Athens Exchange S.A. Response to European Commission s Public Consultation on A Revision of the Market Abuse Directive (MAD)

Transcription

1 Athens Exchange S.A. Response to European Commission s Public Consultation on A Revision of the Market Abuse Directive (MAD) The Athens Exchange welcomes the opportunity to contribute to this public consultation on the revision of the Market Abuse Directive (MAD). We are supporting measures that increase investor protection, increase harmonization between Member States by providing efficient and transparent markets for the benefit of all investors, both institutional and retail, and strengthen the level playing field between all venues and operators of such venues. Following the introduction and operation of MiFID for an adequate time interval, the revision of MAD should be used as an opportunity to take into account any effects as a result of MiFID, both positive and negative. Most of all, it should pragmatic in its applicability in the future trading environment. For example, difficulties in effective supervision as a result of fragmentation of trading for related instruments between venues and/or OTC; and diverse security mechanisms to provide orderly trading between different type of venues (eg trade halts, short selling restrictions etc) which give rise to incorrect or artificial pricing for same products are some of the major issues that should be dealt with through the revision of MAD. PART A' EXTENSION OF THE SCOPE OF THE DIRECTIVE 1. Should the definition of inside information for commodity derivatives be expanded in order to be aligned with the general definition of inside information and thus better protect investors? Given that investors protection is the main focus of the MAD directive, we support the alignment of the inside information for commodity derivatives to the general definition of inside information. However, as far as commodity derivatives are concerned, there are difficulties in monitoring release of inside information related to the underlying asset due to the large number and scope of the underlying assets of commodity derivatives. 2. Should MAD be extended to cover attempts to manipulate the market? If so why? Is the definition proposed in this consultation document based on efficient criteria to cover all cases of possible abuses that today are not covered by MAD? We fully understand the reasoning of this proposal, with which we agree in principle. However, we feel the need that it should be pointed out and also taken under consideration that the MAD in its current wording of article 1 paragraph 2 provides that Market Manipulation means transactions or orders to trade which: "give or are likely to give false or misleading signals...". It is manifested from this wording that transactions which have a probability of entailing the effects not wanted by the European legislator are also prohibited, with the rationale of the rule depending on an objective criterion; amending the current piece of legislation in such way that its rationale depends not any more on an objective criterion ("..are likely to give..") but on a subjective criterion ("..attempt to secure.." and "..attempt to employ..") should be examined thoroughly and with a high degree of attention in order to not only enforce market abuse prohibition but also provide legal certainty for the persons effecting transactions and to maintain compliance with the fundamental principles of 1

2 human rights as those are protected by the Treaty of Lisbon on the European Community and by the ECHR as well as to the relevant case law. What could also be envisaged as a proposal in order to facilitate the authorities to pursue such behavior instead of pursuing the attempt of market manipulation, would be to keep the text as is and provide that for market manipulation behavior, the intention to manipulate shall be presumed and such presumption will only be reversed by Accepted Market Practices which will be restrictively interpreted. 3. Should the prohibition of market manipulation be expanded to cover manipulative actions committed through derivatives? We agree with the need to extend the prohibition of market manipulation and the prohibition of insider dealing to cover derivatives. Based on the Langen Report and the information on the policy objectives as seen through the recent document of the European Commission regarding consultation on EMIR, it should cover at least standardized and CCP clearable derivatives (that is including sovereign and corporate CDSs, CDOs etc). Although difficult, it is also advisable to look into how pure OTC contracts traded bilaterally (eg equity swaps, barrier options, reverse convertibles with barriers etc) could be used in parallel with building up of normal positions through products available in trading venues as a form of market manipulation. That type of trading could take place in different jurisdictions; therefore fragmentation of trading, both geographically, among different type of venues and through the OTC space, might be a deterrent for orderly surveillance. 4. To what extent should MAD apply to financial instruments admitted to trading on MTFs? The core meaning of market abuse prohibition is the protection of the transparency and integrity of the market and the protection of investors. Therefore, we support the application of the secondary market provisions of the market abuse regime, regarding insider dealing and market manipulation, to financial instruments listed on MTFs as this would enhance the integrity of the MTF regime across Europe. It should also be mentioned that in Greece the Legislator took already the necessary actions in order to ensure a level playing field between regulated markets and MTFs regarding the applicability of the MAD. MAD is a directive designed to protect market integrity and the confidence of the public to financial markets; this means that teleologically it should apply to all trading venues independently from their legal form. As an Operator of a Regulated Market and of an MTF and being neutral on the position taken on any of our products (i.e. not benefiting from the proceeds of a long or short position) we strongly feel that we should protect the integrity of the financial markets and the confidence of the public to them by supporting the full application of the MAD to all venues. Furthermore having different treatment [of issuing companies to be listed] due to size, causes real problems because investors do not know what to expect from a given venue. 5. In particular should the obligation to disclose inside information not apply to issuers who only have instruments admitted to trading on an MTF? If so why? The disclosure obligations imposed by MAD (i.e. inside information disclosure and managers transactions notification) should not be confounded with the transparency obligations imposed to issuers by Directive 2004/109/EC also known as the Transparency Directive ensuring market transparency. MAD protects the 2

