The new Market Abuse Regulation and the AIM Rules
On 3 July 2016, a new EU regulation relating to market abuse will come into force in the UK and all other EEA member states. It will supersede the existing Market Abuse Directive which is currently in force. The regulation will apply to financial instruments admitted to both regulated markets and multilateral trading facilities. Accordingly, it will apply to all issuers whose shares are traded both on the main market and AIM.
The key obligations in the new Market Abuse Regulation relate to the disclosure of inside information and disclosure of deals by persons discharging managerial responsibilities and closely associated persons. It will also introduce mandatory close period rules.
There is clearly some overlap of obligations with an AIM company's existing disclosure obligations under the AIM Rules for Companies. AIM Regulation has been considering this matter and, on 28 October 2015, it uploaded its latest "Inside AIM".
Whereas an AIM company's disclosure obligations under the AIM Rules for Companies are owed to AIM Regulation, its obligations under the Market Abuse Regulation will be owed to the Financial Conduct Authority (FCA), as the UK competent authority. AIM companies will therefore owe duties to two regulators in respect of their disclosure obligations.
AIM Regulation states in its latest "Inside AIM" update that it has been in close consultation with the FCA to minimise unnecessary duplication of obligations. As part of this consultation, AIM Regulation has considered whether it remains appropriate to retain the disclosure provisions contained within AIM Rule 11 (General Disclosure) following the implementation of the Market Abuse Regulation.
It notes that Rule 11 is important to the integrity of AIM and the maintenance of an orderly market. It also considers that the disclosure requirement in AIM Rule 11 (as currently drafted or with minor amendments) will continue to reinforce AIM Regulation's expectations of AIM companies to provide equality of information on a timely basis, allowing investors to make informed investment decisions. Accordingly, AIM Regulation concludes that a disclosure rule should be retained in the AIM Rules.
AIM Regulation is aware that retaining the AIM disclosure rules will mean that AIM companies will have obligations to both AIM Regulation and the FCA, but confirms that it will work closely with the FCA to minimise any duplication. In respect of any real time disclosure, it is currently envisaged that in the first instance AIM Regulation will continue to have discussions with nominated advisers and will co-ordinate with the FCA as necessary. However, whilst this approach may mitigate the need to engage with two regulators at the same time, only the FCA will be able to opine on Market Abuse Regulation compliance and it will retain the right to engage directly with an AIM company if necessary.
It is worth noting that an AIM company is already subject to a wider regulatory framework than merely the AIM Rules and that the FCA already has a remit to investigate the activities of an AIM company, including where disclosures or statements made by the company may be false or misleading which (intentionally or recklessly) induce investors to trade or refrain from trading in the company's securities. It is also the competent authority in respect of compliance with the relevant aspects of the FCA’s Disclosure and Transparency Rules which apply to UK companies on AIM (i.e. vote holder and issuer notification rules under DTR 5). The FCA also has both civil and criminal powers to identify and prevent market abuse under the current regime.
AIM Regulation has stated that it will undertake a market consultation if it believes that changes to the AIM Rules are required. It also welcomes further feedback from market participants which should be addressed to email@example.com.
From a practical perspective, ahead of the implementation of the Market Abuse Regulation on 3 July 2016, certain documentation for the AIM admission process will need to be updated, such as memoranda on directors' obligations and share dealing codes. Nominated advisers should make themselves aware of these new rules in good time before they come into force.