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Market Abuse Directive is ‘ambiguous and lacks direction’ Back  
Information is becoming increasingly available regarding the impact of International Financial Reporting Standards (IFRS) on European listed companies. In certain EU member states, for example - Germany, Switzerland, Belgium and Luxemburg – a high proportion of companies are already adopting IFRS. In others, for example – UK, Ireland, France, Spain and Italy – companies have not as yet implemented IFRS, writes Brendan Sheridan, as legislative requirements do not permit financial statements to be prepared in accordance with IFRS prior to 2005.
TThe Committee of European Securities Regulators’ (CESR) consultation paper on the Market Abuse Directive is ambiguous and lacks direction and clarity, according to the Irish Association of Investment Managers (IAIM). In October CESR commenced a consultative process on the implementation of the Directive, and published a paper, entitled ‘Market Abuse Directive: level 3 - preliminary CESR guidance and information on the common operation of the directive’ as part of its efforts to prepare the ground for the implementation of the new regime, by ensuring a common approach to the operation of the Directive takes place throughout the EU amongst supervisors.

The Market Abuse Directive sets a common framework for tackling insider dealing and market manipulation in the EU and the proper disclosure of information to the market. The implementing Directive covers accepted market practices in the context of market manipulation, the definition of inside information in relation to derivatives on commodities, the drawing up of lists of insiders by issuers and persons acting on their behalf or for their account and the notification to the relevant authorities of suspicious transactions and of transactions undertaken by issuers’ managers.

In its response from Enda McMahon, who is chairman of the Regulatory and Compliance Committee of the IAIM, and is also senior compliance manager, at Bank of Ireland Asset Management, the IAIM, outlined the following concerns it has with the Directive:

- The disclosure thresholds should be defined. It should give general guidelines to brokers and investment banks. It can only provide the basis for a more detailed internal code as to how the regulator should work as such detail should not be contained in a Directive.
- The mechanics of reporting suspicious activity or market manipulation should be clearly set out. The notification regime is too vague and leaves compliance officers exposed. A forum is needed in which decisions can be made with some certainty rather than second-guessing.
- The criteria for the decision as to whether or not to notify a suspicious transaction are very subjective.
What criteria would have been used in the case of Citibank, for example? Is quantum important or must the circumstances be pre-ordained?
- Concern was expressed with regard to cross-trades on sub-funds. This could present a problem where the beneficial ownership is changed without going to the market in order to avoid incurring unnecessary costs.
Would these be caught under the Directive as ‘wash trades’ instead of being treated as genuine cross-trades?

The proposed measures are too vague, especially where businesses are expanding and the criteria to be used are too subjective. Another point of concern was with regard to the duty of confidentiality owed to clients where it is deemed necessary to notify any potential wrongdoing to the regulator. It was thought that protection could be afforded along the same lines as the Anti-Money Laundering Directive.

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