This May saw several developments around the EU’s Market Abuse Regulation (MAR), which provide buy-side firms greater clarity over how the Regulation will affect them. MAR, which came into force last year, is intended to reduce instances of insider trading and the manipulation of financial markets. The law affects buy-side firms by introducing a wide range of new market surveillance and reporting requirements.
Key developments this quarter revolve around a new Q&A document, published by the European Securities and Markets Authority (ESMA). The Q&A sets out to promote ‘common, uniform and consistent supervisory approaches and practices in the day-to-day application of Market Abuse Regulation’ and provides useful advice and recommendations to firms as they look to achieve compliance with the Regulation.
The latest Q&A provides clarifications around several important areas that buy-side firms should review. For example, ESMA has clarified its blanket cancellation of orders policy: where a firm adopts a blanket cancellation policy for proprietary trading, the cancellation will need to be reviewed to understand whether it was performed without using inside information.
Importantly, when it comes to detecting and reporting market abuse, the Q&A explicitly states that this requirement applies to ‘persons professionally arranging or executing transactions’ and therefore includes buy-side firms, such as investment management companies.
Also of importance to buy-side firms is ESMA’s clarification around investment recommendations. In the Q&A, ESMA states that any information that comprises direct or indirect investment proposals in respect of a financial instrument or an issuer will be considered as an ‘investment recommendation’, regardless of whether doing so is the firm’s main business.
In addition to its Q&A, ESMA issued a communication regarding the launch of reference data submission under MAR. In the communication, ESMA announced that the IT system for the collection of financial instrument reference data under the Regulation (the Financial Instrument Reference Data System – FIRDS) will become operational on July 17, 2017. FIRDS will collect financial instrument reference data from market participants in the jurisdictions where this task has been delegated to ESMA.
MAR is a highly-complex regulation that will demand widespread change to the operations of most buy-side firms. RIMES is helping customers overcome these challenges through our specialist product for MAR and MiFID II compliance: RegFocus, which streamlines and simplifies regulatory compliance for buy-side firms through a managed service designed by compliance experts. This May, RegFocus won the category for the Best Cutting Edge Solution at the prestigious FTF News Technology Innovation Awards. The award is given to vendors that are committed to developing innovative financial technology solutions for middle- and back-office operations, and stands testimony to the benefits of RIMES’ approach to MAR compliance.