RegTech Insight Knowledge Hub

Market Abuse Regulation (MAR)

In a nutshell: The Market Abuse Regulation provides an EU-wide regulatory framework on market abuse, including measures to enhance the attractiveness of securities markets for capital-raising through the prohibition of practices such as insider dealing, unlawful disclosure of inside information and market manipulation.

Read on in our Knowledge Hub ‘Everything you need to know’ section to understand the full details of what MAR is all about, who it impacts, the key requirements, the technical and data challenges it presents, and the outlook.

You can also take a look at all the latest content we have related to MAR. And you can see a listing of key vendors delivering solutions to this regulatory challenge.

Our Knowledge Hub delivers everything you need to know about the Market Abuse Regulation (MAR), with a full overview, key resources, and a list of solutions providers.

Key resources

Blogs

More Regulation Needed for Cryptocurrencies Warns US Attorney General

The New York State Office of the Attorney General (OAG) has launched a new initiative designed to protect and inform customers of cryptocurrency exchanges. The move could serve as a precursor to increased regulation of the market and create a new opportunity for regtech providers. Unlike traditional exchanges, virtual asset trading platforms in the US…

RegTech Summit Calls for Collaboration Between Vendors, Users and Regulators

A-Team Group’s RegTech Summit returned to London last week with an impressive line-up of keynote speakers, lively panel discussions and an innovative regtech showcase featuring four newcomers to the market. The event also hosted numerous sponsors exhibiting leading regtech solutions and was joined by over 200 capital markets participants keen to further their knowledge of,…

AML – More Focus in 2018 for the FCA and Firms

By Philip Naughton, Head of UK Compliance, Cordium The regulatory landscape for anti-money laundering (AML) is continuing to evolve, and for financial institutions struggling under an increasingly heavy regulatory burden, we at Data Management Review felt that this article from financial services tech consultancy Cordium was of particular interest in highlighting the upcoming AML upgrades…

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White papers

Getting eComms Surveillance Right

Demand for electronic communications (eComms) surveillance has risen in response to regulatory requirements and compliance needs to pinpoint problems such as market abuse without wasting time and resources reviewing false positives. Innovative technologies such as machine learning, natural language understanding (NLU) and other strands of artificial intelligence (AI) are improving financial services firms’ ability  to…

Regulatory Compliance: The Use of Twitter in Financial Services

Twitter has emerged as a source of market-moving information. But it’s difficult to get Twitter delivered to your trading desk, for a variety of reasons, ranging from concerns about market abuse, to the proliferation of fake news and the potential risk of reputational damage. By banning Twitter, trading firm management may be seeking to avoid…

Webinars

Recorded Webinar: Operational Change Management Under Brexit

You can listen to the recording of this webinar by registering on this page. The UK’s departure from the EU – whatever the eventual terms – presents financial institutions of all types operating within Europe with a huge change management challenge. Deciding where to locate which activities, how to organise them corporately and legally, how…

Recorded Webinar: How to find common ground for data management across multiple regulations

We’ve asked over many years how financial institutions can find common ground for data management processes to meet the requirements of multiple regulations, such as MiFID II, MiFIR, EMIR, MAR and BCBS 239. While this is a goal most firms have aspired to, the reality of pressing deadlines for regulation after regulation meant firms had…

Recorded Webinar: The future of communications surveillance for regulatory compliance

Don’t miss this opportunity to view the recording of this recently held webinar. Communications surveillance is fundamental to compliance, challenging to implement, and complex to sustain. Has your organisation got it right, or are you struggling to move on from a tactical approach put in place to satisfy Markets in Financial Instruments Directive II (MiFID…

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Guides

Regulatory Data Handbook 2018/2019 – Sixth Edition

In a testament to the enduring popularity of the A-Team Regulatory Data Handbook, we are delighted to publish a sixth edition for 2018-19 of our comprehensive guide to all the regulations and rules that might impact data and data management at your institution. As in previous editions of the Regulatory Data Handbook, we have updated…

Data Lineage Handbook

Data lineage has become a critical concern for data managers in capital markets as it is key to both regulatory compliance and business opportunity. The regulatory requirement for data lineage kicked in with BCBS 239 in 2016 and has since been extended to many other regulations that oblige firms to provide transparency and a data…

Entity Data Management Handbook – Fourth Edition

Welcome to the fourth edition of A-Team Group’s Entity Data Management Handbook sponsored by entity data specialist Bureau van Dijk, a Moody’s Analytics company. As entity data takes a central role in business strategies dedicated to making the customer experience markedly better, this handbook delves into the detail of everything you need to do to…

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Everything you need to know about: Market Abuse Regulation (MAR)

What is MAR?

