Irish Association
of Investment Managers
35 Fitzwilliam Place
Dublin 2
Tel: 353-1-676 1919
Fax: 353-1-676 1954
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IRISH ASSOCIATION OF INVESTMENT MANAGERS
Response to the European Commission on the Call for Evidence on the Review of
Directive 2003/6/EC on Insider Dealing and Market Manipulation
The Irish Association of Investment Managers welcomes the opportunity to comment on the Call for Evidence on the Review of Directive 2003/6/EC. IAIM is the representative organisation for institutional investors in Ireland.
2.1THE SCOPE OF THE MARKET ABUSE DIRECTIVE
2.1.1Only regulated markets? (Articles 1(3) and 9 of Directive 2003/6/EC)
Do you consider that the scope of the MAD should go beyond regulated markets? In particular, should it be extended to cover MTFs?
Broadly, IAIM supports the proposition that “market integrity can only be guaranteed with a general application of prohibitions of abusive behaviour”.
However, the existing regime recognises differences between primary and secondary markets. It may be appropriate, in extending the MAD provisions to MTF’s to recognise similar distinctions.
2.1.2What kind of financial instruments should be covered by the MAD, especially in comparison with the MiFID? (Article 1(3) of Directive 2003/6/EC)
Do you agree with an alignment of the MAD definition of financial instrument to the definition for the same concept provided for in MiFID?
We support this proposal.
Do you think it could be useful to explain in more detail in the MAD what is meant by a financial instrument "whose value depends on another financial instrument" or to list asset classes, such as CFDs and CDS, which belong to this category?
The attractiveness of a list of asset classes is evident however no list is exhaustive. Further guidance coupled with a suitable list might provide a solution.
2.2 INSIDE INFORMATION
2.2.1Definition of inside information: the general definition (Article 1(1) of Directive 2003/6/EC and Article 1 of Directive 2003/124/EC) and the particular definition for commodity derivatives
Do you share this view as far as insider dealing prohibition is concerned? (see also next point for disclosure of inside information). If not, which concepts would you advise to modify and how?
We share the view that revision of the concepts used to define inside information for MAD purposes is not required at this time. Information that is market sensitive varies between issuers and can depend on market sentiment and indeed is subject to many variables. The definition must be sufficiently general to encompass all possible types of information. Ultimately it is the responsibility of Boards to ensure compliance with the Directive.
2.2.2Dissemination of inside information and deferred disclosure mechanism (Article 6 of Directive 2003/6/EC and Article 3 of Directive 2003/124/EC)
Do you consider that any changes to the definition of inside information for disclosure purposes is necessary?
See 2.2.1
Do you agree that the described deficiencies of the deferred disclosure mechanism need to be addressed, possibly by way of amendments to the MAD framework? Do you consider that Level 3 guidance could be sufficient?
We agree that changes in the definition of inside information for disclosure purposes are not justified at this time. We note the arguments identified by ESME however we believe that the general obligation for issuers to disclose inside information is sufficient.
Do you agree that the issuer may be exempted from disclosing inside information in situations when that information concerns emergency measures being prepared in case the issuer's financial stability is endangered?
IAIM agrees that the special cases of banks and other issuers which are systematically important for financial stability should be addressed. We do not support the proposition that in all cases where the financial viability of the issuer is at stake an exemption from disclosure is appropriate. Indeed it is possible that such “exceptional circumstances” are more likely to present situations where one market participant or category of participants may be in a position to benefit at the expense of other participants.
What are other deficiencies in this area that raise major interpretation / application difficulties? What is the best way to address them?
We have not identified other significant interpretational/application difficulties.
2.2.3Prohibition of insider dealing (Articles 2, 3 and 4 of Directive 2003/6/EC)
Would you support this approach?
We support deferral of this issue until the ECJ preliminary ruling is given.
2.2.4.Three new tools to help to detect suspicious transactions
Do you consider that the obligations to draw up lists of insiders are proportionate?
We support a limited re-examination of the rules on insider lists. There is undoubtedly a significant burden on entities, many of whom include significant numbers of persons on insider lists. However we do welcome the feedbackthat lists have strengthenedthe ability of competent authorities to identify persons involved in abusive practices. Greater alignment of national implementation measures would be a welcome outcome of any re-examination.
2.2.4.2 Transaction reporting by managers and closely associated persons and subsequent disclosure (Article 6(4) of Directive 2003/6/EC and Article 6 of Directive 2004/72/EC)
Do you see a need for a regulatory action in the above areas? Would you suggest further improvements?
We do not see a need for regulatory action in this area.
2.2.4.3 Reporting of suspicious transactions (Article 6(9) of Directive 2003/6/EC and Article 7(11) of Directive 2004/72/EC)
Do you agree that rules on suspicious transactions reporting do not require modifications?
We agree with the conclusion that no modification is required.
2.2.5. The competent authorities’ right of access to telephone and existing data traffic records (Article 12 of Directive 2003/6/EC)
Do you consider that an amendment of the MAD is necessary?
We agree that an amendment is appropriate.
2.3 MARKET MANIPULATION
2.3.1. Definition of market manipulation by transactions/orders to trade (Article 1(2) of Directive 2003/6/EC)
Do you think that the definition of market manipulation should be amended? If this is the case, what elements of the definition should be reconsidered?
IAIM recognises the difficulties in defining precisely what might constitute market manipulation. Accordingly we can suggest no meaningful improvements to the existing legislation.
2.3.2. Accepted market practices (AMP) (Articles 1(2)(a) and 1(5) of Directive 2003/6/EC)
Do you consider that the rules on accepted market practices should be amended in the MAD? Do you think there is room for greater convergence among competent authorities in this area?
This is a complex area. Perhaps an outline of what further level 3 work could be contemplated would assist in deciding whether convergence is possible or whether amendment to the MAD is appropriate.
2.3.3. Exemption for buy-back programmes and stabilisation activities (Article 8 of Directive 2003/6/EC and Commission Regulation 2273/2003)
Do you consider that the safe harbours for buy -back programmes and stabilisation activities should be revisited? Do you think that greater convergence is desirable in the application of the Regulation 2273/2003? What would be the most appropriate way forward in this respect?
IAIM believes that the existing safe harbour provisions are adequate.
2.3.4 Short Selling
Do you see a need for a comprehensive framework for short selling? If so, should it be addressed in the Market Abuse Directive? What issues should such a regime cover?
IAIM supports the development of a comprehensive framework for short selling within the MAD framework. We note that such a framework should avoid measures which in practice represent a ban. Short selling is, as the commission recognises, an important technique.
Should short sellers be required to report positions to competent authorities? Under which conditions should naked short selling be allowed? Should competent authorities be able to take emergency measures (e.g. temporary bans on short selling or on naked short selling) within prescribed limits when they need to address specific market risks and disruptions?
The introduction of a reporting regime for short selling does present complex problems. Aggregate disclosures may require further detail to inform the market while individual short positions disclosed will elicit differing responses.
It may be appropriate that persons taking a short position in excess of a certain limit be required to disclose.
We do not support a ban on naked short selling however we do agree that competent authorities be allowed implement emergency measures to address specific market disruptions.
Is there a need to enhance risk management by financial intermediaries and banks? Should investment firms and banks be required to have necessary arrangements in place to ensure timely delivery of financial instruments traded on own account or in the context of execution of clients' orders?
We believe that banks and investment firms are subject to the same disciplines as other market participants and a specific regime is not appropriate.
Frank O’Dwyer
Chief Executive
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