The EU Council of Ministers announced last month that it had reached a compromise with the European Parliament on a draft Regulation aimed at extending the existing EU market abuse legislation.
Included in the package are proposals for a draft Directive on criminal sanctions for insider dealing and market manipulation.
Why the change?
The changes come in the wake of the economic and financial crisis of 2008-09, and concerns about the manipulation of benchmarks arising from the more recent LIBOR scandal. Both of these highlighted the need to strengthen financial supervision and regulation, and to build a framework of internationally agreed high standards.
Developments in the market have also had an impact.
For example, while the existing Directive on Market Abuse prohibits insider dealing and the manipulation of financial instruments that are admitted to trading on regulated markets, new trading venues and over-the-counter (OTC) trading have recently emerged. Although they have brought more competition into the market, the developments have also made it more difficult to monitor for possible market abuse, such as insider dealing and market manipulation.
The proposed changes
The draft Regulation on market abuse has been in the pipeline since 2011, when the Commission announced that it was looking to update and strengthen the existing framework provided by the Market Abuse Directive.
The new framework, according to the Commission, will ensure regulation keeps pace with market developments, will strengthen the fight against market abuse across commodity and related derivative markets, reinforce the investigative and sanctioning powers of regulators and reduce administrative burdens on small and medium-sized issuers.
In particular, it will extend the scope of the regulatory framework to financial instruments traded on more recently-created venues such as multilateral trading facilities and organised trading facilities - as well as to OTC-traded financial instruments.
Where are we now?
The proposals look set to go ahead, following last month’s political agreement on the text of the Regulation. According to Michael Barnier, the EU Commissioner for Internal Markets:
“While key elements of the scope of the Market Abuse Regulation will need to be aligned with the political agreement on our related MIFID 2 [Markets in Financial Instruments Directive] proposals, it's my belief that we now have all the elements for a final agreement on this text which is essential for market integrity in Europe.”
Proposed Directive
The agreement opens the way for negotiations between the Council and Parliament to begin on the second part of the package – a proposed Directive to ensure minimum criminal sanctions for insider dealing and market manipulation.
At the moment, investors found guilty of market abuse can avoid sanctions by taking advantage of differences in law between the 27 EU Member States. Some countries’ authorities lack effective sanctioning powers, while in others criminal sanctions are not available for certain insider dealing and market manipulation offences.
The Commission hopes to tackle this by toughening up the sanctions available, and harmonising them across the EU.
The draft Directive is due to have its first reading on 13 September 2013.
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