TM Group Consulting. MAR - Market Abuse Regulation Recap

Transcription

1 1 TM Group Consulting MAR - Market Abuse Regulation Recap 1 EU Regulation Background The European Union Market Abuse Directive (MAD) went into effect in 2006, with the Markets in Financial Instruments directive (MiFID) Following on November 1 st MAD defined the common EU union trading compliance standards for registered market participants whereas MiFID handled a wide variety of topics including Markets structure and transparency, Client Order Handling, Investor protection (Classification of investors, Suitability and Appropriateness, Best Execution, etc..), Handling Conflict of Interests, and more... After review of MAD and MiFID since the initial implementation, in the aftermath of the global financial crisis and following the G20 initiatives for creating transparency in the OTC markets and around investor protection, the EU union is coming out with MAR (a.k.a MAD II) and MiFID II (MiFID 2, MAD 2 Directives, MiFIR, MAR - Regulations). Timeline EMIR July 2014 December Staged implementation by asset class and category of market participant. MAR July MiFID 2/MiFIR January Impact to Firms Described as a Regulatory Typhoon, MiFID II, EMIR and MAR include extensive changes to EU markets structure, clearing, reporting, controls on algorithmic trading, focus on additional instruments such as (former) OTC Derivatives, Benchmarks, Commodities and emission

2 2 allowances, as well as major upgrades to surveillance standards around market abuse, investor protection and conflicts of interest. MiFID II is estimated to impose one-off compliance costs of between 512 and 732 million and ongoing costs of between 312 and 586 million per year. The impact to market participants trading operations and businesses, as well as to their compliance and trade surveillance infrastructures, will be massive. Main Areas impacted in Market Abuse Extending Coverage to additional instruments Commodities, emissions allowances, benchmarks (manipulation of benchmarks), traded on OTFs (SEF equivalent), traded over the counter and which have an effect on the price or value of financial instruments subject to MAR. Cross Market Manipulation - Focus on and specific requirements for Cross Market Manipulation types of detection Prohibit attempted Insider Dealing and Market Manipulation Enhance relevant scenarios (Insider Trading and Market Manipulation) with orders based detection (in addition to the executions based) Decisions to cancel or amend existing orders for financial instruments on the basis of inside information, count as Insider Dealing Potentially, analyze relevant communications and link them to a market event and relevant orders/executions placed (even alert on the communications) Market Manipulation Fictitious Devices - Ratio of cancelled orders and the volume of financial instruments per order have been pointed by ESMA as being particularly relevant Commodities Corner and Squeeze Typologies apply also to Colluding Parties (i.e. collusion can be detected via the communications) Proactive Surveillance obligation to establish and maintain effective arrangements, systems and procedures to be able to detect suspicious orders and transactions. entities will need to have in place a system which is capable of the analysis of every transaction and order, individually and comparatively, and which produces alerts for further analysis Record Keeping introduces requirements for firms to record telephone conversations and electronic communications relating to the investment services. These are to be used to help deter and detect market abuse. Compliance archive of the records for legal hold and authentication of records * ESMA final technical standards provides interpretation and guidance on MAR and lists specific typologies and requirements (pages 36-40). Many of the extensive reporting requirements of MAR, which involve tracking and storing all communications (phone calls, s, etc.) using WORM storage, are already included as part of both MiFID II and Dodd-Frank record-keeping rules.

3 3 The additional MAR-specific requirements firms need to consider include: o The ability to conduct effective and ongoing monitoring of orders received, transmitted and executed for the purpose of identifying suspicious behaviour o Ensuring that upon request, they are able to provide regulators with analysis on suspicious orders and transactions which have been examined and reasons as to whether or not a Suspicious Transactions and Orders Report (STOR) was submitted o The ability to submit a STOR to regulators along with supporting documents, communications, telephone conversations, and order and transaction details 2 Market Abuse Regulation ( MAR ) We have examined the technical advice given by ESMA to the European Commission that will form the basis of the new rules implemented by the regulators in each of the European Union Countries to create consulting assignments that will answer the inevitable questions that arise. Technical standards ESMA s final report for the technical standards on the Market Abuse Regulation from September 28 th, 2015 specify the requirements in details. From ESMA s technical standards Market Abuse Regulation

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6 6 Regulators powers New EEA-wide minimum standards are set for regulators investigatory and sanctioning powers. As regards sanctioning, they must have power to impose fines of up to at least 5 million for an individual and 15 million or 15 per cent of annual turnover for a firm.