Market Abuse Regulation
What is MAR?
January 22nd, 2024
The Market Abuse Regulation (MAR) came into effect across the European Union (EU) in 2016. It aims to increase market integrity and investor protection, enhancing the attractiveness of securities markets for capital raising and combating market abuse behaviors, including insider dealing, market manipulation, and unlawful disclosure of inside information. MAR replaces the previous Market Abuse Directive (MAD) and strengthened the pre-existing EU and U.K. market abuse framework by extending its scope to new markets, new platforms and new behaviors. Since Brexit, the United Kingdom has adopted its own version of MAR (called U.K. MAR) which presently mostly parallels the legacy EU MAR, however this may vary over time.
ESMA – European Securities and Markets Authority
FCA – Financial Conduct Authority (U.K.)
Other Regulators in the EU and European Economic Area (EEA)
Relevant Provisions for Recording and Surveillance
Trading on Material Non-Public Information (MNPI): Firms must ensure that any employees with access to, or who come in contact with, MNPI are recorded on a list, and any transactions by those with inside information are notified to the issuer of the securities—Market Abuse Regulation (MAR) 596/2014, Articles 18 and 19; 522/2016 Article 10.
Prevention and Detection of Market Abuse: firms must have effective and ongoing arrangements to prevent and detect market abuse; as a result, firms will need to record communications to identify possible fraudulent behavior—MAR 597/2016, Articles 2 and 3.
Provision of Information to Authorities: in addition, firms are required to report suspicious orders, transactions and other activities, and be able to fully and openly respond to requests from regulators and authorities in the time frame ordered by the regulator.
Benchmark Contributors – Communications: those firms which contribute inputs to a benchmark now fall under increased supervision. Monitoring and recording communications with other submitters within the same firm, or others, is now required—EU Benchmarks Regulation (BMR) 2011/2016, Article 16, Annexes I and II.
Benchmark Contributors – Surveillance: those firms which contribute inputs to a benchmark must establish and maintain controls to detect and prevent the transmission of false or misleading information inputs in relation to a benchmark, and any evidence thereof. Such evidence must be readily available for regulatory investigation within a reasonable time set by the regulator. MAR 597/2016, Article 12.
Market Manipulation: it is illegal to enter into a transaction, or place an order, if doing so would, or would likely, create a false or misleading impression as to the price of, supply of, or demand for an in-scope instrument, or secures an artificial price for an instrument, or to deceive or defraud another person with respect to the instrument. MAR 596/2014, Article 12.
It’s illegal to enter into a transaction where there is no change in beneficial ownership.
It’s also illegal to disseminate false or misleading information with respect to an instrument or a financial benchmark.
Effective Internal Systems: firms should deploy robust systems that monitor orders and trades in financial instruments. Under MAR, firms must ensure the recording of all telephone conversations of employees engaged in in-scope activities in the front office (trading floor), back- and middle offices, including communications on mobile devices. This can be achieved with NICE Trading Recording (NTR).
Behavioral Detection and Surveillance: Under MAR, firms must provide evidence they have appropriate systems and controls in place to detect suspicious conduct that may have relevance in terms of market abuse, and this evidence must be readily available for regulatory investigation if requested. This can be achieved with NICE COMPASS, and for surveillance with Communications Surveillance.
Reconstructing Benchmark Submissions: Under MAR and the BMR, manipulating a benchmark is expressly prohibited, so firms must maintain relevant records and be able to detect market manipulation around fixing times and produce relevant input data as and when requested by regulators. This can be achieved with Holistic Surveillance.