the Market Abuse Regulation. The actual operation of these plans / guidelines in practice should then be the object of close monitoring so as to fine-tune it to shifting market conditions and/or to changes in the company’s operating profile, the idea being that they should always reflect the current circumstances of the company. Of course, such plans for discharge of the information duties ought to be communicated to the market at large so that all recipients of confidential information released by the company dispose of equal awareness as to what, in the eyes of such company’s management, constitutes confidential information – and, accordingly, as to what they might expect in the future by way of current statements from the company. By releasing the company’s information plans / guidelines (provided that these have been drawn up with due care and skill, and that their implementation is subject to ongoing monitoring), the management board will also mitigate its potential liability with respect to discharge of information duties.
To summarise, implementation of the Market Abuse Directive in Poland promises to introduce new consistency to the concept of confidential information, doing away with the dualism persisting in this regard. There is the hope that, in the longer term, the items of information published by public companies will be ones which actually have relevance to valuation of their securities while obfuscation of the picture with irrelevant information which ought not have been published will be reduced.