On 9 November 2015, ESMA published its Q&A on the implementation of the current Market Abuse Directive (MAD). For those of you looking for some relief, this is a relatively short document, just 8 pages, and it consists of only two questions. Question one focuses on the disclosure of inside information related to dividend policy, the second asks for answers to the disclosure of inside information related to Pillar II requirements.
Inside information related to dividend policy
Question one specifically covers dividend policy and the publication of information, and its resulting effects on the formation of prices for derivative products, such as futures. It is addressing the issue because ESMA has identified a number of instances where incomplete disclosure of the full details of dividend announcement potentially caused ‘undue’ effect on equity derivative prices. In particular, ESMA references uncertainty around the issuance of information when there are changes made to ex-dividend dates, provisional and final amounts and the nature of payment.
ESMA reminds readers of the definition of inside information and the publication of information, namely that information that is likely to have a significant effect on prices should be disclosed as soon as possible, in accordance with Article 6 of MAD. It emphasises that issuers should ensure that they pay due attention to Articles 6 and 2 “in order to ensure effective and harmonised application of MAD.”
Disclosure of inside information related to Pillar II requirements
The question relates to the requirement for credit institutions to systematically publish results of Pillar II assessments.
ESMA stresses the spirit and purpose of MA, specifically to enhance market integrity and to “achieve prompt and fair disclosure of information.”
Once again, ESMA refers to Article 6 of MAD, and the rules on the disclosure of information to the public. ESMA notes the exception that firms can, on a case-by-case basis, delay the disclosure of information as long as:
- It does not prejudice the issuers’ legitimate interests
- It does not mislead the public
- The issuer is able to ensure the confidentiality of the information.
In addition, the issuer needs to assess the particular circumstances before deciding to delay the disclosure of inside information.
It is clarified that, if a credit institution is subject to MAD, where it is also an issuer of financial instruments admitted to trading on a regulated market, it needs to evaluate whether the impact assessment undertaken in line with CRD IV Article 97 should be disclosed in accordance with Article 6 criteria.
MAD has been in effect since 2003, and a second directive will come into force July 2016. But, despite its longevity, there are still questions that need to be answered. And, next year, there will surely be more coming from MAD 2.