EUROPEAN COMMISSION 
Brussels, 20.10.2011 
SEC(2011) 1217 final 
  
COMMISSION STAFF WORKING PAPER 
IMPACT ASSESSMENT 
 
Accompanying the document 
Proposal for a  
 
REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 
on insider dealing market manipulation (market abuse) 
 
and the 
 
Proposal for a  
 
DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 
 
on criminal sanctions for insider dealing and market manipulation 
{COM(2011) 651 final} 
{SEC(2011) 1218 final}  
 
EN 1   EN COMMISSION STAFF WORKING PAPER 
IMPACT ASSESSMENT 
 
Accompanying the document 
Proposal for a  
 
REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 
on insider dealing market ma nipulation (market abuse) 
 
and the 
 
Proposal for a  
 
DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 
 
on criminal sanctions for insider dealing and market manipulation 
 
EN 2   EN TABLE OF CONTENTS 
1. Introduction................................................................................................................ .. 5 
2. Procedure................................................................................................................... ... 6 
2.1. CESR and ESME reports ............................................................................................. 7 2.2. Public consultation....................................................................................................... 7 
2.3. Steering Group ............................................................................................................ .7  
2.4. Impact Assessment Board............................................................................................ 8 3. Problem Definition, Baseline s cenario and subsidiarity .............................................. 9 
3.1. Background and context............................................................................................... 9 3.1.1. What is market abuse? The current legislative framework.......................................... 9 3.1.2. Nature and size of the market concerned ................................................................... 12 3.1.3. How widespread is market abuse? ............................................................................. 14 3.1.4. Stakeholders concerned by market abuse .................................................................. 17 3.2. Problem definition...................................................................................................... 17  
3.2.1. Problem 1: Gaps in regulation of new ma rkets, platforms and OTC instruments ..... 18 
3.2.2. Problem 2: Gaps in regulation of commod ity and commodity derivatives markets.. 20 
3.2.3. Problem 3: Regulators cannot  effectively enforce..................................................... 23 
3.2.4. Problem 4: Lack of clar ity and legal certainty........................................................... 28 
3.3. Problem 5: Disproportionate administrativ e burdens on issuers, especially SMEs... 29 
3.4. The Baseline Scenario................................................................................................ 31 3.5. Subsidiarity and proportionality................................................................................. 33 4. Objectives.................................................................................................................. . 33 
4.1. General, specific and operational ob jectives.............................................................. 33 
4.2. Consistency of the objectives  with other EU policies................................................ 35 
4.3. Consistency of the objectives with fundamental rights.............................................. 36 5. Policy options............................................................................................................. 3 6 
6. Analysis of impacts and choice of pr eferred options and instruments....................... 41 
6.1. Analysis of impacts of policy options........................................................................ 41 6.1.1. Policy options to ensure regulation keeps pace with market developments .............. 41 
 
EN 3   EN 6.1.1.1. Policy options to prevent market abus e on organised markets, platforms & OTC 
transactions................................................................................................................. 41  
6.1.1.2. Policy options to prevent market abus e on commodities and related derivatives 
markets ....................................................................................................................... 4 4 
6.1.2. Policy options to ensure effective enforcement ......................................................... 47 6.1.2.1. Policy options to ensure regulators have necessary information and powers to enforce 
effectively................................................................................................................... 4 7 
6.1.2.2. Policy options to ensure consistent , effective and dissuasive sanctions .................... 51 
6.1.3. Policy options to reduce or elim inate options and discretions................................... 57 
6.1.4. Policy options to clarif y certain key concepts............................................................ 58 
6.1.5. Policy options for reducing administra tive burdens, esp ecially on SMEs................. 59 
6.2. The preferred policy options and instrument ............................................................. 62 6.2.1. The preferred policy options and their overall impacts ............................................. 62 
6.2.2. Choice of instrument.................................................................................................. 67  
6.2.2.1. Non-legislative cooperation between Memb er States with guidelines by ESMA ..... 68 
6.2.2.2. A Directive amending the Ma rket Abuse Directive................................................... 68 
6.2.2.3. Transforming the Market Abuse Directive into a Regulation.................................... 69 
6.3. Impact on retail investors and SMEs ......................................................................... 70 
6.4. Impact on third countries ........................................................................................... 72 
6.5. Social impact............................................................................................................. . 73 
6.6. Impact on human rights.............................................................................................. 73 6.7. Environmental impact ................................................................................................ 74 6.8. Estimated cumulative impact in te rms of benefits and costs ..................................... 74 
6.9. Estimate of impact in terms of administrative burden ............................................... 75 7. Monitoring and evaluation ......................................................................................... 77 Annex 1 - related initiatives .................................................................................................. ... 78 
Annex 2 – summary of contributi ons to public consultation ................................................... 79 
Annex 3 - Summary of public hearing..................................................................................... 89 Annex 4 – European Trading estimates ................................................................................... 94 Annex 5 – Glossary of Key Terms......................................................................................... 101 Annex 6 – Stakeholders con cerned by market abuse............................................................. 106 
 
