ESMA Regulation - Market Abuse Directive II/Market Abuse Regulation

From MarketsReformWiki
Jump to: navigation, search
Market Abuse Directive II/ Market Abuse Regulation
Proposal Date Comes Into Force Rules Apply
November 20, 2011 July 2nd, 2015 July 3rd, 2016

The Markets Abuse Directive II/Markets Abuse Regulation (MAD II/MAR) was passed into law by the European Union, however the United Kingdom has opted out of MAD II's criminal conduct provisions. This was passed in response to the LIBOR scandal.

Background

The original market abuse directive was passed in 2004. MAD II/MAR have replaced the original MAD. The LIBOR scandal, and other market scandals, led to the proposal and passage of the new MAD II/MAR. [1].

Scope of Regulation

This regulation will apply to all financial instruments, benchmarks, and all spot futures contracts.

Criminal Conduct Provisions

MAD II defines "insider dealing, unlawful disclosure of inside information and market manipulation" [2].at an EU wide level. Additionally it requires member states to criminalize "inciting, aiding, and abetting insider dealing"[3]. The sanctions against companies(legal persons) who violate these provisions may be subject to permanent disqualification from the markets, as well as exclusion from public benefits or aid[4]. Individual nations will pass laws that conform to the standard. The UK has opted of these provisions, and will pass its own laws regarding market abuses.

Civil Conduct Provisions

The maximum civil penalty for companies found to be committing insider dealing, improper disclosure, or market manipulation will be €15 million or 15% of consolidated annual turnover. For natural persons found to be guilty, it shall be €5 million. For other breaches it will be €2.5 million or 2% of annual turnover, or €1 million for natural persons. In any case however, the minimum will be 3x the profit gained or loss avoided.[5]

Market Manipulation

The following practices will be considered market abuse:

  • Giving misleading signals to affect the market, unless it is an exempted practice
  • Affecting price using deception, including fictitious devices
  • Disseminating false information that seeks to impact the markets
  • Manipulation of benchmarks
  • Using or securing a dominant market position to fix prices
  • Spoofing, layering, and order stuffing
  • Taking a position than publicly making statements to influence price without disclosure of conflict of interest
  • Buying or selling emissions allowances to fix prices[6]

High Frequency Trading Impacts

Similar to spoofing regulations in the United States, MAR prohibits placing, cancelling, or modifying orders to manipulate the market. If the activity is likely affect the market it will be considered market manipulation in most cases.[7].

Market Abuse Directive II/Market Abuse Regulation as They Appear in the Official Journal of The European Union

External Links

References

  1. Market Abuse Directive/ Regulation. Freshfields. Retrieved on May 6th, 2015.
  2. Market abuse: Justice Ministers agree Commission proposals on criminal sanctions. European Commission. Retrieved on May 6th, 2015.
  3. Market abuse: Justice Ministers agree Commission proposals on criminal sanctions. European Commission. Retrieved on May 6th, 2015.
  4. Market Abuse Directive II. European Union. Retrieved on May 6th, 2015.
  5. MAD II Adopted by European Parliament and Council. Cleary Gottlieb. Retrieved on May 6th, 2015.
  6. MAD II Adopted by European Parliament and Council. Cleary Gottlieb. Retrieved on May 6th, 2015.
  7. MAD II Adopted by European Parliament and Council. Cleary Gottlieb. Retrieved on May 6th, 2015.

MarketsReformWiki Sponsors

RSM US LLP ADM Investor Services Cinnober Fidessa