Committee of European Securities Regulators: Europe’s Approach To Market Abuse Advances

On presenting CESR’s final contribution to the establishment of Europe’s new framework for promoting market integrity under the Market Abuse Directive, Arthur Docters Van Leeuwen, Chairman of CESR noted: “CESR’s advice provides the final piece of the jigsaw under the recently adopted Market Abuse Directive. Thanks to a productive dialogue with market participants we have been able to produce a sensible and flexible set of proposals which meets the objectives of the Directive to ensure Europe’s financial markets function with the highest standards of integrity and transparency. ”

The advice released today by CESR covers the final set of implementing measures that will, once translated into EU law, underpin the Market Abuse Directive to be implemented by Member States by October 2004. CESR was asked by the European Commission to produce its advice by 31 August. The implementing measures covered by the advice include:

• Guidelines for determining accepted market practices: This includes principles that should guide regulators in assessing whether a market practice undermines market integrity, such as the need to safeguard the interplay of proper supply and demand within markets and that markets should operate efficiently and fairly.

  CESR also sets out the procedures regulators should adopt when they consider whether or not a market practice is acceptable. Regulators should consult, for example, with market participants and with other regulators to increase the harmonisation and convergence of accepted market practices. The decisions adopted by regulators, and the factors underpinning them will be published by CESR and the Member State regulators to increase transparency.

• inside information on commodity derivative markets: CESR’s advice recognises the diversity of commodities markets and stresses the need for adequate disclosure in a timely fashion.
• the maintenance of insider lists by issuers: CESR’s advice clarifies how firms may meet their obligation under the Directive to maintain and update lists of people who have access to inside information. CESR proposes that these lists should capture those who have habitual access to inside information and those who have occasional access.
• the disclosure of transactions by senior managers: CESR proposes the disclosure requirements for those individuals with managerial responsibilities and those closely associated to them, to ensure transparency in their transactions in shares (or derivatives) of the listed company in which they hold a management position.
• the obligation by financial intermediaries to report suspicious transactions: CESR establishes the criteria for determining how and when the competent authority should be notified of a suspicious transaction and standardises the information that should be provided within the notification.

The work on the advice was undertaken by the CESR Expert Group on Market Abuse under the Chairmanship of Professor Stavros Thomadakis, Chairman of the Hellenic Capital Market Commission. Mr Thomadakis said that “he thanks all those who contributed to this advice which meets the objective of maintaining efficient and transparent markets in a fair and proportionate manner”.

CESR’s expert group was also assisted by a Consultative Working Group of market experts, by representatives from Europe’s commodity markets and by an expert from the US regulator, the Commodities and Futures Trading Commission (CFTC).

In developing its advice, CESR undertook extensive consultation of interests across the EU. It received over 70 written responses to CESR’s consultative paper in April. Reflecting the valuable feedback received, CESR sought to introduce more flexibility for issuers and their advisers to meet their Directive obligations to maintain lists of all those with access to inside information. CESR also paid careful attention to the scope of the obligation on senior managers to report transactions. With regard to the notification of suspicious transactions by firms to the regulator, CESR has endeavoured to create a balance whereby regulators are not overwhelmed by the volume of transactions reported but where market intermediaries are encouraged to report trades where they have sufficient indications of financial wrong-doing.