1. The new MAR regulatory regime Edward Grech Senior Manager - Securities and Markets Supervision Unit MFSA 12 April 2016

2. The new requirements under the Market Abuse Regulation and the Market Abuse Directive II, send out a “zero tolerance warning to those engaging in insider dealing and market manipulation”. [Viviane Reding & Michel Barnier] 2

3. Topics Introduction – General Principles 1. What’s new? MAD vs MAR 2. 3

4. 1. Introduction – MAD MAD in force in 2003 & transposed into PFMA in 2005 Created a set of rules preventing insider dealing and market manipulation (market abuse) Purpose to safeguard integrity of financial markets and enhance investor confidence. MAD affects all firms and individuals who participate in a regulated market 4

5. 5 Considerable changes to the financial landscape Developments since 2005 Legislative Market Technological 1. Introduction – Change Needed

6. 1. Introduction – MAD II MAR MAD II & MAR - into force on the 2 July 2014 MAD II & MAR - to apply from the 3 July 2016 Purpose - strengthens MAD framework - improve market integrity & efficiency as well as investor protection, create Single Rule Book – level playing field Scope - MAD II widens scope to all FIs (incl. commodity derivatives, EA, traded on MTFs, OTFs & OTC and adapting rules to new technology. Explicit prohibition of manipulation of benchmarks) 6

7. 1. Introduction – General Principles of Market Abuse Market Abuse Insider Dealing Market Manipulation 7

8. 1. Introduction Inside Information – non-public, relate directly/indirectly to issuer/instrument, precise and price sensitive Reasonable investor test – would likely use as part of his or her investment decision Example of Insider Dealing Examples of Market Manipulation: – Wash Trades – Pump and Dump – Trash and Cash 8

9. 1. Introduction – MAD II overview of changes The adoption of the new Directive means that: (i) Common EU definitions for market abuse offences such as insider dealing, unlawful disclosure of information and market manipulation (Art 3 - 5) (ii) Common set of criminal sanctions including fines and imprisonment of at least four years for insider dealing/market manipulation and two years for unlawful disclosure of inside information (Art 7) (iii) Legal persons will be held liable for market abuse (Art 8 & 9) (iv) MS need to establish jurisdiction over these offences if they occur in their country or the offender is a national (Art 10) (v) MS need to ensure that judicial and law enforcement authorities dealing with these highly complex cases are well trained (Art 11) 9

10. 1. Introduction – MAD II - Insider dealing - Recommending or inducing another person to engage in insider dealing - Unlawful disclosure - Market manipulation Serious & committed Intentionally Criminal Offences 10

11. 1. Introduction - MAR - Overview of changes The adoption of the Regulation means that: (i) Existing market abuse rules will be broadened to include abuse on the electronic trading platforms that have proliferated in recent years; (ii) abusive strategies enacted through high frequency trading will be clearly prohibited; (iii) those who manipulate benchmarks such as LIBOR will be guilty of market abuse and face tough fines; (iv) market abuse occurring across both commodity and related derivative markets will be prohibited, and cooperation between financial and commodity regulators will be reinforced; (v) the deterrent effect of the legislation will be greater than today, with the possibility of fines of at least up to three times the profit made from market abuse, or at least 15% of turnover for companies. MS could decide to go beyond this minimum. 11

12. Who will be affected? RM, MTF, OTF PDMR ISSUERS INSIDERS JOURNALISTS FIRMS INVESTORS RESEARCHERS CA 12

13. 2. What’s new? – Scope (Art 2) MADMAR Scope – Financial Instruments Annex I of MiFIDAnnex I of MiFID II Now includes emission allowances and spot commodity derivatives Behaviour in relation to benchmarks Scope - MarketsFI admitted to trading on a RM (Incl. Off-Exchange) Extended to MTF and OTF (including auction platform for emission allowances) 13

14. 2. What’s new? – Notification of List of Financial Instruments (Art 4) MADMAR Notifications and list of financial instruments to competent authorities RMRM, MTF & OTF ESMA draft RTS & ITS 14

15. 2. What’s new? – Exemption for buy-back programmes & stabilisation (Art 5) MADMAR Buy-back programmes & Stabilisation exemptions Commission Regulation EC 2273/2003 Revisions to the existing framework for conducting buy-back programmes and stabilisation measures. ESMA Draft RTS 15

16. 2. Buy-back programmes & Stabilisation exemptions Conditions contained in Draft RTS Buy-back Programmes – Limit of Buy-backs (shares) – max 25% of avg. daily vol. of shares on each relevant venue – Disclosure requirements Stabilisation (to ease selling pressure) – Disclosure – Record keeping 16

17. 2. What’s new? – Insider dealing (Art 7,8,14) MADMAR Inside informationPrecise nature Not public Significant effect on price (Reasonable investor test) ESMA guidelines: non- exhaustive list of information Insider dealingProhibited use of inside information Also includes the cancelling or amending an order where order is placed before having inside information 17

18. 2. What’s new? – Legitimate behaviour (Art9) MADMAR Legitimate behaviourTransactions conducted in the discharge of an obligation resulting from an agreement (e.g. exercising a share option) Expands on this principle (Incl. market makers, public take-overs). 18

19. 2. What’s new? – Unlawful Disclosure of Inside Information (Art 10) MADMAR Unlawful disclosure of inside information Prohibited except for in the normal exercise of an employment, a profession or duties. Exception includes disclosures qualifying as Market Soundings 19

