ABI response to ESMA s discussion paper on possible implementing measures under the Market Abuse Regulation

Transcription

1 ABI response to ESMA s discussion paper on possible implementing measures under the Market Abuse Regulation The UK Insurance Industry The UK insurance industry is the third largest in the world and the largest in Europe. It is a vital part of the UK economy, managing investments amounting to 26% of the UK s total net worth. The ABI The ABI welcomes the opportunity to comment on ESMA s discussion paper on the possible implementation of measures under the Market Abuse Regulation ( MAR ). As the voice of the insurance and investment industry in the UK, ABI members represent the one of the largest collective body of institutional investors in the UK. With some 1,800 billion of funds under management held in a variety of asset classes and UK equity holdings equivalent to almost 20% of the capitalisation of the UK stock market, our members support efforts to enhance market integrity and investor protection. We have been particularly supportive of the MAR. Introduction General Remarks In providing a response to the Discussion Paper ( DP ), we do not respond to all the questions but focus on the areas that are of key importance to our members as institutional investors, namely: buyback programmes o please note that, although we do not answer the questions on stabilisation, we are supportive of Article 3(2) of MAR that provides that prohibitions of insider dealing and market manipulation do not apply to trading in securities or associated instruments for the stabilisation of securities when the stabilisation is carried out for a limited time period; market soundings; public disclosure of inside information and delays. Inside Information Although not covered in the DP, our members are concerned about the definition of inside information under MAR (Article 6). As it stands, Article 6 does not adequately reflect the importance of price sensitivity when ascertaining what information is caught by the provisions. It is not clear if these provisions mean that:

2 any non-public information (however apparently insignificant) which a reasonable investor would be likely to use as part of its investment decision should be treated as inside information, or whether only non-public information which, from the perspective of a reasonable investor, is likely to have a significant effect on price, should be covered. A two limb test should be applied in interpreting these provisions. For information to be considered inside information it must be: information that is likely to have a significant effect on the price of the relevant financial instruments, and information that a reasonable investor is likely to take into account when marking its investment decision. This would mean that the significance of the information will be dependent on a reasonable investor s ability to use that information as part of their investment decisions. The ABI seeks clarity from ESMA on how they intend to interpret this provision, as the regulatory interpretation would have a great impact on the ability of investors to engage with the companies they invest in. We will continue to work with ESMA on any specific issues that may assist in developing the final policy framework. ABI Responses to Individual Questions Buyback programmes and stabilisation (Article 3 of MAR) Buyback programmes Q1. Do you agree that the mechanism used in the Transparency Directive or comparable mechanism should be used for public disclosure regarding buy-backs? We agree. Q2. Do you agree that aggregated figures on a daily basis would be sufficient for the public disclosure of buy-back measures? If so, should then the details of the transactions be disclosed on the issuer s web site? We agree with both. However, where an issuer purchases shares to be held as treasury shares, they should also be required to publish: the total number of treasury shares of each class held by the company following the purchase and non-cancellation of such equity shares; and the number of equity shares of each class the company has in issue less the total number of treasury shares of each class held by the 2

3 company following the purchase and non-cancellation of such equity shares. Q3. Do you agree to keep the deadline of 7 market sessions for public disclosure or to reduce it? We do not agree that the deadline should be kept at 7 market sessions. Investors are interested in the timely provision of these reports. Therefore the issuer should publicly disclose transactions related to a buyback programme, no later than 7.30am on the business day following the calendar day on which the purchase occurred. Q4. Do you agree to use the same deadline as the one chosen for public disclosure for disclosure towards competent authorities? See question 3 above. Q5. Do you think that a single competent authority should be determined for the purpose of buy-back transactions reporting when the concerned share is traded on trading venues in different Member States? If so, what are your views on the proposed options? A single competent authority should be determined for buy-back transactions according to the Prospectus Directive. Where the shares are not admitted to trading on a regulated market, the competent authority should the most liquid market in terms of liquidity as defined under MiFIR. Q6. Do you agree that with multi-listed shares the price should not be higher than the last traded price or last current bid on the most liquid market? We do not agree. According to the UK Listing rules, unless a tender offer is made to all holders of the class, purchases by a listed company of less than 15% of any class of its equity shares should only be made if the price paid is not higher that 5% over the mid-market quote on the most liquid market over 5 business days. ABI members believe this to be an appropriate level. Q7. Do you agree that during the last third of the regular (fixed) time of an auction the issuer must not enter any orders to purchase shares? We do not agree with ESMA s approach. The auction process is integral and valid part of the price formation process. Therefore, buyback activity should be allowed throughout the auction. Q8. Do you agree with the above mentioned cumulative criteria for extreme low liquidity? If not, please explain and, if possible, provide alternative criteria to consider. 3

