CitySolicitor


In particular, the Committee’s response:


• sought greater clarity around the concept of an “ancillary activity”;


• suggested that serious consideration should be given to whether it would be more appropriate to include emissions allowances in another form of regulation, rather than within the scope of MiFID;


• requested greater certainty on the scope of the activity of custody and safekeeping if, as is proposed, it is to become a core investment service;


• suggested that regulating third country access to European markets, in the manner proposed by the Commission, would significantly damage the ability of European investors and firms to access the services of third country investment firms in the way they currently do;


• requested greater refinement and clarity over the definition of an “organised trading facility” (OTF), including a suggestion that additional exclusions from the definition could be considered;


• suggested that where certain trading methods (e.g. algorithmic trading, direct electronic access and co-location) are abused, such behaviour should be dealt with under the EU market abuse regime and not under MiFID. However, if the Commission nevertheless believes there is a case for regulation under MiFID, on risk management grounds, the Committee noted that the definition of algorithmic trading is too wide and is capable of capturing any trading that makes use of automated technology; and


• suggested that the creation of sub- categories of particular complex or non-complex financial instruments is likely to lead to confusion. In particular, the Committee noted that shares, UCITS, money market instruments and securitised debt should all be treated as non- complex financial instruments.


The submission was compiled from responses on particular issues


6 • City Solicitor • Issue 77


prepared by different members and so particular thanks are due to James Perry (Ashurst LLP), Jonathan Herbst (Norton Rose LLP), Angela Hayes (Mayer Brown International LLP), Chris Bates (Clifford Chance LLP), Peter Bevan (Linklaters LLP), Robert Finney (Dewey & LeBoeuf LLP), John Crosthwait (Independent), Ben Kingsley (Slaughter and May), Richard Everett (Lawrence Graham LLP), Karen Anderson (Herbert Smith LLP), Stuart Willey (White & Case LLP) and David Berman (Macfarlanes LLP) for their hard work in producing this submission.


3. EUROPEAN COMMISSION’S PROPOSALS TO REVISE THE MARKET ABUSE DIRECTIVE (2003/6/EC) (MAD)


The Committee noted its overriding concern that the Commission’s MAD II proposals represent a significant extension to the current market abuse regime and that the MAD II proposals may have an unjustified impact on transactions in instruments that are not publicly traded.


In particular, the response set out comments and suggested drafting on the following issues:


• some of the key recitals from the ∑ some of the key recitals from the existing Market Abuse Directive and the Regulation on energy market integrity and transparency (Regulation 1227/2011) (REMIT) should be reinstated in the proposals, as they are important in defining the scope of the insider dealing offence;


•


that the Commission should include provisions setting out the circumstances where a person holding inside information can enter into a transaction without breaching the insider dealing prohibition;


• that the regulation should not apply to all instruments trading on a multilateral trading facility (MTF) or organised trading facility (OTF);


•


that the definition of insider information under the regulation should not cover information simply because investors may regard that information as “relevant” and that the definition of inside information for commodity


and similar derivatives should be limited to information that is disclosable and price sensitive;


•


that the proposed directive, like the regulation, should only extend to trading in financial instruments admitted to trading on defined trading venues and that it should address in more detail the mental element required for the commission of a criminal offence; and


•


that the regulation should address the civil liability consequences of a violation of its prohibitions in a way that provides legal certainty and that it should contain provisions reducing the extent of overlap and duplication between the enforcement processes for the administrative and criminal sanctioning regimes.


Particular thanks to Chris Bates (Clifford Chance LLP) for his work on this submission.


4. FSA’S PROPOSALS TO AMEND THE MARKET CONDUCT SOURCEBOOK (MAR) TO INCLUDE ADDITIONAL GUIDANCE ON “PERSONS DISCHARGING MANAGERIAL RESPONSIBILITIES” (PDMR)


While the Committee supported the underlying rationale underpinning the proposed exemption from the market abuse (improper disclosure) offence (that is, to enable the divestiture of illiquid stock that would otherwise be unsaleable), it expressed its concern regarding the lack of any corresponding exemption for prospective purchasers of such stock and urged the FSA to introduce such a safe harbour for buy- side firms.


Particular thanks to David Berman (Macfarlanes LLP) for his work on this submission.


5. CLEANSING ANNOUNCEMENTS (EINHORN CASE)


The Committee corresponded with the FSA concerning a statement made in an FSA Final Notice in respect of the market abuse findings in relation to David Einhorn. The Committee’s concern was that a reference in that notice appeared to imply that a cleansing statement would always be required. The Committee has received


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