The Market Abuse Regulation (MAR) (EU) No 596/2014 is an EU-wide regulation to define and prevent unlawful behaviour in the financial markets. It provides uniform rules and clarity of key concepts, along with a single rule-book for domestic implementation, covering:

  • Insider information.
  • Market manipulation.
  • Attempted market manipulation.
  • Disclosure of inside information.
  • Insiders’ lists.
  • Disclosure of PDMR deals.
  • Suspicious transaction reporting.
  • Research disclosure.

Exemptions remain for buy-back and stabilisation programmes.

Within the UK, breaches of MAR can incur unlimited fines, order injunctions, or the prohibition of regulated firms or approved persons. Criminal sanctions for insider dealing and market manipulation can incur custodial sentences of up to seven years and unlimited fines. Fines for individuals carry a maximum penalty of EUR5 million, while fines for corporations can reach EUR15 million or 15% of annual turnover.

 

Timeline

  • In 2005 the Market Abuse Directive (MAD) was implemented, creating an EU-wide regulatory framework for market abuse.
  • In 2011 the European Commission (EC) issued a proposal to introduce and standardise EU-wide criminal sanctions on insider dealing and market manipulation, and to align the jurisdictional interpretations of MAD into a united regional approach known as Criminal Sanctions for Market Abuse (CSMAD, or MAD II).
  • In 2014, the Market Abuse Regulation (MAR) and the Directive on Criminal Sanctions for Market Abuse (CSMAD/MAD II) were published.
  • On 3 July 2016, MAR and CSMAD were implemented across the EU. Note that the UK chose not to implement CSMAD, therefore the criminal market abuse regime in the UK remains unchanged.

 

Who needs to know?

MAR affects any market participant trading the following financial instruments:

  • Any financial instruments admitted to trading on a regulated market or where a request for admission to trading on a regulated market has been made.
  • Any financial instruments traded on a multilateral trading facility (MTF), admitted to trading on an MTF, or where a request for admission to trading on an MTF has been made.
  • Any financial instruments traded on an organised trading facility (OTF).
  • Any financial instruments not covered in the above points, but which the price depends on, or has an effect on.

Buy-side firms must be able to demonstrate to the regulator that they are monitoring, tracking, and analysing all trading activity – requiring comprehensive pre- and post-trade market abuse surveillance solutions.

Sell-side firms are also affected. Any persons producing or providing investment recommendations must ensure the information is objectively presented, and disclose any conflicts of interest. This includes a set of disclosure requirements similar to those for research analysts, such as the requirement to disclose their 12-month history in any stock they recommend, and the disclosure of any personal or company holdings in that stock exceeding 0.5%.

MAR action points

Disclosure of inside information

  • Creation of disclosure committee, checks and balances, responsibility, briefing of staff
  • Formal, documented processes for assessment and disclosure of inside information
  • Review of all processes for consistency with MAR
  • Record-keeping – updated or new processes and templates for recording decisions in relation to inside information, in particular decisions to delay disclosure, reviewed against detailed record-keeping requirements under MAR
  • Company website review regarding compliance with MAR requirements on inside information, including the MAR requirement for inside information to be included on the website for at least five years

Insider lists

  • Creation of permanent and transaction-specific insider lists
  • Collection of necessary information regarding permanent insiders, including names, DOB, personal details
  • Cross-comparison with any local data protection rules requiring consent for gathering/storing the above information on individuals in relevant jurisdictions
  • Integration of information gathering requirements into current systems – including the obtaining of any necessary consents, acknowledgement of duties and responsibilities, and identification of any additional location/jurisdiction-specific consents or processes required.

