The EU Market Abuse Regulation 596/2014 ("MAR") enters into force in Norway on 1 March 2021. The proposal will involve important changes for the participants in the Norwegian financial market, including investment banks, issuers and investors. After entering into force, the Norwegian securities market is subject to the same rules that have been in force in the EU since the summer of 2016, with some exceptions.
MAR is a comprehensive and detailed regulation on how issuers, investment banks and investors should act in the securities market. The regulations came into force in the EU on 3 July 2016, and require a number of changes to existing securities laws in Norway. The new rules consist of the market abuse regulation itself, as well as a number of detailed EU acts set out by the European Commission. MAR replaces the Market Abuse Directive ("MAD") which was implemented in Norwegian law in 2005 through changes to the Securities Trading Act. MAR and associated EU acts will be implemented by incorporation/reference in Section 3-1 of the Securities Trading Act and Section 3-1 of the Securities Regulations.
Expanded scope for the market abuse rules
MAR has a significantly wider scope of application than the rules set out in the Securities Trading Act. While the Securities Trading Act focuses on financial instruments that are admitted to trading on exchanges and other regulated markets, MAR also includes financial instruments that are admitted to trading at multilateral trading facilities ("MTF") and organized trading facilities ("OTF"), as well as unlisted instruments that depend on or have an effect on the value of instruments traded at one of the aforementioned trading venues.
MAR has extra-territorial effect, in that the regulation applies to any action or omission made in or outside the EEA, as long as the instrument in question is covered by the regulation. You can read more about the impact this has had on Norwegian market participants since the summer of 2016 in our newsletter on From MAD to MAR (in English). You can also read more about MAR in our newsletter on the proposition from the Ministry regarding new rules on market abuse (in Norwegian).
The definition of inside information – codifies case law of the European Court of Justice
The concept of inside information as a key term is continued. In addition to legislating the practice of the ECJ, the definition of inside information is essentially unchanged. The definition emphasizes that all types of information may in principle constitute inside information, but still requires that the information in question be precise, price sensitive and not public. As in current Norwegian law, special requirements for "inside information" in commodity derivatives are continued.
Cancellation of orders
MAR imposes a prohibition against using inside information by cancelling an order in cases where the investor receives inside information after order is placed, but before the order is effectuated. This is contrary to the current interpretation of Section 3-3 of the Securities Trading Act, which assumes that there is a duty to withdraw an order if you become aware of inside information that is positive for the order after placing it, but prior to it being effectuated. There is some disagreement on the subject, but we believe that MAR must be interpreted so that the investor does not at any time have a duty to withdraw an inlaid order, regardless of whether the investor receives inside information after placing the ordering. However, if it is not beneficiary for the investor to cancel the order, the investor always has the opportunity to cancel the order. In such a case, the investor does not "use" the inside information.
Rebuttal of presumption of insider trading
In addition to the new prohibition against using inside information by cancelling an order, MAR continues the traditional prohibition against using inside information when buying or selling financial instruments. Pursuant to MAR, there is a presumption that whoever trades while he or she is in possession of relevant inside information is "using" this inside information. There are different interpretations on this matter as well. In our view, an investor will be able to rebut the presumption of insider trading by, among other things, proving that he or she made the investment decision without being influenced by the inside information, e.g. by making the investment decision before receiving the insider information.
In its proposition, however, the Ministry apparently assumes that the subjective aspects of the investment decision will not be relevant in the rebuttal of the presumption. This is, in our view, not a correct understanding of the prohibition. You can read more about this in our newsletter regarding new rules on market abuse (in Norwegian).
Objectification of legitimate behavior – exceptions to the trade and manipulation ban
MAR sets out a number of patterns of behaviour that are considered legitimate behavior – and thus not violation of the ban on insider trading or market manipulation – unless the supervisory authority believes that the behavior was not legitimate. Market making and passive execution of orders on behalf of third parties are mentioned as legitimate conduct.
