When can delaying disclosure of inside information be justified? ESMA consults on guidelines under MAR

The European Securities and Markets Authority is consulting on two pieces of guidance under the EU Market Abuse Regulation: one relating to when a company can delay disclosure of inside information to the market and the other for recipients of market soundings. The draft guidelines include a list of scenarios in which delaying disclosure might be justified to protect the issuer's legitimate interests, and where delay would be likely to mislead the public. ESMA also clarifies that it is not justifiable to delay disclosure of a director's resignation to wait until a successor is appointed. The guidelines also propose some onerous procedures that recipients of market soundings should adopt in order to demonstrate compliance with the insider dealing and unlawful disclosure prohibitions.


MAR takes effect across the EU on 3 July 2016. It will introduce a new framework of rules on market abuse and disclosure of inside information to the market, amongst other things. Under MAR, ESMA is mandated to produce guidelines on certain specific areas. This kind of guidance is known as Level 3 guidance. This consultation on the draft guidelines takes into account responses to a discussion paper published by ESMA in November 2013.

Disclosure of inside information to the market

Under Article 17 of MAR, issuers must disclose inside information to the market as soon as possible, unless they can satisfy three criteria:

  • immediate disclosure is likely to prejudice the issuer's legitimate interests;
  • delay of disclosure is not likely to mislead the public; and
  • the issuer is able to ensure the confidentiality of the information.

The draft guidelines address the first two criteria.

Legitimate interests

The draft guidelines include a non-exhaustive list of situations where the legitimate interests of the issuer are likely to be prejudiced by immediate disclosure of inside information. ESMA stresses that each situation must be assessed on a case-by-case basis and that the ability to delay is the "exception to the rule" so should be narrowly interpreted.

  • The issuer is conducting negotiations (including re M&A), where the outcome of such negotiations would likely be jeopardised by immediate public disclosure of that information.
  • The financial viability of the issuer is in grave and imminent danger, although not within the scope of the applicable insolvency law, and immediate public disclosure of the inside information would seriously prejudice the interests of existing and potential shareholders, jeopardising negotiations aimed at ensuring the long-term financial recovery of the issuer. Note that Article 17(5) MAR separately allows disclosure to be delayed, with the prior consent of the regulator, in cases where disclosure would undermine the stability of the issuer and the financial system.
  • Where decisions taken or contracts entered into by the management body of an issuer need to be approved by another body of the issuer in order to become effective. This is subject to tight conditions to prevent it being a blanket exemption for companies with two-tier boards. In particular, no delay would be possible unless arrangements were made for the supervisory board to consider the matter within one day and there must be a possibility for the supervisory board not to approve the matter – delay cannot be permitted if the further approval is simply a formality;
  • Where the issuer has developed a product or an invention and the immediate public disclosure of such information may jeopardise the intellectual property rights of the issuer.
  • Where the issuer is planning to buy or sell a major holding in another entity and the disclosure of such information would jeopardise the conclusion of the transaction.
  • Where a transaction previously announced is subject to a public authority's (e.g. anti-trust) approval, and such approval is conditional upon additional requirements, where the issuer can justify that immediate disclosure of those requirements will likely affect the ability for the issuer to meet them and therefore prevent the final success of the deal or transaction.

ESMA did not include other suggestions which appeared in the 2013 discussion paper, such as unexpected significant events and impending developments that could be jeopardised by disclosure, as they are too generic (but may be caught by other exemptions). However, ESMA points out that the general obligation is only to disclose "as soon as possible".

Commenting on responses to the Discussion Paper, ESMA states that it does not view the resignation of the CEO as a case where an issuer would have a legitimate interest justifying a delay in disclosure until a successor is appointed. This is an area that has some issuers have found uncertain, particularly in light of the 2012 European Court of Justice decision in the Geltl v Daimler AG case where it was found that the possible resignation of the chairman was inside information at an early stage in the process.

For UK issuers this is a longer list than exists under the current regime, where in practice disclosure can only be delayed so as not to prejudice ongoing negotiations. The Financial Conduct Authority recently launched a consultation on amending DTR 2, to clarify that the non-exhaustive list of scenarios currently in DTR 2.5.3 really is non-exhaustive.

When will delay mislead the public?

ESMA proposes a non-exhaustive list of when delay would mislead the public (and therefore disclosure may not be delayed). This includes where the inside information the issuer is proposing to delay disclosing:

  • is materially different from a previous public announcement of the issuer on the matter to which the inside information refers to;
  • relates to the fact that the issuer's financial objectives are likely not to be met (in the event that objectives were previously publicly announced);
  • is in contrast with the market's expectations (based on signals that the issuer has previously set). The concept of market expectations drew some criticism in responses to the discussion paper as it is potentially broad. To address this, ESMA has added the link to issuer signals. It also suggests that issuers could consider consensus among financial analysts when looking at market expectations.

Recipients of market soundings

Article 11 MAR introduces a new safe harbour from the offence of unlawful disclosure of inside information in relation to market soundings (communications by or on behalf of an issuer to potential investors prior to an announcement or by or on behalf of a potential bidder to target shareholders), if certain conditions are met. These include various procedural requirements set out in technical standards.

ESMA's draft guidelines are for the recipients of market soundings and are intended to set out:

  • the factors they should take into account when information is disclosed to them as part of a market sounding in order for them to assess whether they are in possession of inside information as a result;
  • the steps they should take when information is disclosed to them so that they don't commit the offences of insider dealing or unlawful disclosure of inside information; and
  • the records they should maintain to demonstrate that they have not committed such offences.

Compliance with the guidelines does not, however, constitute a safe harbour. Although the guidelines are not mandatory, regulated persons are likely to be expected to comply.

Readers of the guidelines will need to acquaint themselves with two new acronyms: DMP for "disclosing market participant" and MSR for "market sounding recipient". This term can include both regulated and non-regulated entities who expect to be in receipt of market soundings.

Under the guidelines, MSRs should:

  • designate a central contact point for receipt of market soundings;
  • notify a DMP if they do not wish to receive certain/any market soundings;
  • consider whether the information received is inside information (even if the DMP has said that it is) and notify the DMP of any difference of opinion (provided that the difference of opinion is solely based on the information received). An MSR could have inside information as a result of the combination of information it already holds and information received from a DMP; if this is the case it should not do anything that might itself constitute unlawful disclosure;
  • consider which instruments and issuers the information may relate to;
  • establish and maintain internal procedures to control internal disclosure of inside information, including appropriate training;
  • keep a list of persons in the firm in possession of the information disclosed in the market sounding;
  • if the sounding was not recorded, sign the agreed minutes of the sounding which DMPs are required to keep and provide to them, or else provide a signed copy of their own notes within 5 days of the sounding – which could be very tight timing;
  • keep all records for five years.

Proposals in the earlier discussion paper requiring buy-side firms to report disclosing firms to the relevant competent authority for suspected unlawful disclosure of inside information and to record follow on calls from a sounding where there was no wall crossing have been dropped.

Next steps

Click here for the consultation paper. ESMA invites comments on the draft guidelines by 31 March 2016. ESMA will then publish the feedback it receives with a view to finalising the two sets of guidelines and publishing a final report by early in the third quarter of 2016 ("around" the time, but not necessarily before, MAR takes effect). We would not expect the final guidelines to be substantially different to the consultation.

ESMA is still preparing a consultation paper on a third set of guidelines required under MAR and relating to the information expected or required to be published in relation to commodity derivatives.

For more on MAR please visit our dedicated MAR microsite on the Linklaters Knowledge Portal.