EN 4   EN Annex 7 – Problem definition – ba ckground and technical detail ......................................... 107 
Annex 8 – Detailed analysis of impacts of options................................................................ 133 Annex 9 - The market abuse regime in the United States...................................................... 190 Annex 10 – Administrative Burden ....................................................................................... 193 Annex 11 - List of options and discretions in the Market Abuse Directive and related 
implementing measures............................................................................................ 198 
Annex 12: Cost and benefits .................................................................................................. 19 9 
Annex 13: Effects of the change in the Market  Abuse Directive – Impact on the administrative 
burden in the EU, EIM, December 2012.................................................................. 203 
 
EN 5   EN 1. INTRODUCTION  
Adopted in early 2003, the Market Abuse Directive (MAD)1 has introduced a comprehensive 
framework to tackle insider dealing and market manipulation practices, jointly referred to as 
"market abuse". The Directive aims to increas e investor confidence a nd market integrity by 
prohibiting those who possess inside informa tion from trading in related financial 
instruments, and by prohibiting the manipulati on of markets through practices such as 
spreading false information or rumours and conducting trades whic h secure prices at 
abnormal levels.  
The importance of market integr ity has been highlighted by th e current global economic and 
financial crisis. In this cont ext, the Group of Twenty (G20) agreed to strengthen financial 
supervision and regulation and to build a framew ork of internationally agreed high standards. 
In line with the G20 findings, the report by  the High-Level Group on Financial Supervision in 
the EU recommended that "a sound prudential and conduct of business framework for the 
financial sector must rest on strong supervisory and sanctioning regimes".  
The importance of the efficient functioning of the MAD was underlined in the Commission 
Communication "Driving European recovery"2, which intends  to tackle the most important 
shortcomings in the markets that have been observed in the current financial crisis. The current review of the MAD therefore focuses on how to enhance the protections offered by 
this Directive in terms of market integrity and investor pr otection, and the sanctions available 
to effectively enforce them on the one hand, and the reduction where possible of 
administrative burdens on the other hand. In its  Communication on "Ensur ing efficient, safe 
and sound derivatives markets: Future polic y actions" the Commission undertook to extend 
relevant provisions of the MAD in order to cover derivatives markets in a comprehensive 
fashion
3. The importance of efficient coverage of OTC transactions in derivatives has been 
stressed also in discussions at various international fora4 including the G 20 and IOSCO as 
well as in the recent US Treasury Financial Regulatory Reform programme5. 
The European Commission has assessed the app lication of the Market Abuse Directive and 
has put forward suggestions for its review aimi ng at clarifying some of its provisions and 
increasing its effectiveness6. Furthermore, the Commissi on Communication on a Small 
Business Act for Europe calls on the EU and Memb er States to design rules according to the 
"think small first principle" by reducing admini strative burdens, adapting legislation to the 
                                                 
1 Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003, on insider 
dealing and market manipulation. OJ L, 12 April2003, p 16. 
2 COM (2009)114 of 4th March 2009.  
3 COM(2009) 563 final, 20.10.2009 
4 IOSCO notes that "The high level of interconnectivity between  credit derivatives, the obligations of the 
underlying reference entities e.g., corporate bonds, equities and cash markets means market misconduct (manipulation and insider trading) and disruptions in one market can affect another.",  
Consultation Report on Unregulated Markets and Products, May 2009, p. 28.  
5 "Market integrity concerns should be addressed by making whatever amendments to the CEA and the 
securities laws which are necessary to ensure that  the CFTC and the SEC, consistent with their 
respective missions, have clear, unimpeded authority to police and prevent fraud, market manipulation, and other market abuses involving all OTC derivatives."  Financial Regulatory Reform. A New 
Foundation: Rebuilding Financial Supervision and Regulation, Dept. of Treasury, June 2009. p.48;  
6 See notably the consultation document on the review of the MAD, published on 28 June 2010. 
 