Director/PMDR dealings

  • Review and update existing policy and lists in relation to designation of PMDRs
  • Review and update existing arrangements and lists of ‘connected persons’ with PMDRs
  • Cross-check with Model Code scope and content to ensure compliance
  • Establish processes and timelines regarding clearance to deal
  • For multiple listings, cross-check local requirements against MAR requirements for conflict and obtain any necessary waivers/consent from external listing authorities regarding possible changes to dealing code

 

Who are the regulators?

As a regulation rather than a directive, MAR applies directly in each EU member state without the need to implement specific legislation.

In the UK, MAR is regulated by the Financial Conduct Authority (FCA), and detailed guidance is provided within the FCA handbook.

Key changes (MAD>MAR)

MAR replaces and extends the Market Abuse Directive (MAD) 2003/6/EC of the European Parliament and of the Council, implemented in the UK in 2005.

Key changes from MAD include:

  • An extension of the definitions of insider dealing and market manipulation and an expanded scope of the market abuse framework to cover any financial instrument admitted to trading on MTF, OTF and OTC. Inside information definitions were also extended to include commodity derivatives.
  • An extension of market manipulation to cover cross-market manipulation (for example, where derivative markets are used to affect spot markets).
  • An amended regime for SME dealing obligations and disclosure requirements. Insider information must be disclosed in a modified (and more straightforward) market-specific way. Transaction reporting requirements are also simplified and clarified.
  • The introduction of a mandatory exchange of information between financial and commodity regulators, including suspicious transaction reporting to order and OTC transactions.
  • Access by regulators and authorities to private communications and documents if and when there is any suspicion of insider dealing.
  • The introduction of a new offence of Attempted Market Manipulation.

MiFID II also extended MAR to cover more markets and trading platforms. For example, emission allowances and other related auctioned products (including auctioned products not considered financial instruments) are now also under the MAR purview.

What are the key requirements?

Insider lists:

Firms are required to maintain insider lists, which must be submitted to the regulator or competent authority on request. These can be split into two categories: ‘permanent’ insiders, and individuals with access to specific pieces of information – for example, a certain transaction or event. The lists must be kept up-to-date and retained for five years after it is first compiled or last updated.

The personal information required by these lists is also extended from the previous MAD directive, and includes:

  • Birth surname (if different from current)
  • Date of birth
  • National identification number
  • Personal, home, and mobile telephone numbers
  • Personal home address
  • Time and date at which the individual gained access to the relevant inside information.

ESMA provides detailed technical templates on keeping insider lists, which can be found in Annex XIII to the ESMA Final Report on Technical Standards for MAR.

Director and PDMR dealings:

MAR substantially expands the notification and disclosure requirements for persons discharging managerial responsibilities within issuers (PDMRs).

What solutions can be used?

Trading surveillance is the primary strategy that should be used to address MAR compliance. This involves the monitoring of comprehensive trade data, as well as all voice and email communications around the trades. Increased trade surveillance can require additional processes and systems, which will differ depending on the business model and the stage the business has reached in the maturity lifecycle of trade surveillance.

Trade surveillance can include a number of stages, including:

  1. The identification of potential market abuse behaviours relevant to your firm;
  2. Mapping these behaviours to enable alerts/reports upon contravention;
  3. Monitoring and documenting these behaviours on an ongoing basis;
  4. Reporting instances where alerts have identified rogue behavior, through the generation of a traceable and regulatory compliant audit trail

Potential future solutions could include voice trading surveillance, the use of artificial intelligence to track individual trades, real-time transaction tracking to monitor trade flows, and the use of big data and data analytics to recognise data patterns specific to rogue behaviour.

Firms have a number of avenues in terms of compliance solutions. One option is the development of an in-house or proprietary system. However, the high development costs and substantial penalties for non-compliance suggest that for smaller businesses, an easier option could be the managed data service route, which enables a third party to provide the surveillance tools and reporting criteria required on a relatively cost-effective basis.

PDMRs and persons closely associated with them must notify the FCA and the issuer of any relevant personal transactions they undertake in the issuer’s shares, debt instruments, derivatives or other linked financial instruments if the total amount of transactions per calendar year has reached €5,000. The issuer is then required to make this information public within three business days.

PDMRs are also prohibited from conducting certain personal transactions during a closed period of 30 days before the announcement of an interim or year-end financial report.