Changes in primary insiders and their related parties' duty to report
MAR makes extensive changes to the regulation of primary insiders and their related parties' reporting obligations. The circle of who constitutes primary insiders is somewhat narrowed. For example, senior executives and directors of enterprises in the same group and external auditors are not being covered. Further, the duty to report will not apply to the issuer's trading in own shares, or to enterprises that own shares in a company that is listed on a regulated market and which, due to the ownership, is represented on the board of the company concerned. The circle includes a member of the enterprise's administrative, management or supervisory body, or other senior executives who have regular access to inside information and who have power to take managerial decisions affecting the future developments and business prospects of the company.
However, the definition of related parties to primary insiders is somewhat expanded. In addition to spouses, dependent children and relatives the primary insider have shared a household with for at least one year on the transaction date, legal persons are consider a related party if the managerial responsibilities of the entity are discharged by a primary insider or a related party, if the entity is directly or indirectly controlled by such a person, if the entity is set up for the benefit of such a person, or if the economic interests of the entity are substantially equivalent to those of such a person. According to ESMA, "management responsibilities" involve participating in or influencing the investment decisions of the legal entity in terms of investments in the issuer's financial instruments.
Notifiable transactions include gifts, inheritance, loans and mortgages in addition to purchases, sales, exchanges and subscriptions. While the duty of reporting in the Securities Trading Act applies only to shares, MAR extends the duty to notify to also apply to bonds and other financial instruments.
MAR requires the issuer to inform their primary insiders in writing of their obligations under MAR, and primary insiders are required to inform their close associates in writing of their obligations. Close associates of primary insiders are subject to an independent reporting obligation on their trades. Under applicable law, the primary insider, and not its close associates, is imposed to this duty to notify.
The notice itself shall be sent "immediately", and no later than three business days after the transaction, to both the issuer and the Financial Supervisory Authority of Norway. The notification to the Financial Supervisory Authority of Norway shall be sent through "Altinn".
An amount threshold is set for the duty to report. The duty to report shall only occur when transactions have been made for a total amount equal to EUR 5,000 within a calendar year and will then apply to any subsequent transaction. The threshold shall be calculated by adding up, without netting, all transactions. The amounts for which the primary insider and each of the primary insider's related parties have traded shall not be added together.
The issuer is obligated to make the notifications public. For now, the issuer must publish the notice immediately and no later than within three business days of the transaction. In the EU, however, the so-called SME Regulation (EU) 2019/2115has been adopted. The regulation amends MAR by requiring the issuer to make the notifications public within two business days from receipt of the notification of trade. The SME Regulation is still not included in the EEA Agreement nor Norwegian law, and for now we must adhere to the rules of MAR, without the amendments arising from the SME Regulation.
MAR also sets out a new prohibition for primary insiders, but not their related parties, on carrying out transactions in issuers' instruments or derivatives of such, for a period of 30 calendar days prior to the publication of financial reports, so-called "closed periods". As we wrote about in our newsletter on Proposed new rules on flagging and periodic reporting (in Norwegian), the duty to quarterly reporting for issuers with shares on the regulated market in Norway was repealed with effect from 1 January 2017, and Norwegian law no longer has any requirement for quarterly reports for the first, third and fourth quarters. However, such a duty may result from accounting legislation, including for regulated enterprises such as banks and insurance companies.
New regime on market soundings
MAR introduces a new regime for the implementation of market soundings. Rules are set out for both the person who conducts and the person receiving the market sounding, including requirements for procedures, standardized scripts, cleansing procedures when the information ceases to be inside information, as well as a number of documentation and retention requirements. Market participants who follow the new market sounding regime will have a "safe harbour" from the prohibition against unlawful disclosure of inside information. ESMA has stressed on a number of occasions that this is a mandatory regime, regardless of whether inside information is shared or not. However, the SME Regulation makes an exception for soundings in connection with bond issuances where only professional investors are contacted. However, until the SME Regulation is implemented in Norwegian law, the sounding rules must be followed for such transactions as well.