EN 6   EN needs of SMEs and facilitating the access to finance of SMEs7. A review of existing 
sanctioning powers and their practical app lication aimed at promoting convergence of 
sanctions across the range of supervisory activ ities has been carried out in the Commission 
Communication on sanctions in th e financial services sector8. 
It is important to note that this initiative is not the only one to address problems in relation to 
the transparency and integrity of markets. For details of other related initiatives see annex 1. 
This document is the impact assessment accomp anying the initiative for the review of the 
market abuse Directive. It does not pre-judge the final form of any decision to be taken by the 
European Commission.  
2. PROCEDURE  
The initiative is the result of an evaluation of  the effectiveness of the Market Abuse Directive 
and possible options for its review, based on a call for evidence, a public consultation and two 
public hearings with all major stakeholders , including securities  regulators, market 
participants (issuers, intermediaries and individu al and institutional inve stors) and consumers. 
The evaluation of the MAD takes into consid eration the reports published by the Committee 
of European Securities Regulators (CESR)9, the joint report of CESR and the European 
Regulators Group for Energy and Gas (ERGEG)10 and the report of the European Securities 
Markets Expert Group (ESME)11. As part of the evaluation, a report was commissioned by 
external consultants on the administrative burden s associated with the Directive and possible 
options to revise it12.  
                                                 
7 COM(2008)394 final, Commission Communication "Think Small First” A “Small Business Act” for 
Europe , 25.6.2008. 
8 Commission Communication on reinforcing sanctions regimes in the financial services sector, 
COM(2010) 71 final, 8.12.2010 
9 CESR is an independent advisory group to the European Commission composed by the national 
supervisors of the EU securities markets. See the European Commission's Decision of 23 January 2009 
establishing the Committee of European Securities Re gulators 2009/77/CE. OJ L25, 23.10.2009, p. 18). 
The role of CESR is to improve co-ordination among securities regulator s, act as an advisory group to 
assist the EU Commission and to ensure more consistent and timely day-to-day implementation of 
community legislation in the Member States.   
10 ERGEG is the European Commission's formal advisory group of energy regulators. ERGEG was 
established by the European Commission, in November 2003, to assist the Commission in creating a 
single-EU market for electricity and gas. ERGEG's members are the heads of the national energy 
regulatory authorities in the 27 EU Member States. 
11 ESME is an advisory body to the Commission, composed of securities markets practitioners and experts, whose mandate expired at the end of 2009  and was not renewed. It was established by the 
Commission in April 2006 and operated on the basis of the Commission Decision 2006/288/EC of 30 
March 2006 setting up a European Securities Markets Expert Group to provide legal and economic advice on the application of the EU securities Directives (OJ L 106, 19.4.2006, p. 14–17). 
12 EIM, Effects of the changes to the Market Abuse Direc tive – Impact on administ rative burden of firms 
in the EU , Zoetermeer, December 2010. See annex. 
 
EN 7   EN 2.1. CESR and ESME reports  
CESR has published reports evaluating the natu re and extent of the supervisory powers of 
Member States under the Market Abuse Directive13 and the options and discretions of the 
MAD regime used by Member States14. 
The ESME report15 evaluates the effectiveness of the MAD in achieving its primary 
objectives, identifies certain wea knesses and problems and sets out suggested improvements.  
The CESR/ERGEG report16 addresses the specific question of knowing if the scope of the 
MAD is such as to properly address market integr ity issues in the electri city and gas markets.  
2.2. Public consultation  
On 12 November 2008 the European Commission held a public conferen ce on the review of 
the market abuse regime17. On 20 April 2009, the European Commission launched a call for 
evidence on the review of the Market Abuse Directive. The Co mmission services received 85 
contributions. The non-confidential contribut ions can be consulted in the Commission 
website18.  
On 28 June 2010 the Commission launched a public  consultation on the revision of the 
Directive which clos ed on 23 July 201019. The Commission services received 96 
contributions. The non-confidentia l contributions can be consu lted in the Commission website 
and a summary is found in annex 220. On 2 July 2010, the Commission held a further public 
conference on the review of the Directive21. 
2.3. Steering Group  
The Steering Group for this Impact Assessment wa s formed by representatives of a number of 
services of the European Commission, namely the Directorate General Internal Market and 
Services, the Directorate General Competition, the Directorate General Economic and Financial Affairs, the Directorate General Enterprise, the Directorate General for Health and Consumers, the Directorate Gene ral Justice, the Directorate Ge neral Information Society and 
Media, the Directorate General Climate, th e Directorate General Energy, the Directorate 
General Agriculture, the Legal Service and the Secretariat General. This Group met three times, in June 2009, in Octobe r 2010 and December 2010. The c ontributions of the members 
                                                