20. 2. Market Soundings - Definition Article 11(1) of MAR - The communication of information, prior to the announcement of a transaction, to gauge the interest of potential investors in a possible transaction and the conditions relating to it, such as its potential size or pricing, to one or more potential investors by: An issuer; A secondary offeror of a financial instrument; Emission allowance market participant; or A third party acting on behalf or on account of any of the above. Draft Guidelines of Market Abuse Regulation - https://www.esma.europa.eu/sites/default/files/library/2016-162.pdf 20

21. 2. What’s new? – Market Soundings (Art 11) MADMAR Market SoundingsN/AMAR introduces a framework for persons to make legitimate disclosures of inside information in the course of market soundings. (consent of person receiving sounding, confidentiality & record- keeping arrangements) ESMA Draft RTS & ITS as well as Guidelines 21

22. 2. Market Soundings - Requirements Inside Information? (Maintain records of determination) Records of disclosure of information (eg. Telephone recordings) (consent of recipient) Inform recipient when information is no longer inside information Records for 5 years Inform recipient of confidentiality requirements 2 Draft RTS – (include templates) 22

23. 2. What’s new? – Market manipulation (Art 12, 15) MADMAR Market manipulationMarket manipulation on a Regulated Market Examples provided in MAR Commission Delegated Acts specifying the Indicators of manipulative behaviour relating to false or misleading signals, to price securing and employment of a fictitious device or any other form of deception or contrivance (Annex I) 23

24. 2. What’s new? – Accepted Market Practices (Art 13) MADMAR Accepted Market Practices (AMP) Market Practices - to be accepted by CA [ESMA Link: http://www.esma.europa.e u/page/accepted-markets- practices] Permits CA to establish an accepted market practice which is subject to certain criteria and conditions. ESMA Draft RTS CA to notify ESMA of existing AMPs within 3 months of entry into force of RTS. ESMA to provide its opinion. 24

25. Suspicious Transaction Report 25

26. 2. What’s new? – Prevention and detection of market abuse – STOR (Art 16) MADMAR Obligations on person professionally arranging or executing transactions STR (Schedule II)STOR – market operators, Investment Firms operating a trading venue and persons professionally arranging and or executing transactions (report suspicious orders whether or not they have been executed) ESMA – Draft RTS 26

27. 2. What’s new? – Public Disclosure of Inside Information (Art 17) MADMAR Issuer disclosure of inside information Issuers on RM Disclose inside information asap on RM and Issuer’s website Delayed disclosure allowed Issuers on RM, MTF or OTF Disclose inside information asap on OAM and issuer’s website Delayed disclosure allowed Commission Delegated Acts - emission allowances ESMA Draft ITS, ESMA Guidelines – indicative list of reasons for delayed disclosure 27

28. 2. Disclosure of Inside Information Publicly disclosed - enabling fast access and complete, correct and timely assessment of the information by the public. Ensure effective dissemination. Posted on the issuer’s website and maintained there for a minimum of five years – in an easily identifiable location and clearly indicate the date and time of the disclosure. Delayed disclosure of information. 28

29. 2. Disclosure of Inside Information Delayed disclosure of information 1.Legitimate interest 2.Delay not likely to mislead public 3.Ensure confidentiality (Points 1 to 3 are all met ) Or 4.To preserve the stability of the financial system (Credit & Financial Institutions) Notify competent authority in writing and provide explanations how conditions are met 29

30. List of insiders 30

31. 2. What’s new? – Insider List (Art 18) MADMAR List of InsidersLOI (Schedule III) Persons on LOI ack. the legal and regulatory duties entailed Updated promptly Kept for 5 years To include the date and time of obtaining access to inside information Persons on LOI ack. in writing the legal and regulatory duties entailed SME growth market exemption Also applies to EA market participants ESMA Draft ITS 31

32. PDMR Notification 32

33. 2. What’s new? – PDMRs (Art 19) MADMAR Persons Discharging Managerial Responsibilities (PDMR) (and persons closely associated) Shares Only (Schedule I) Applicable to transactions in shares on RM Notification within 5 working days Public disclosure Include persons closely associated Eur5,000 per year reporting threshold Shares and debt, related derivatives, EA on RM, MTF, OTF (Incl. pledging) Notification 3 business days Public disclosure 30 day closed period - Commission DA ESMA Draft ITS - notification & public disclosure 33

34. 2. What’s new? – Investment recommendations & disclosure in the media (Art 20 & 21) MADMAR Journalists, Researchers, disseminators of Financial information, recommendations Identification Relevant competent authority Fair presentation Disclosure of conflicts of interests Applies to written and non- written recommendations Continues to require persons producing or disseminating investment recommendations to ensure information is objectively presented, & to disclose any conflicts of interest ESMA Draft RTS 34

35. 2. What’s new? – Reporting of Infringements (Whistle- blowers) (Art 32) MAR Reporting of InfringementsWhistleblower Act – in force on the 16 July 2013 MS to establish effective mechanisms to enable reporting of actual or potential infringements Financial Services providers must have internal procedures in place for the reporting of actual or potential infringements. Commission Implementing Acts 35

36. 3. Preparing for change Do you fall within scope? Are your policies and procedures in line with the new requirements: – LOI – PDMRs – Market Soundings – Disclosure of inside information – Buy-back and Stabilisation procedures 36

37. 37 Thank you!

38. 38 Contact Email: egrech@mfsa.com.mt

39. 39 Links: ESMA: http://www.esma.europa.eu/page/Market-abuse European Commission: http://ec.europa.eu/finance/securities/abuse/index_en.htm MFSA: http://mfsa.com.mt/pages/viewcontent.aspx?id=486