Market Abuse Directive (MAD) and Market Abuse Regulation (MAR)

2014-10-13

Background

Adopted in early 2003, the Market Abuse Directive (MAD) introduced a comprehensive framework to tackle insider dealing and market manipulation practices, jointly referred to as “market abuse.” MAD (and its implementing measures) introduced a framework to harmonize core concepts and rules on market abuse and strengthen cooperation between regulators.  Similar to MiFID II, in 2011, MAD II was released with an accompanying regulation, (MAR), and seeks to strengthen and an earlier regulation.

Scope

MAD II amends: specific requirements regarding scope and exemption of the scope; definitions of “insider dealing” and “market manipulation;” harmonization of criminal sanctions; and the liability and sanctions for legal persons.

MAR provides specific requirements regarding regulation of commodity derivatives and the related commodity spot contracts; market manipulation through algorithmic and high frequency trading; adoption of necessary structural provisions to prevent and detect market manipulation; public disclosure of inside information; and protection and incentive for whistleblowers.

Current Status

The European Commission, European Parliament and Council of the EU reached a political agreement on MAR in June 2013 and on MAD II in December 2013.

Final votes in the European Parliament and the Council of the EU are expected in 2014.  The European Securities and Markets Authority (ESMA) has begun its Level 2 work on the issue, some of which will also have to be revised in order to remain consistent with the MiFID/MiFIR dossiers.

Key Policy Issues

  1. Increase market integrity and investor protection by “filling the gaps” in coverage and modernizing the legislative framework where needed.
  2. Strengthen effective enforcement against market abuse.
  3. Increase the cost-effectiveness of the legislation by reducing national discretions and introducing more harmonized standards, thereby moving closer to the objective of a single rulebook and reducing undue administrative burden, especially for SMEs.
  4. Contribute to improving the transparency, supervisory oversight, safety and integrity of derivatives markets as laid out in the Commission Communication on “ensuring efficient, safe and sound derivatives markets: Future policy actions”.
  5. Increase coordination of action among national regulators and reduce the risk of regulatory arbitrage.

MFA Key Issues

Some key areas for MFA included:

  1. The breadth of the definition of Inside Information;
  2. The extraterritoriality effects of the dossiers; and,
  3. The definition of algorithmic trading.