 
13 Ref. CESR/07-380, June 2007, available at www.cesr-eu.org. 
14 Ref CESR/09-1120. 
15 Issued in June 2007 and entitled "market abuse EU legal framework and its implementation by Member 
States: a first evaluation" ;  
16 "CESR and ERGEG advice to the European Commission in the context of the Third Energy Package, 
Response to Question F20 - Market Abuse". 
17 See http://ec.europa.eu/internal_market/s ecurities/abuse/12112008_conference_en.htm. 
18 See http://ec.europa.eu/internal_mar ket/consultations/2009/market_abuse_en.htm  
19 See http://ec.europa.eu/internal_market/consultations/docs/2010/mad/consultation_paper.pdf 
20 See http://ec.europa.eu/internal_market/consultations/2010/mad_en.htm 
21 See annex 3 for a summary of the discussions. 
 
EN 8   EN of the Steering Group have been taken into account in the conten t and shape of this impact 
assessment22.  
2.4. Impact Assessment Board  
DG MARKT services met the Impact Assessm ent Board on 23 February 2011. The Board 
analysed this Impact Assessment and delivered its opinion on 25 February 2011. During this meeting the members of the Board provided DG MARKT services with comments to improve 
the content of the Impact Assessment that led to  some modifications to the text. These are:  
– Clarification of how the performance of the existing legislation ha s been evaluated and 
how the evaluation results have informed the analysis of the problem; 
– The addition of evidence-based estimates of the overall damage to the European economy 
as a consequence of abusive practices in the markets unde r consideration, and of the 
estimated overall benefits of the preferred policy options, with the necessary caveats 
regarding the interpretation of these estimates; 
– Clarification in the baseline scenario of how other related financial regulations 
complement the Market Abuse Directive; 
– Clarification of the content of certain po licy options and improved presentation of the 
packages of preferred options, as well as an assessment of the overall impacts of the 
packages of preferred options, taking into account synergies or  trade-offs between different 
options where they exist; 
– A more proportionate analysis of the most costly measures in the assessment of the 
administrative burdens and costs; 
– The addition in the main text of more clearly visible, concise summaries of the assessment 
of impacts of policy options in  terms of fundamental rights, especially in the areas of 
investigative powers and sanctions; 
– An improved justification of why the approxima tion of criminal law is essential for an 
effective EU policy on market abuse, based on  studies and evidence from Member States 
about the effectiveness of criminal sanctions, as well as a summary of the responses to the 
Commission Communication on re inforcing sanctioning regimes in the financial services 
sector; and 
– A clearer presentation in the main text of th e views of stakeholders, including institutional 
and individual investor s, on the policy options. 
                                                
 
22 In accordance with the rules for the elaboration of impact assessments  the minutes of the last meeting of 
the steering group have been submitted to the Impact Assessment Board together with this impact 
assessment. 
 
EN 9   EN 3. PROBLEM DEFINITION , BASELINE SCENARIO AND SUBSIDIARITY  
3.1. Background and context 
3.1.1.  What is market abuse? The cu rrent legislative framework 
The Market Abuse Directive aims to increase investor confidence and market integrity by 
prohibiting those who possess inside information fr om trading in related financial instruments 
("insider trading"), and by prohi biting the manipulation of markets through practices such as 
spreading false information or rumours and conducting trades whic h secure prices at 
abnormal levels ("market manipulation"). The gl ossary in annex 5 provides explanations of 
key terms, including insider de aling and market manipulation, used in the Market Abuse 
Directive.  
Scope of the current Ma rket Abuse Directive 
If an instrument is admitted to trading on a regulated market then any trading in that 
instrument is covered by the MAD, whether the trading of that instrument occurs on a MTF, 
"crossing network"23 or over-the-counter (OTC). Further,  for insider dealing (although not for 
market manipulation), the prohibition extends also to  financial instruments not  admitted to 
trading on a regulated market, but whose value depends  on such a financial instrument.  
The diagram below provides an overview of the scope of the MAD. 
                                                 
23 A crossing network is an alternative trading system that matches buy and sell orders electronically for 
execution without first routing the order to an exchange or other organised market which displays a 
public quote. 
 
