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Executive Insight In this Executive Insight, David Smith of Druces LLP examines how the EU Market Abuse Regulation changes will likely force boards to more frequently consider the need to announce information to the market. David Smith, Druces LLP

The Market Abuse Regulation, or MAR, came into force across the EU on 3 July this year and has increased the regulatory burden on AIM companies. While there are areas of overlap with the AIM Rules for Companies, the purposes of the two regulatory regimes are different — while the AIM Rules are generally intended to preserve the integrity of the market, for example through prompt and accurate disclosure, MAR is fundamentally about the protection of investors. While AIM itself has the power to grant derogations from its own Rules, the FCA, which polices MAR compliance, has no such discretion. The different approaches and terminology are resulting in some interesting challenges to management and their advisers, as well as imposing an additional administrative burden on smaller companies whose resources are often already stretched. The key areas on which MAR compliance is having an impact are: public disclosure of inside information (and when disclosure can legitimately be deferred); when it is permissible to make selected private disclosure of inside information (“market soundings”); maintenance of insider lists, and disclosure of dealings by directors and other senior staff (“persons discharging management responsibilities”). It is the first of these which is posing the most significant challenges to management. MAR requires an AIM company to inform the public as soon as possible about inside information which directly concerns it. Information is “inside information” if it is of a precise nature and is likely, if made public, to have a significant effect on the company’s share price. It is at least arguable that the obligation to disclose “as soon as possible” imposes a higher obligation than AIM Rule 11 which requires disclosure “promptly” but the real challenges come from the confirmation within MAR that an intermediate step in a protracted process may itself amount to “inside information” and may need to be made public, and the arrangements around the right to defer disclosure. Following an earlier ECJ decision, MAR records that, for example, the state of contract negotiations, terms provisionally agreed in contact negotiations, and the possibility of a share placing, might amount to sufficiently precise “information” which should be made public.

Similar regulation applied to listed companies before MAR, but MAR has extended this to AIM companies, whose management now have to wrestle with the determination of whether, for example, subject-to-contract negotiations or the signature of heads of terms have become announceable. MAR does, fortunately, permit an issuer to defer announcement of inside information if it has legitimate interests to protect, provided it meets certain conditions, the most important being that the decision to defer is not likely to mislead the public. Formal EU guidance confirms that negotiations for major transactions which need to be conducted in confidence, discussions about the financial viability of an issuer, and similar major events, may amount to “legitimate interests”, although circumstances will differ in every case. The same guidance includes a non-exhaustive list of circumstances in which delay is likely to mislead the public — where the information withheld is materially different to earlier public announcements; the withheld information indicates that the previously disclosed financial objectives are unlikely to be met, or the withheld information contrasts with market expectations which have been encouraged or endorsed by the company. If a company does decide to withhold information in this way, it must, when the information is finally disclosed, provide the FCA with a written explanation of the fact that it did so and how it satisfied the various conditions, including its “legitimate interests” and why the delay was not likely to mislead the public. Of all the new rules MAR has imposed on AIM companies, the rules around disclosure and non-disclosure of inside information are likely to be the ones on which AIM companies need sound and experienced legal advice as well as advice from their corporate finance advisers.

David Smith is a partner in Druces LLP, the City-based business and private wealth law firm.


November 2016 AIM Prospector  
November 2016 AIM Prospector  

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