Reporting duty on suspicious orders and transactions is significantly expanded
MAR states that those who operate a trading venue shall establish and maintain effective schemes, systems and procedures to prevent and detect insider trading and market manipulation. Furthermore, they shall report any suspicious transactions, or attempts to do so, to the supervisory authority .
The same obligations on routines and reporting are imposed on any person professionally arranging or executing transactions. Pursuant to Norwegian law, the reporting obligation is limited to investment banks and credit institutions. There is no room for a similar limitation of the scope under MAR, and the reporting obligation and litigation requirements will therefore apply, among other things, to buy side enterprises such as management companies (AIF and UCITS managers), as well as firms professionally engaged in trading on own account (proprietary traders). However, what procedures such actors must have should be proportionate with the size and nature of their activities.
Amendments to how to delay disclosure of inside information
The issuer's obligation to disclose inside information, the obligation to ensure disclosure of the information on the issuer's website and the prohibition against mixing disclosed information with marketing are largely unchanged. The obligation to publish inside information applies regardless of the opening hours of the stock exchange, as we described in our newsletter on Duty of Information 24/7 on the Stock Exchange (in Norwegian).
Regarding the right to defer publication, major changes are made. First, credit institutions and financial institutions are permitted to delay disclosure in certain additional and extraordinary cases.
Regarding the ordinary deferral right to all other undertakings, the conditions for deferred disclosure remain unchanged (i.e. they need legitimate interests, no misleading of the public and the confidentiality of the information must be ensured). However, changes are made to the routines for how the delay should be done. While current Norwegian law requires a notice to the stock exchange at the same time as the delay is decided, the notification that the disclosure was delayed pursuant to MAR, must be sent to the stock exchange when the inside information is made public to the market. In addition, the issuer is required to prepare a written reasoning for how the conditions for delayed disclosure were met at the time the decision was made, as well as a fairly detailed description of the distribution of responsibilities and what to do in the event of a leak, for example. In Norway, companies only have to submit the written justification at the request of the supervisory authority.
Oslo Børs has announced that it will continue the requirement for notification to their market surveillance department at the same time as delayed disclosure is decided by the issuer, but this will have its legal basis in the member rules of Oslo Børs, not MAR.
If the disclosure of inside information has been delayed and confidentiality is no longer ensured, the issuer shall disclose the inside information immediately. This also applies to where a rumor relates to the inside information, if the rumor is sufficiently accurate to indicate that confidentiality is no longer ensured.
The obligation to keep insider lists of people with access to inside information is continued. Pursuant to MAR, the persons to be listed on the insider list is limited to those who have access to inside information and who are working for them under a contract of employment, or otherwise performing tasks through which they have access to inside information, such as advisers, accountants or credit rating agencies. This means that, for example, counterparties and shareholders should not be listed.
The inside list itself shall follow a the format required by MAR, where each person is required to be identified by home address and personal identification number. In addition, each person on the insider list must confirm in writing that they are familiar with the duties that come with being in possession of inside information, including the sanctions associated with them.
According to ESMA and clarifications made to MAR pursuant to the SME Regulation, those acting on behalf of or at the issuer's expense also have an independent duty to keep insider lists of their employees and contractors. Issuers are not responsible for ensuring that these lists are maintained in accordance with the regulations. ESMA has also clarified that only people with "active" access to the inside information are to be listed. That is, for example, IT staff with administrator rights must not be listed, unless one believes that they are actually in possession of inside information.
MAR has already been in effect in the EU since 3 July 2016, and we welcome that Norwegian law will finally be almost in line with EU regulations as of 1 March 2021. Market participants should comply with the new rules as quickly as possible. Issuers should, among other things, review their routines for ongoing disclosure of inside information, maintain a registry of primary insiders and their close associates and disclose trades made by primary insiders and their close associates. Investment banks should specifically update their routines for market soundings, buy-back programs and price stabilisation. In particular, investors should update their routines for what to do when receiving market soundings and how to handle the situation when inside information is received after an order is placed, but before the order is effectuated. In addition, the Norwegian authorities should endeavour to implement the SME Regulation and associated changes in MAR as soon as possible.