Introduction
Creating a comprehensive Market Abuse Policy is essential for any business that deals with sensitive financial information or participates in the financial markets. This brief guide provides a structured approach to developing a policy that helps prevent insider trading, market manipulation, and the unlawful disclosure of inside information, ensuring compliance with relevant laws such as the EU Market Abuse Regulation (MAR)
1. Understand the Legal Requirements
Before drafting a Market Abuse Policy, it is crucial to understand the legal landscape:
Key Regulations to Consider
- EU Market Abuse Regulation (MAR): Covers insider trading, market manipulation, and unlawful disclosure of inside information. You can find a copy of the Regulation here.
- If you are in the UK, you will also be subject to the EU Market Abuse Regulation. You can find a copy of the UK MAR here.
Definitions
- Inside Information: Information that is precise, not public, and would likely have a significant effect on the prices of financial instruments if it were made public. For a more detailed guide on what constitutes inside information, have a look at InsiderList's guide to inside information here.
- Market Manipulation: Includes transactions or orders to trade which give false or misleading signals regarding the supply of, demand for, or price of financial instruments.
- Insider Trading: Dealing, or attempting to deal, in a financial instrument either directly or indirectly, by someone who possesses inside information.
2. Drafting the Policy
Policy Objective
- Purpose: To prevent market abuse through insider trading, market manipulation, and unlawful dissemination of inside information.
- Scope: Applies to all employees, including full-time, part-time, contractors, directors and possible external parties who have access to external information. It is necessary for the policy to cover all areas of your business that could potentially be involved in market activities.
Core Elements of the Policy
- Confidentiality and Handling of Information: Guidelines on how sensitive information should be managed and protected.
- Identification of Inside Information: Processes for identifying and labelling information as 'inside'.
- Restrictions on Trading: Clear rules on when and how employees can trade in securities to avoid conflicts of interest.
- Disclosure Requirements: Procedures for the lawful disclosure of inside information.
- Reporting Violations: Mechanisms for employees to report suspicious activities or breaches of policy.
Compliance and Monitoring
- Training Programs: Regular training on market abuse regulations and the company’s policy.
- Audits and Controls: Periodic audits to ensure compliance with the policy.
- Penalties for Non-Compliance: Clear penalties, including disciplinary actions up to and including termination and legal action.
3. Implementing the Policy
Communication
- Policy Distribution: Ensure that all employees receive a copy of the policy and confirm that they have read and understood its contents.
- Awareness Sessions: Conduct sessions to discuss the policy details and implications for day-to-day operations.
Training
- Initial Training: Mandatory training sessions for all existing employees and new hires.
- Ongoing Training: Refresher courses at regular intervals or when significant regulatory changes occur.
Monitoring and Review
- Regular Audits: Scheduled and random audits to check for compliance with the policy.
- Continuous Improvement: Regular review and update of the policy to adapt to new regulatory developments or operational changes.
4. Enforcement
Reporting Mechanisms
- Internal Reporting: Establish a confidential and secure process for reporting suspected market abuse incidents.
- Whistleblower Protection: Assurances that the company will protect whistleblowers from retaliation.
Investigation Procedures
- Initial Assessment: Quick evaluation of reported incidents to determine their credibility.
- Detailed Investigation: Thorough investigations conducted by compliance or legal departments.
- Action and Sanctions: Disciplinary actions, including dismissal and legal proceedings if applicable.
5. Maintaining Records
Documentation
- Audit Trails: Maintain detailed records of all data related to compliance checks, training attendance, and incident investigations.
- Retention Policy: Define how long distinct types of records and documents are to be kept, in compliance with legal and regulatory requirements.
Conclusion
A well-crafted Market Abuse Policy not only complies with legal standards but also promotes a culture of integrity and transparency. Regular updates, diligent monitoring, and effective training are critical to ensure that the policy is respected and adhered to across the organization. By establishing clear guidelines and procedures, companies can protect themselves from the reputational and legal risks associated with market abuse.
