ESMA Publishes Market Abuse Regulation Q&A

Last week, the European Securities and Markets Authority (ESMA) published a new Q&A on the Market Abuse Regulation (MAR). Through the Q&A, ESMA aims to promote ‘common supervisory approaches and practices in the application of MAR and its implementing measures’.

The latest Q&A provides new clarification around managers’ transactions and investment strategy recommendations. Key updates include:

  • The rules to calculate the price of options granted for free to managers or employees for the purpose of the notifications and disclosure of managers’ transactions
  • How Commission Delegated Regulation (EU) 2016/958 applies when the subject of an investment recommendation:
    • relates to multiple issuers independently
    • relates to several financial instruments independently
    • is a derivative referencing an index

The full Q&A, including all new updates can be downloaded from the ESMA website.

MAR is a landmark Regulation that is proving highly disruptive to the buy-side’s traditional approach to compliance. With MAR, the onus is on asset managers to conduct their own market surveillance to identify and report on suspected cases of market abuse, such as insider trading.

The additional responsibilities placed on buy-side firms by MAR demands completely new compliance systems. As ESMA itself has stated: ‘In order to detect market abuse and attempted market abuse, 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’. ESMA’s position is that in most cases this will require an automated market surveillance system.

With ESMA’s latest Q&A, it is apparent that while MAR has been in force since July 2016, the full implications of the Regulation for buy-side firms are yet to be understood fully. The buy-side therefore need to put in place an approach to compliance that meets all known requirements of MAR but which can flex to support any future requirements as the Regulation is further clarified.

From RIMES’ perspective, the scale of the Regulatory burden imposed by MAR, as well as the complexity surrounding the Regulation, means that buy-side firms that have not done so already should consider managed market surveillance and compliance services offered by specialist providers. Managed compliance services are proving better suited to the regulatory environment of today as they are flexible, highly scalable, easy to deploy and come at a lower cost than in-house alternatives.

Compliance ranks as one of the most important challenges facing buy-side firms. RIMES believes that firms which opt for the managed service approach will find they are better able to meet this challenge; freeing them to focus on their core activities.

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