Inside information under MAR: striking the right balance

Introduction

The European Union (EU) and UK enforce stringent rules to curb market abuse through the Market Abuse Regulation (MAR), which aims to ensure market integrity and transparency. A key challenge is determining how much information should be classified as inside information, as both over-classification and under-classification can significantly impact markets and their participants.‌

Understanding Inside Information

Inside information under MAR is specific information that:

• Has not been made public
• Relates directly to one or more financial instruments of their issuers
• Would likely have a significant effect on market prices if released

The Risks of Over-Inclusiveness

When too much information is labeled as inside information, several problems arise:

1. Reduced Market Efficiency: Over-classification can make markets less efficient. When companies withhold too much information, investors struggle to make well-informed decisions, leading to inaccurate pricing and poor resource allocation.
2. Operational Burdens for Corporations: Companies face significant costs and time commitments when they must constantly evaluate large amounts of information to determine what qualifies as inside information.
3. Legal and Compliance Risks: Companies might adopt overly cautious strategies to avoid regulatory issues. This can harm their competitive position and create tension with shareholders who want more transparency.

The Dangers of Under-Inclusiveness

When too little information is classified as inside information, other risks emerge:

1. Market Manipulation and Abuse: Insufficient classification of inside information can enable insider trading and market manipulation, as some people may unfairly profit from information that should have been protected.
2. Erosion of Investor Confidence: If investors believe the market lacks proper transparency and fairness, they may lose confidence. This can lead to reduced investment and market participation.
3. Regulatory Sanctions and Reputational Damage: Organisations that fail to properly identify and handle inside information risk severe penalties. Beyond financial costs, the damage to their reputation can have long-lasting effects on their market position and relationships with investors.

Finding the Balance

The key to effective inside information management is finding the right balance. Regulatory bodies and entities must work together to refine what constitutes inside information, ensuring the criteria are neither too broad nor too narrow. The use of technology is increasingly instrumental in managing and monitoring inside information effectively. Continuous education and training for those handling inside information, along with robust internal controls, are essential to mitigate the risks associated with both over and under-inclusiveness.

Conclusion

Managing inside information requires careful balance in EU and UK financial markets. As markets continue to evolve, approaches to handling inside information must adapt while maintaining fairness and efficiency. Success depends on finding the right balance between transparency and necessary confidentiality in line with MAR requirements.

The Benefits of using InsiderList's platform

InsiderList is trusted by thousands of users across the UK and EU to streamline the setup and maintenance of their MAR compliance. The platform features guided compliance workflows, ensuring that delayed disclosure processes align seamlessly with regulatory requirements. Further to its compliance workflows, InsiderList provides robust audit trails, and secure data management, giving companies confidence in their compliance processes. With its intuitive interface and advanced analytics, InsiderList enables organizations to prioritize their core business operations while maintaining full compliance with MAR standards. Want to know more? Have a look at the core features here.