ESMA updates its Market Abuse Q&As

On 29 March 2019, the European Securities and Markets Authority (ESMA) updated its Q&As, “On the Market Abuse Regulation (MAR)” providing clarification on (a) the obligation of an undertaking with no legal personality to disclose inside information, (b) the meaning of "parent" and "related undertakings" and (c) the disclosure of inside information concerning emission allowances.

On 29 March 2019, the European Securities and Markets Authority (ESMA) updated its Q&As, “On the Market Abuse Regulation (MAR)”.

Four new Q&As are included on the disclosure of inside information. Two relate to a collective investment undertaking (CIU) without legal personality, the other two to emission allowances and emission allowances market participants (EAMPs).

The scope of the obligation to disclose inside information

ESMA has included two new questions (5.6 and 5.7) in Section 5 of its Q&As, “Questions and Answers on the disclosure of inside information”, each concerning the position of a CIU which does not have legal personality.

Q.5.6 confirms that such a CIU is, nevertheless, within scope of the obligation, under Article 17 of MAR, to inform the public as soon as possible of inside information which directly concerns that issuer. (It may also delay disclosure provided the relevant provisions of Article 17 are adhered to.)

A CIU without legal personality meets the definition of "issuer" set out in Article 3(1)(21) of MAR even though the effective issuance or redemption of its shares is discharged by the asset manager. As a result, the asset manager itself could be held responsible for a failure to disclose inside information in respect of the CIU under MAR.

However, ESMA notes that the obligation under Article 17(1) of MAR only covers:

  • issuers that have requested or approved admission of their financial instruments to trading on a regulated market in the EU, or
  • where the instruments are only traded on an MTF or an OTF:
    • issuers who have approved trading of their financial instruments on an MTF or an OTF in the EU, or
    • issuers who have requested admission to trading of their financial instruments on an MTF in a Member State.

ESMA also points out that the obligation to publicly disclose inside information under Article 17 of MAR differs from other disclosure obligations under the AIFMD or the UCITS Directive as it relates strictly to cases involving "inside information" (as defined in Article 7 of MAR) that directly concerns the issuer.

Q.5.7 considers what specific cases of inside information might arise in respect of CIUs without legal personality which are voluntarily admitted to trading or traded on a trading venue under Article 17 of MAR.

Article 7 of MAR defines inside information as being (to paraphrase) information that is non-public, precise, and related to a financial instrument or issuer, which, if made public, is likely to have a significant effect on the price of the issuer’s financial instrument or related instruments.

In its answer to Q5.7, ESMA sets out a non-exhaustive list of examples where inside information may arise in respect of CIUs admitted to trading/traded on a trading venue in general (including ETFs), while noting that some of the examples it gives may not constitute inside information in all cases.

These include, among other things:

  • a situation which has a significant impact (positive or negative) on the valuation of the CIU’s assets of the CIU and, so, on the value of its units
  • unexpected circumstances in the creation or redemption of a CIU’s units, for example, a situation where the CIU is unable to issue or redeem its units
  • the failure or delay of a counterparty to an OTC derivative which impacts the CIU’s return or risk, and
  • the failure or delay of a counterparty in a securities lending transaction.

For a real estate CIU admitted to trading/traded on a trading venue, ESMA flags that inside information under Article 7 of MAR may also arise in the context of significant events related to the acquisition, sale or management of the CIU’s real estate assets, such as rent renegotiation or possible relevant losses arising from legal disputes.

Disclosure by emission allowances and emission allowances market participants (EAMPs)

ESMA has also included two new Q&As in Section 11, “Questions and Answers on emission allowances and emission allowances market participants (EAMPs)”.

Meaning of "parent" and "related undertaking"

New Q.11.2 confirms ESMA’s interpretation of the meaning, in Article 17(2) of the terms "parent" and "related undertaking".

Article 17(2) of MAR requires an EAMP to disclose inside information

“concerning emission allowances which it holds in respect of its business [...] or installations [...] which the participant concerned, or its parent undertaking or related undertaking, owns or controls or for the operational matters of which the participant, or its parent undertaking or related undertaking, is responsible, in whole or in part”.

On the definition of the parent undertaking, Article 30(2) of MAR refers to the EU Accounting Directive (Directive 2013/34/EU), Article 2(9) and (10) of which define the term as

“an undertaking which controls one or more subsidiary undertakings”, and a subsidiary undertaking as “an undertaking controlled by a parent undertaking, including any subsidiary undertaking of an ultimate parent undertaking”.

Since the definition of a group in the EU Accounting Directive comprises the parent undertaking and all its subsidiary undertakings, ESMA considers that ultimate parent undertakings are also relevant for the purposes of Article 17(2) of MAR.

In respect of related undertakings, ESMA’s view is that

  • following Article 4 of REMIT, these are “either a subsidiary or other undertaking in which a participation is held, or an undertaking linked with another undertaking by a relationship within the meaning of” current Article 22(7) of the EU Accounting Directive, and
  • for the purposes of Article 17(2) of MAR, the relevant related undertakings are those of the parent undertaking of the EAMP.

Obligation to disclose inside information on emission allowances of other undertakings in the same group

In a new Q.11.3, ESMA confirms that, in certain circumstances, EAMPs are obliged to disclose inside information on emission allowances where this regards installations of other undertakings in the EAMP’s group.

MAR sets out, in Article 3(1)(20), two cumulative requirements to be met to be an EAMP. These are:

  • being a person that enters “into transactions, including the placing of orders to trade, in emission allowances, auctioned products based thereon, or derivatives thereof”, and
  • exceeding a threshold of carbon dioxide equivalent (or having had a rated thermal input exceeding a minimum threshold, where the participant carries out combustion activities).

On the first of these, following its previous technical advice to the European Commission, ESMA’s view is that market participants who enter into transactions or place orders to trade in emission allowances (either directly and indirectly) will fall within the Article 3(1)(20) definition.

The latter is the case, for instance, for polluting companies that trade emission allowances through trading companies within the same group.

On the second requirement, Article 5 of the MAR Level 2 Delegated Regulation sets out the minimum thresholds, with the threshold applying at group level and relating “to all business […] which the participant in the emission allowance market concerned, or its parent undertaking or related undertaking owns or controls or for the operational matters of which the participant concerned, or its parent undertaking or related undertaking is responsible, in whole or in part.”

Therefore, where two participants to the emission allowances market are part of the same group, and, when adding their emissions together, the Article 5 threshold is met (even if, individually, they are below the threshold), then each is an EAMP and individually subject to the Article 17(2) of MAR obligation to disclose inside information concerning emission allowances.

An EAMP must also disclose inside information concerning emission allowances where the installation of an undertaking that is a parent company of the EAMP or a related company has an impact on the EAMP’s demand of emission allowances. Similarly, the EAMP would be responsible under Article 17(4) if there was a delay in disclosing this inside information.

Where there is more than one EAMP in a group, ESMA confirms that the disclosure obligation in respect of inside information concerning emission allowances falls on the EAMP whose demand of emission allowances is impacted by the parent or related company’s business. Where both EAMPs are impacted, each would be obliged to disclose this information, the disclosure obligation being fulfilled once the inside information concerning emission allowances has been published.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.