Delay in disclosure

MAR allows issuers to delay disclosing inside information under certain circumstances, including:

  • If immediate disclosure is likely to prejudice its legitimate interests.
  • If the delay is not likely to mislead the public.
  • If the issuer is able to ensure the information remains confidential.

To delay disclosure, detailed procedures must be followed based on ESMA Implementing Technical Standards. These involve processes to record exact dates and times on which inside information first existed, and the identification of the persons responsible for the decision and those who made the notification.

Market soundings

A market sounding is the communication of information on a specific transaction prior to its announcement in order to gauge the interest of potential investors. MAR introduced a new regime for market soundings that provides protection against a disclosure of inside information, provided that detailed procedures are followed. These procedures are detailed within the ESMA Regulatory Technical Standards, and require comprehensive record-keeping for a period of at least five years.

Reporting requirements

Under MAR, firms and individuals must make the following notifications to the FCA:

  • Suspicious transaction and order reports  (STORs).
  • PMDR notifications.
  • Delaying disclosure of inside information.
  • Buy-back transactions and stabilisation activity notifications.

 

What technological challenges does it represent?

MAR follows MiFID II in its detailed requirement to monitor, track and flag trading behaviours and indicators that represent market abuse. This requires all eligible market participants to evaluate and, if necessary, update their market surveillance strategies in order to effectively monitor all trading activity and comply with MAR requirements.

Key questions to consider include:

  • What data needs to be gathered?
  • What testing methodologies are required?
  • What sample sizes are sufficient?
  • How can false positives be reduced (for example, by using backtesting/benchmarking and artificial intelligence/machine learning)?
  • What additional compliance resources are needed to investigate suspicious activity?

Firms must also be able to pre-load historical data into their surveillance systems, as the regulator has the authority to investigate cases up to 10 years old. Compliance monitoring programmes should also be implemented, including regular checks of relevant changes to remain up-to-date on anti-market abuse rules.

MAR specifically states a preference for automated surveillance, unless a manual approach is justified by business model. For example, smaller firms and long/short managers may be able to get away with manual testing, while larger firms with more complex strategies will inevitably need an automated approach.

Vendor solutions

RIMES RegFocus: a fully managed buy-side compliance surveillance, monitoring, and detection solution for MAR


UnaVista Transaction Intelligence: an upgrade of the UnaVista approved reporting system for MiFID II transaction reporting, using customers’ existing data feeds for transaction reporting to monitor for suspected market abuse, in partnership with the London Stock Exchange Market Supervision team


Red Deer Market & Trade Surveillance: A solution to embed MAR compliance within front, middle and back-office workflows, enabling operational transparency, quick retrieval of data and full trade reconstruction to ensure timely and accurate disclosures


Kx for MiFID and MAR: real-time, cross-asset class transaction monitoring and reporting solution –


CMC: Market Abuse (b-next): capital markets compliance and monitoring system to check trading activity, reference market data, monitor potential abuse across systems, identify patterns and issue early warning alerts


Accelus Market Surveillance (Thomson Reuters): A partnership with b-next to integrate b-next systematic surveillance capability with TR market data, analytics and managed services to provide complete market abuse monitoring, surveillance and alert management for trading activity and local and global level


Irion Market Abuse Translator: A gateway linking front and back office systems to allow for verification of data required to monitor market abuse as required by MAR


TIM Ideas (Acuris): Compliant solution helping sell-side firms to meet capture and disclosure requirements as required by ESMA technical standards for sales traders under MAR


SIA Eagle Intermediaries Trade Surveillance & Market Abuse: A complete set of diagnostics for market manipulations (including monitoring of high frequency and algorithmic trading), internal dealing and insider trading as defined in the new regulation and in the ESMA Technical Advice (ESMA/2015/224)


Bovill/Cinnober Surveillance: A managed service model launching across the UK, US, Singapore and Hong Kong in 2018, providing tailored market abuse surveillance with day-to-day monitoring and secure data transfer


Itiviti Analyst MAR: A vendor-agnostic market abuse reporting compliance solution covering all asset classes, providing monitoring, detection, analysis, alerts, reports and record-keeping services


Euronext Managed MAR Service: A hosted, web-based MAR compliance service


If you want to appear on this page please contact Jo Webb at jo@a-teamgroup.com or call us on +44 (0)20 8090 2055.