3 integrity of the financial markets and the public confidence in the instruments traded therein; therefore its application without distinction between Regulated Markets and MTFs should be upheld in order to ensure a level playing field and to protect the investors as well as the integrity of the financial markets. Consequently, the obligation to disclose inside information should apply to all issuers independently from the type of trading venue on which their instruments are admitted to trading. 6. Is there a need for an adapted regime for SMEs admitted to trading on regulated markets and/or MTFs? To what extent should the adapted regime apply to SMEs or to companies with reduced market capitalisation as defined in Prospectus Directive? To what extent can the criteria to be fulfilled by SMEs as proposed for such an adapted regime be further specified through delegated acts? There is no need for an adapted regime neither for SMEs admitted to trading on MTFs nor for SMEs admitted to regulated markets. The current market structure allows SMEs to choose the type of transparency they are wish. In addition, such adaptation is not deemed appropriate as it would create different levels of enforceability of capital market law but also because the mere notion of Small and Medium sized Enterprise is variable among Member States. We do also not support an adapted regime of reduced disclosure standards for SMEs admitted to regulated markets as certain disclosure standards are expected from investors. If those SMEs would be released from the disclosure of inside information, directors dealings etc., it would be difficult for investors to distinguish between them and the higher capitalized companies. Therefore providing expressly for a different treatment of SMEs admitted to trading would only create regulatory arbitrage and uncertainty for investors regarding the assessment of a given issuer they are considering investing in. PART B' ENFORCEMENT POWERS AND SANCTIONS 7. How can the powers of competent authorities to investigate market abuse be enhanced? Do you consider that the scope of suspicious transactions reports should be extended to suspicious orders and suspicious OTC transactions? Why? It must be noted that according to Greek law, the Hellenic Capital Market Commission has already the power to seize documents in the premises of professionals who are intermediaries in the conclusion of trades and are subject to its authority, within the framework of an investigation on whether or not market abuse took place. The scope of suspicious transactions reports should in principle be extended because this would avoid disparities between OTC transactions and on exchange transactions. It would help if criteria of what constitutes a suspicious order/transaction which must be reported to the regulator must be set down in order to increase legal certainty. 8. How can sanctions be made more deterrent? To what extent need the sanction regimes be harmonised at the EU level in order to prevent market abuse? Do you agree with the suggestions made on the scope of appropriate administrative measures and sanctions, on the amounts of fines and on the disclosure of measures and sanctions? Why? Sanctions should be more consistent across Europe in order to avoid regulatory arbitrage and forum/legal shopping. However, as the current crisis has shown, national economies are subject to different conditions and circumstances and face 3

