The EU Market Abuse Regulation - What does it mean for employee share plans?
Listed and AIM companies are starting to prepare for the introduction of the EU Market Abuse Regulation (MAR) which takes direct effect in the UK and across the EU on July 2016. MAR contains prohibitions on insider dealing and market manipulation and will replace the existing market abuse regime. For Listed and AIM companies operating employee share plans the new rules will impact on (i) when awards can be made or exercised under such plans (ii) when persons discharging managerial responsibility (PDMRs) can deal in shares and (iii) how and when such dealings are disclosed to the market.
There are still a number of outstanding issues relating to MAR and further guidance is expected, although this may not be available until the regime has come into force. In the meantime, you should note the following key points:
- From July 2016, the current Model Code and rules on disclosure of transactions by PDMRs will cease to apply. PDMRs will not be permitted to deal during a "closed period" (see below) except in certain limited circumstances (some of which relate to employee share schemes).
- A "closed period" is defined differently to the existing "close" period and means 30 days before the publication of annual and interim reports. The Financial Conduct Authority has recently confirmed that, pending EU clarification, it will take the view that a 30 day closed period exists before the announcement of preliminary results. Until then, there had been a question over whether a closed period existed before the publication of the preliminary results, annual report or both.
- MAR does not contain a concept of a "prohibited period" outside a closed period and there is no prescribed procedure for clearance. However, given the general prohibition on insider dealing under MAR, companies are likely to introduce share dealing codes of their own for PDMRs and, potentially, other groups of employees.
- New notification timetables will apply to PDMRs and their associated persons under which they will be required to notify both the company and the FCA within three business days of a transaction (previously they only had to notify the company). In turn, the company has to announce the dealing within the same deadline (previously it had until the business day following receipt of notification from the PDMR).
It is important that companies are aware of these new requirements and, where necessary, adjust their internal processes and procedures to accommodate them.
Please do not hesitate to contact a member of the Travers Smith Employee Incentives Group if you would like to discuss the impact that MAR may have on your share plans.