EN 10   EN 
 
Diagram: Scope of the existing MAD 
Financial instruments are defined in Annex I Section C of the Markets in Financial 
Instruments Directive (MiFID)24.  
Whether the MAD applies to the trading of a fi nancial instrument depends solely on whether 
or not that instrument has been admitted to trading on a regulate d market (hereafter referred to 
as RM), irrespective of where that instrument is traded. Therefore, instruments admitted to 
trading on a regulated market are covered by the current M AD (point A in the diagram). 
Furthermore, an instrument will fall within the scope of the current MAD if it is admitted to trading on a regulated market , but traded for example: 
• on a Multilateral Trading Facility (MTF ) (point B in the diagram), or  
• on another organised trading facility  (point C in the diagram) or  
• Over The Counter (OTC) (point D).  
                                                
 
24 Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in 
financial instruments, OJ L 145, 30.4.2004. 
 
EN 11   EN On the other hand, instruments which are not  admitted to trading on a regulated market fall 
outside the scope of the current MAD, for example if they are: 
• only admitted to trading on an MTF (point E in the diagram), or  
• only traded OTC (point F), or  
• only traded on another organised trading facility (point G);  
• this is also the case for the other remaining combinations of instruments, places of 
admission to trading and trad ing (points H, I and J). 
The only exception to this rule is that the insi der trading prohibition also  applies to financial 
instruments not admitted to trading on a regul ated market but whose value depends on a 
financial instrument admitted to trading on a regulated market (for example, an equity 
derivative not admitted to trading on a regulated market which has as an underlying a share admitted to trading on a regulated market).  
What is market abuse? 
The definitions of market manipulation are delib erately drafted in general terms in the MAD, 
albeit with more detailed provisions set out in  implementing measures, so that they can be 
adapted to new manipulative techniques which may develop in  light of technological and 
market developments.  
However, fundamentally market abuse may arise in circumstances where investors have been 
unreasonably disadvantaged, directly or indirectly, by others who: 
• have used information which is not publicly available to trade in financial instruments to 
their advantage (insider dealing);  
• have distorted the price-setting mech anism of financial instruments; or 
• have disseminated false or misleading information.  
Under these broad categories fall a number of de tailed abusive practices, such as "spoofing", 
the spreading of rumours and the manipulation of commodity supply chains; a glossary 
containing examples of some of the co mmon practices is found in annex 5.  
How is market abuse detected and sanctioned? 
The MAD creates some tools to prevent and detect market abuses, like insiders' lists, 
suspicious transaction reports and the disclosu re of managers' share transactions. It also 
obliges issuers of financial inst ruments traded on a regulated market to make public as soon as 
possible inside information that they po ssess, with limited possibilities to delay. 
In order to promote enforcement, the Directive gives national competent authorities powers of 
investigation (such as access to data or on -site inspections) and the power to take 
administrative measures or impose "effectiv e, proportionate and dissuasive" sanctions. 
 