4 different problems; most of those differences are also due to differences in size among national economies of the member states. Therefore a variety of minima and maxima as far as the fines are concerned should be considered as justified by those differences and as ensuring proportionality of the sanctions when these are taken. As far as the suggestions made on the scope of appropriate administrative measures and sanctions, the views expressed in the paper seem good, logical and in line with the current applicable regulatory and legal framework in Greece. 9. Do you agree with the narrowing of the reasons why a competent authority may refuse to cooperate with another one as described above? Why? What coordination role should ESMA play in the relations among EU competent authorities for enforcement purposes? Should ESMA be informed of every case of cooperation between competent authorities? Should ESMA act as a binding mediator when competent authorities disagree on the scope of information that the requested authority must communicate to the requesting authority? We agree that consistency should be re-enforced given the increased fragmentation between different venue types (including increased OTC volumes) within Europe. 10. How can the system of cooperation among national and third country competent authorities be enhanced? What should the role of ESMA be? An information-sharing regime with respect to market operators could be implemented as is the case for example with the Intermarket Surveillance Group. Moreover, we suggest that ESMA define minimum cooperation guidelines for national and 3rd country cooperation.. PART C' SINGLE RULE BOOK 11. Do you consider that a competent authority should be granted the power to decide the delay of disclosure of inside information in the case where an issuer needs an emergency lending assistance under the conditions described above? Why? Even if in principle we consider that such a power [to decide the delay of disclosure] could be useful to the national regulator in its mission to protect the market and the investors we feel however that the notion of systemically important entity as well as the method of its definition (general definition or common objective criteria among the EU) should further be specified through objective criteria in order to ensure non discrimination between issuers. We strongly support the principle of greater clarity in the communication on these delays with the relevant authorities. The wording of the amendment should ensure that all Member States provide and implement a common obligation (in terms of scope) and with a common timing (in terms of when it needs to be fulfilled). 12. Should there be greater coordination between regulators on accepted market practices? An Accepted Market Practice is always relevant to the market to which it is applicable, by definition. Directive 2004/72/EC of the Commission seems detailed enough to provide for a common set of criteria allowing to determine of what is an "acceptable market practice". However the Commission could envisage a comparative study on whether or not the competent authorities of the Member States are compliant to Directive 2004/72/EC. 4

5 13. Do you consider that there are other areas where it is necessary to progress towards a single rulebook? Which ones? No. The existing threshold of 5,000 euro seems more appropriate especially nowadays when trading values are lower compared to those market conditions at the moment when the existing threshold had been determined. 14. Do you consider that there are other areas where it is necessary to progress towards a single rulebook? Which ones? Νο. The European financial markets due to their different sizes and structure still contain differences; therefore the situation does not seem ripe enough for a single rule book on MAD. Much progress towards a single rule book in fact lies at the implementation and application level. It is necessary to implement the proposals in the de Larosière report in order for CESR/ESMA to be given a stronger role as regards supporting the uniform implementation and application of the MAD. 15. Do you consider that it is necessary to clarify the obligations of market operators to better prevent and detect market abuse? Why? Is the suggested approach sufficient? The existing relevant provisions of article 6 paragraph 6 as well as point 27 of the preamble of the MAD are clear enough and do not seem to need further clarifications as far as the obligations of market operators regarding the prevention and detection of market abuse are concerned. However, it should be noted that given the post MiFID environment equity markets are in much worse position to detect market abuse than ever before, due to fragmentation. Therefore, level playing field and effective oversight of all activity in the same product (whether in RMs, MTFs, SIs and OTC space) should be ensured. Therefore, the term market operators to be used in MAD should be redefined in order for supervision to be proportionate across all venues as defined by MiFID and therefore, include ALL types of operators of Regulated Markets, MTFs and SI platforms. Prior to MiFID, the home market regulator had a full and clear view and could ensure orderly, transparent and neutral trading. In the post MiFID era this can only be ensured if a home market supervision regime would apply. This would entail that irrespective of where the trading activity occurs, information, in a standardised manner, should be passed back to the supervisor of the home market to enable such whole picture, neutral oversight. A practical and easy to implement solution could be to use as home market the one on which the share was first admitted for trading. In any case, it is the competent authority (or other authority as designated by national law) that receives suspicious transaction reports under MAD and, with the introduction of MiFID, all transaction reports are also sent to it which, in our opinion, means it is the competent authority or other appointed authority that is in the best position to monitor and identify potential cases of market abuse given that it has the full details of all the transactions including the underlying clients. 5