4 No Comment Q9. Do you think that the volume-limitation for liquid shares should be lowered and three different thresholds regarding liquid, illiquid and shares with extreme low liquidity should be introduced? We agree that there is merit in setting different thresholds on the daily average volume based on liquidity i.e. by 15% for liquid shares, 25% for illiquid shares and 50% for shares with extreme low liquidity. However, these levels should be capped to ensure that an issuer cannot purchase over 10% of the issued ordinary share capital. Q10. Do you think that for the calculation of the volume limit the significant volumes on all trading venues should be taken into account and that issuers are best placed to perform calculations? Q11. Do you agree with the approach suggested to maintain the trading and selling restrictions during the buy-back and the related exemptions? If not, please explain. We agree that there should continue to be trading exemptions where the buyback programme is a time scheduled programme, or is lead-managed by an independent investment firm or credit institution. Equally, there should not be a selling restriction on an issuer that is an investment firm/credit institution has appropriate Chinese Walls in place. Market soundings (Article 7c of MAR) Q23. Do you agree with ESMA s proposals for the standards that should apply prior to conducting a market sounding? We generally agree with the standards that should apply prior to conducting a market sounding and propose that they should also include requirements for the disclosing market participant to: ensure that they provide enough information to the buy-side to enable investors to make an assessment of whether they may receive is price sensitive and whether they should participate in the market sounding, and formulate a cleansing strategy ahead of approaching investors. This strategy should be consistently applied across all relevant investors, where applicable. Q24. Do you have any view on the above? We agree that, as trading in a specific security may occur in different time zones and access to fund managers is usually best achieved during normal working hours, ESMA should not restrict the hours in which market sounding can take place. 4

5 Q25. Which of the 3 options described above in paragraph 82 do you think should apply? Should any other options be considered? We propose a variation of Option 2. We agree that the sell-side should seek and record the consent of the buyside to be wall-crossed in relation to an individual transaction. The sell-side should also maintain a list of buy-side clients who have informed them that they never want to be wall crossed in relation to potential transactions. Where the buy-side firm s attitude toward sounding changes, they should inform the sell side of this and be taken off the list. Within large firms, there will often be divergent views on whether individuals or teams are willing to be wall-crossed. To ensure that no inadvertent wallcrossing occurs, buy-side firms that would like to decide on a case by case basis as to whether they would like to be wall crossed should nominate an individual/team who will receive all market soundings. This will allow the buyside firm to determine how best to proceed with the information and will be in keeping with other proposals in the discussion paper. Q26. Do you agree with these proposals for scripts? Are there any other elements that you think should be included? We agree with the proposals for scripts to be used when performing market soundings. These scripts should be as short and as simple as possible and should be standardised across the market to ensure a consistent approach in the market. We support the use of wall-crossing sounding scripts and agree they should clearly inform investors: why the information is considered inside information, that by giving their agreement they will receive inside information, the amount of time they should expect to be insiders, the cleansing and notification procedures when a deal is announced or abandoned, and the process through which a disclosing market participant will go to agree an extension of the deadline by which investors expect to be cleansed. In addition, the disclosing market participant should inform the investor whether the information it is about to receive will affect both debt and equity, as this may require firms to take both their debt and equity teams off-market and may impact the amount of time that they are willing to be inside. Q27. Do you agree with these proposals regarding sounding lists? We agree that the disclosing market participant should be required to retain records of the firms contacted and the specific individuals within that firm who were sounded on both wall-crossed and non-wall crossed basis. 5

6 However, we do not believe that it is practical to require the names of all the employees within the firm who are then subsequently wall-crossed as this information will not be available to the disclosing market participant. This list should be maintained by the buy-side firm in question. Q28. Do you agree with the requirement for disclosing market participants set out in paragraph 89? We agree. The disclosing market participant should maintain a list of the relevant contact name and contact details of the person or team responsible for receiving sounding approaches within the buy side firm. In addition, the disclosing market participant should confirm, before conducting the market sounding, that they are speaking to the right team or individual Q29. Do you agree with these proposals regarding recorded lines? We do not agree that all market sounding and cleansing conversations must be conducted on company-recorded mobile and land lines, regardless of whether the intention is to pass inside information. Market sounding can be an on-going process that continues after the initial wall-crossing has occurred until the investor is cleansed. Market sounding conversations may be held during face to face meetings, conference calls or via . By requiring that all market sounding conversations are held over recorded lines, ESMA will restrict the circumstances in which market soundings can take place and may lead to inefficiencies in the market. We propose that ESMA should require the disclosing market participant; to conduct the initial wall-crossing conversation over a recorded line; to make a record of the date and details of the information that was provided in subsequent conversations, and to confirm in writing when they have cancelled/launched a transaction. Q30. Are you in favour of an ex post confirmation procedure? If so, do you agree with its proposed form and contents? Although we prefer that the disclosing market participants should receive written confirmation that an investor has agreed to be wall-crossed before wall-crossing the investor, we do not object to ex post confirmations. Q31. Do you agree with the approach described above in paragraph 96 with regard to confirmation by investors of their prior agreement to be wallcrossed? We agree that investors should provide written confirmation to the disclosing market participant that they have agreed to be wall-crossed prior to wall- 6