EN 12   EN The MAD is accompanied by implementing meas ures which consist of three Commission 
Directives and a Commission Regulation. Th e first, Commission Directive 2003/124/EC 
specifies the definitions of inside informa tion and market manipulation and the conditions 
under which inside information mu st be disclosed to the public25. The second, Commission 
Directive 2003/125/EC sets out the conditions for the fair presentation of investment 
recommendations and the disclosu re of conflicts of interest26. The third, Commission 
Regulation 2273/2003 specifies the Directive in respect of exemptions for buy-back 
programmes and the stabilisatio n of financial instruments27. The fourth, Commission 
Directive 2004/72/EC, specifies the Directive in relation to accepted market practices, inside 
information for commodity derivatives, insider lists, managers' transaction reports and suspicious transaction reports
28. 
3.1.2.  Nature and size of the market concerned 
A detailed breakdown of the markets is containe d in Annex 4. Below is  presented a high level 
summary of key market segments. 
Equity markets 
Since the MAD was adopted in 2003, fi nancial markets have c ontinued to evolve, most notably in terms of 
market infrastructure and the types of products traded29. Today, European equity trading predominantly takes 
place on regulated markets, bilaterally between instituti ons (over the counter - OTC) and on multilateral trading 
facilities (MTFs); to a lesser extent equities are al so traded on broker crossing networks and systematic 
internalisers (SIs). Both MTFs and SIs were introduced by MiFID in 2007, and as such were not specifically 
provided for in the MAD. While e quity MTFs have undergone large growth, and now occupy a significant 
proportion of the European equity market turnover, SIs ha ve not seen as significant growth; there are currently 
138 MTFs and 12 SIs operating in Europe30.  
In March 2011 total equity trading volume on European markets was in the region of €1,885 billion31. Of this, 
approximately 52% was conduc ted on traditional stock exchanges, 14%  on MTFs and 34% via bilateral OTC 
arrangements, which includes SI's (at about 2%) – see chart 1 below.32 In other words, the current MAD regime 
applies to all the trading on stock exchanges, but only covers trade on MTF's and OTC where the instrument is 
                                                 
25 Commission Directive 2003/124/EC of 22.12.2003 implementing Directive 2003/6/EC of the European 
Parliament and of the Council as regards the definiti on and public disclosure of inside information and 
the definition of market manipulation. 
26 Commission Directive 2003/125/EC of 22 Decembe r 2003 implementing Direc tive 2003/6/EC of the 
European Parliament and of the Co uncil as regards the fair presentation of investment recommendations 
and the disclosure of conflicts of interest  
27 Commission Regulation (EC)2273/2 003 of 22 December 2003 implem enting Directive 2003/6/EC of 
the European Parliament and of the Council as regards exemptions for buy-back programmes and 
stabilisation of financial instruments. 
28 Commission Directive 2004/72/EC of 29 April 2004 implementing Directive 2003/6/EC of the 
European Parliament and of the Co uncil as regards accepted market pr actices, the definition of inside 
information in relation to derivatives on commodities, the drawing up of lists of insiders, the notification of managers’ transactions and th e notification of suspicious transactions. 
29 For a glossary explaining key terms used in this report see annex 5. 
30 CESR MiFID database, http://mifiddatabase.cesr.eu/   
31 Thomson Reuters Monthly Market Share Report, March 2011.  
32 It is noted that OTC refers to a broad range of trading, ranging from pure bilateral trading (considered 
more traditional OTC), to more organised arrange ments (such as OTC initiated through a traditional 
exchange, SIs or broker networks). CESR estimates show that broker crossing networks and SIs do not 
form a significant form of tota l equity trading, accounting for about 2% of total volume each. 
 
EN 13   EN listed on a regulated market. It should be noted that in 2010, total trading in EEA shares amounted to €18.7 
trillion in 2010 with OTC trading accounting for 37%33.  
European Equit y Tradin g Volume b y Venue T ype- March 
2011
Exchange; 
52%
MTF; 14%OTC; 34%
E xchange
MTF
OTC
 
Chart 134 
Debt Markets 
In terms of debt outstanding, non-government instituti ons raised a total of $8,604. 8 billion on the domestic 
(European) debt Market and $14,761.3 billion on the in ternational debt market as of December 200935.  
Unlike equity markets, non government debt markets have  longer term objectives a nd investors more commonly 
buy and then hold securities to maturity; as such, most European debt trading is on government debt - it is 
estimated that in the region of 27% of daily volume (a verage) relates to non-government bonds compared to 73% 
for government bonds36. 
In terms of listing, non-government debt far outpaces  government debt (with an estimated 97% of EU bond 
listings relating to non-government debt37). However, although having the possibility to trade on exchange, 
estimates show that approximately 89% of non-go vernment debt trading is actually done OTC38. 
Equity and Bond Instruments outside the scope of the MAD 
A number of shares and bonds do not have exchange lis tings but are still traded on MTFs; at present the MAD 
does not apply to these instruments. In 2009 it is estimat ed that these instruments had a turnover on MTFs of 
€8.3Billion (shares) and €103.4Million (bonds), adding up to more than €8.4 Billion in just one year. 
Derivative Markets  
There has been significant growth ove r a sustained period in the internati onal derivatives market, checked by a 
marked downturn in 2008. Whilst traditi onal exchange trading has seen some growth, the most significant growth 
has been in the OTC arena It is noted that exchange tr aded derivatives are generally more standard options and 
futures, whilst OTC derivatives may include more complex products such as swaps and forward rate agreements. 
Chart 2 below shows an indicatio n of their respective growth. 
                                                 
