29 Nov 2017

In Version 9 of the Questions and Answers on the Market Abuse Regulation (MAR) published by the European Securities and Markets Authority (ESMA) dated 21 November 2017, ESMA answers two new  questions relating to the prohibition on dealings by persons discharging managerial responsibilities (PDMRs) during a closed period.

The relevant provisions of MAR

Article 19(11) of MAR provides that a closed period is the period of 30 calendar days before the announcement of an interim financial report or a year-end report which a company is obliged to make public according to the rules of the relevant trading venue or national laws.  ESMA confirmed, after some initial confusion, that the announcement of preliminary financial results will end a closed period, provided that all the key financial information is included in the announcement.  

Article 19(11) prohibits PDMRs from conducting any 'transactions' on their own account or for the account of a third party, directly or indirectly relating to the shares or debt instruments of the company or to derivatives linked to them during a closed period.  However, Article 19(11) is without prejudice to Articles 14 and 15.  Article 14 is the prohibition on insider dealing.

Article 19(12) of MAR provides exceptions to the Article 19(11) prohibition and provides that a Company may allow a PDMR to trade on its own account or for the account of a third party during a closed period on a case by case basis due to the existence of exceptional circumstances, such as severe financial difficulties, or due to the characteristics of the trading involved for transactions made under, or related to, an employee share scheme or saving scheme, qualification or entitlement of shares, or transactions where the beneficial interest in the relevant security does not change.

The first new question

The first new question (Q 7.8) is how should permission to trade in a closed period, which may be granted in certain circumstances to PDRMs in accordance with Article 19(12) of MAR, be considered in the context of the prohibition on insider dealing in Article 14 of MAR?
ESMA's answer is that the insider dealing prohibition in Article 14 of MAR applies during closed periods in the same way as it does at any other time and must therefore be complied with by PDMRs.  This means that when a company allows a PDMR to trade under Article 19(12) of MAR, the general insider dealing provisions still apply and the PDMR must always give consideration as to whether or not the relevant transaction would constitute insider dealing.

The second new question

The second new question (Q7.9) is whether the types of 'transaction' prohibited during a closed period under Article 19(11) of MAR are the same as those types of transaction subject to the notification requirements of PDMRs and persons closely associated with them (PCAs) under Article 19(1) of MAR?  The definition of transaction in Article 19(1) of MAR is wider than acquisitions and disposals of shares and includes, for example, the pledging or lending of financial instruments by or on behalf of a PDMR or a PCA and transactions undertaken by professionals executing or arranging transactions or by another person on behalf of a PDMR or PCA.

ESMA's answer is yes.  The types of transaction prohibited by Article 19(11) of MAR are the same as those that are subject to the notification obligations in Article 19(1) of MAR.

ESMA also points out that Article 19(11) of MAR only applies to a PDMR when conducting transactions on its own account or for the account of a third party whereas the notification of transactions required under Article 19(1) of MAR also applies to PCAs.