# EUR-Lex - 52012PC0421 - EN

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# 52012PC0421

**Amended proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on insider dealing and market manipulation (market abuse) (submitted in accordance with article 293(2) TFEU) /* COM/2012/0421 final - 2011/0295 (COD) */**

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2011/0295 (COD)

Amended proposal for a

REGULATION OF THE EUROPEAN PARLIAMENT
AND OF THE COUNCIL

on insider dealing and market manipulation
(market abuse)

(submitted in accordance with article
293(2) TFEU)

(Text with EEA relevance)

1.           CONTEXT OF THE PROPOSAL

On 20 October 2011, the Commission adopted
a proposal for a Regulation of the European Parliament and of the Council on
insider dealing and market manipulation (market abuse)[1]. This proposal was forwarded to
the European Parliament and the Council on 20 October 2011. The Economic and
Social Committee gave its opinion on 28 March 2012.

Since March 2011, investigations have been
taking place in relation to possible manipulation of the EURIBOR and LIBOR
benchmarks for interbank lending rates by a number of banks. It is suspected that
banks had provided estimates of the interest rate at which they would accept
offers of funding which were different from the rate they would have accepted
in practice. As a result, the level of EURIBOR and LIBOR rates –which are used
as a benchmark for borrowing and as a reference for the pricing of many
financial instruments, such as interest rate swaps – may have been altered and
the integrity of LIBOR and EURIBOR called into question. Furthermore the
individual contributor banks' estimates provided misleading information to the
market about their likely costs of funding.

The Commission has assessed whether the possible
manipulation of benchmarks including LIBOR and EURIBOR would be captured by its
proposals for a Regulation on insider dealing and market manipulation and the
related proposal for a Directive on criminal sanctions for insider dealing and
market manipulation, presented in October 2011. In particular the European
Parliament has also emphasised the importance of this matter. Given that
benchmarks are not currently covered by either proposal, the Commission has
concluded that direct manipulation of benchmarks does not fall within the scope
of either proposal.

While it may be difficult or impossible for
a competent authority to prove that manipulation of a benchmark has had an
effect on the price of related financial instruments, any actual or attempted
manipulation of important benchmarks can have a serious impact on market
confidence and could result in significant losses for investors and distortions
of the real economy, given the wide use of benchmark indexes as a reference
rate e.g. for interest swaps and variable rate mortgages. It is therefore
essential to clarify that competent authorities should be able to impose
administrative sanctions as regards the offence of market manipulation in these
cases, without the need to prove or demonstrate incidental issues such as price
effects. It is also essential that all necessary steps are taken to prevent
such manipulations and to enable and facilitate the work of the competent authorities
in imposing sanctions. A stringent legal framework will act as a credible
deterrent for this kind of behaviour, thereby protecting investors and
restoring market confidence. These regulatory steps should include criminal
sanctions, which is the subject of the amended proposal for a Directive which
accompanies the present proposal.

Therefore, in order to ensure that the
manipulation of benchmarks is covered by common European rules to prevent
market abuse, the Commission proposes to amend its proposal for a Regulation.

2.           LEGAL ELEMENTS OF THE PROPOSAL

2.1.        Legal basis

The amended proposal is based on Article
114 TFEU and submitted in accordance with Article 293(2) TFEU.

2.2.        Subsidiarity and
proportionality

According to the principle of subsidiarity
(Article 5(3) TEU), action at Union level should be taken only when the aims
envisaged cannot be achieved sufficiently by Member States alone and can
therefore, by reason of the scale or effects of the proposed action, be better
achieved by the Union. The cross-border dimension of many benchmarks and the
entities that contribute data to these benchmarks, as well as of the international
character of many of the financial instruments which can be affected by any
manipulation of benchmarks, means that there is a real risk that responses to manipulation
of benchmarks at a national level would be circumvented or ineffective in the
absence of action at Union level. Against this background Union action appears
appropriate in terms of the principle of subsidiarity.

The principle of proportionality requires
that any intervention is targeted and does not go beyond what is necessary to
achieve the objectives. This principle has guided the drafting of this proposal.

2.3.        Detailed explanation of
the proposal

The changes to the proposal for a
Regulation on insider dealing and market manipulation which are required are as
follows:

–
Amendment to the scope of the proposed
regulation (Article 2) to include benchmarks;

–
Amendment to the definitions (Article 5) to
include a definition of benchmarks, based on an expanded version of the
definition used in the proposal for a Regulation on Markets in Financial
Instruments (MiFIR);

–
Amendments to the definition of the offence of
market manipulation (Article 8) to capture manipulation of benchmarks and
attempts at such manipulation; and

–
Addition of a recital to clarify that the
extension of the scope of the Regulation and the market manipulation offence include
benchmarks.

3.           BUDGETARY IMPLICATIONS

This amended proposal has no budgetary
implications beyond those already identified in the initial proposal for a
Regulation on insider dealing and market manipulation.

The Commission proposal[2] for a regulation on insider
dealing and market manipulation (market abuse) COM(2011) 651final is amended as
follows:

1.           Recital (20a) is added:

"(20a) Many
financial instruments are priced by reference to benchmarks. The actual or
attempted manipulation of benchmarks, such as interbank offer rates, can have a
serious impact on market confidence and may result in significant losses to
investors or distort the real economy. Therefore, specific provisions in
relation to benchmarks are required in order to preserve the integrity of the
markets and ensure that competent authorities can enforce a clear prohibition
of the manipulation of benchmarks. It is necessary to complement the general
prohibition of market manipulation by prohibiting the manipulation of the
benchmark itself and any transmission of false or misleading information,
provision of false or misleading inputs, or any other action that manipulates
the calculation of a benchmark, including the benchmark's methodology. Those rules are in addition to Regulation (EU) No 1227/2011 of the
European Parliament and the Council on Wholesale Energy Market Integrity and
Transparency which prohibits the deliberate provision of false information to
undertakings which provide price assessments or market reports on wholesale
energy products with the effect of misleading market participants acting on the
basis of those price assessments or market reports."

2.           In Article 2(3) the
following point (d) is added:

"(d) benchmarks, where any transmission
of information, input, calculation or behaviour is used to affect, affects, or
is likely to affect the calculation of the benchmark."

3.           In Article 5 the following
paragraph 20 is added:

"20. 'benchmark' means any commercial
index or published figure calculated by the application of a formula to the
value of one or more underlying assets or prices, including estimated prices,
interest rates or other values, or surveys by reference to which the amount
payable under a financial instrument is determined"

4.           In Article 8(1) the
following point (d) is added:

"(d) transmitting false or misleading
information, providing false or misleading inputs, or any action which manipulates
the calculation of a benchmark."

Done at Brussels,

For the European Parliament                       For
the Council

The President                                                 The
President

[1]               COM(2011) 651 final

[2]               COM(2011) 651 final