7 crossing them. This offers a better alternative to that suggested in para and addressed in Question 30 above. To ensure a consistency in approach, ESMA should establish a market standard for these confirmations. Q32. Do you agree with these proposals regarding disclosing market participants internal processes and controls? No comment. Q33. Do you have any views on the proposals in paragraphs 102 to 104 above? We agree that buy-side firms should notify the sell side if it never wishes to be wall-crossed and should keep a record of this notification. Similarly, we agree that buy side firms should designate a person or team who receives sounding approaches and determines whether the firm should agree to be wall crossed. This will be in keeping with the UK stewardship code that recommends that An institutional investor who may be willing to become an insider should indicate in its stewardship statement the willingness to do so, and the mechanism by which this could be done. This information should be made available on the investor s website. However, we do not agree that there should a mandatory obligation for buyside firms to record their own assessment regardless of whether they have been formally wall-crossed by the sell side. Q34. Do you agree with this proposal regarding discrepancies of opinion? Where the buy-side disagree that they have been provided with inside information, they should maintain a record of the assessment regardless of whether they have been formally wall-crossed. However, we do not agree that the buy-side should provide the disclosing market participant of the public information on which this assessment has been based. Not only does this place an undue burden on the buy-side, but the disclosing market participant should be aware of the information that is publically available prior to conducting any market sounding. Q35. Do you think that the buy-side should or should not also inform the disclosing market participant when it thinks it has been given inside information by the disclosing market participant but the disclosing market participant has not indicated that it is inside information? Where the buy-side has conducted an analysis of the information that they have received and concluded that they have been given inside information without agreeing to be wall crossed, they should inform the sell-side and request to be cleansed. 7

8 However, we do not believe that this should be a mandatory requirement. Q36. Do you agree with the proposal for the buy side to report to the competent authorities when they suspect improper disclosure of inside information, particularly to capture situations where such an obligation does not already otherwise arise under the Market Abuse Regulation? We agree that where the buy-side suspects improper disclosure of inside information, they should be encouraged to notify the relevant Competent Authority of this potential violation. However, we do not believe that this should be a mandatory obligation. Q37. Do you have any views on the proposals in paragraphs 113 to 115 above? We agree that the buy side should maintain a record of its own determination on whether securities are related securities and should document its own analysis and determination of the point of cleansing. However, we do not agree that buy side firms should be required to use a recorded line for any follow up calls following a sounding approach that did not result in a wall crossing. This should be an obligation on the sell side firm if they fall into the definition of the disclosing market participant. Q38. Do you think there are any other issues that should be included in ESMA guidelines for the buy-side? No. Q39. What are your views on these options? We agree with Option 2. Prior to being wall crossed, buy-side firms will want to know how they will be cleansed of the inside information that they receive as part of the market sounding. However, we do not believe that the buy-side should lead this process. The disclosing market participant should initiate a discussion of what both the disclosing market participant and buy-side firms consider an appropriate cleansing strategy. This is because the disclosing market participant intermediates between the issuer and the potential/existing investors and therefore is in the strongest position to assess the likelihood of a transaction going ahead or being abandoned. Public disclosure of inside information and delays (Article 12 of MAR) Q70. Do you agree with this general approach? If not, please provide an explanation. Although the Transparency Directive does not extend to issuers whose financial instruments are traded on an MTF or OTF, we agree that the means 8

9 by which they disclose inside information should not be different from issuers whose financial instruments are traded on a regulated market. Q71. Do you agree that, in order to ensure an appropriate dissemination of inside information to the public (i.e. enabling a fast access and a complete, correct and timely assessment of the information), applying similar requirements to those set out in the TD for the dissemination of information to all issuers of RM/MTF/OTF financial instruments would be adequate? If not, please explain and, if possible, provide alternative approaches to consider in due respect of article 12 paragraph 1 of MAR. We agree. We also agree with ESMA s assessment that information made public directly by the issuer by using only other ways of publication (e.g. newspapers, television, website) does not meet the requirements of appropriate public disclosure and will not ensure fast access to inside information. Issuers with MTF/OTF instruments should be subject to requirements similar to those set out in the Transparency Directive and are applicable to instruments traded on Regulated Markets. Q72. Do you agree to include the requirement to disclose as soon as possible significant changes in already published inside information? If not, please explain. We agree Q73. Do you agree with the suggested criteria applicable to the website where the issuer is posting inside information? Should other criteria be considered? We agree Q74. What are your views on the options for determining the competent authority for the purpose of notifying delays in disclosure of inside information by issuers of financial instruments? A fourth option should be considered. The disclosure of inside information would be most relevant to the most liquid market for the financial instrument (Option 1). However, we appreciate that the Competent Authority (CA) in that market may not have any competence under other directives about the information that the issuer has to publish, if the issuer has not approved the admission/trading of its financial instrument in that market. Therefore, we propose that issuers should be required to report to the Competent Authority based on 9

10 a Prospectus-based approach for new financial instruments, or a Transparency Directive based approach for regulated information. If the CA notified is not the CA responsible for the most liquid market, they should consult with the relevant CA who would have an exhaustive picture of the transactions conducted on the instruments of an issuer and would therefore be able to offer an opinion as to the appropriateness of the delay in disclosing inside information. Issuers with instruments that are traded only on a MTF/OTF venue should inform the CA where the financial instrument was first traded. Where CA notified is not the CA responsible for the most liquid market, the proposal stated above should also apply. 10