33 All European Equities Market Activity by Trade Type (January 2010 to January 2011), Thomson 
Reuters, 2011 
34 All European Equities Turnover - Thomson Reuter s Monthly Market Share Report, February 2011. 
MTFs taken from ESMA MiFID database, February 2011. Note: Includes limited proportion of 
European but non MiFID venues e.g. SIX Swiss Exchange. 
http://thomsonreuters.com/products_services/financi al/financial_products/a-z/market_share_reports/   
35 Source: Unpublished PWC report commissioned by DG MARKT, Data gathering and analysis in the 
context of the MiFID review.  
36 Celent, October 2009 “Electronic Trading of Bonds in Europe – Weathering the storm” 
37 Source: PWC report . PWC estimates based on FESE data. 
38 Source: PWC report. PWC estimates based on data from UK FSA. 
 
EN 14   EN International derivatives markets $bn, notional amounts outstanding
0100,000200,000300,000400,000500,000600,000700,000800,000
Jan-98
Jan-99 Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Year$bn
Exchange Traded OTCMiFID Implementation -
 
Chart 239 . 
The following table shows a complete breakdown of gl obal OTC derivative products (although some of these 
contracts may be spot contracts rather than financial instruments).40 
Risk instruments in global OTC markets Global Notional amounts 
outstanding – June 2010 
 $ trillion % 
Interest rate contracts 452 77.5% 
Foreign exchange contracts 53 9.1% 
Equity-linked contracts 6 1.1% 
Commodity contracts 3 0.5% 
Credit default swaps 30 5.2% 
Unallocated 38 6.6% 
Total contracts 583 100.0% 
  
3.1.3.  How widespread is market abuse? 
It is difficult to estimate the extent to which market abuse takes place within Europe. One way 
to estimate the prevalence of market abuse is to consider the number of cases sanctioned by competent authorities in member states, although inevitably this is likely to underestimate the 
true extent of abuse as some cases will go undet ected due to the sophistication of the abuses 
or the limited resources available to investig ate cases. The table below shows the number of 
financial sanctions imposed annually in the last  two or three years fo r market abuse in the 
securities sector for the Member  States for which the Commissi on has information. It should 
                                                
 
39 BIS, International derivatives markets $bn, notional amounts outstanding. Statistics on exchange traded 
derivatives http://www.bis.org/sta tistics/extderiv.htm  and Semiannual OTC derivatives statistics at end-
June 2010, http://www.bis.org/statistics/derstats.htm   
40 BIS, International derivatives markets $bn, notional amounts outstanding, “Amounts outstanding of 
over-the-counter (OTC) derivatives”. Semiannual OTC derivatives statistics at end-June 2010, 
http://www.bis.org/statistics/otcder/dt1920a.pdf   
 
EN 15   EN be noted that this Table only sets out criminal  sanctions and does not include administrative or 
other sanctions imposed by competent authorities. 
Number of criminal sanctions imposed in some Member States41 
Criminal sanctions imposed by the judicial authorities – number per year Member State 
2006 2007 2008 
DE42 20 7 16 
FR43 31 19 16 
UK44 6 1 6 
IT45 Not available 11 5 
ES46 Not available 14 11 
NL47 1 2 4 
BE48 1 2 1 
LU49 0 0 0 
AU50 Not available Not available 21 
CY Not available Not available 6 
PL51 4 11 8 
The best current approximation for possible cas es of market abuse comes from analysing 
market data for patterns of trading which were likely to have been manipulative, such as a 
significant price movement ahead of an impor tant announcement (e.g. a takeover). The UK 
Financial Services Authority publishes annua lly its own research entitled the "Market 
Cleanliness Survey" which analyses the scale of share price movements in the two days ahead 
                                                 
41 Sources: Annual Reports 2006, 2007 and 2008, http://www.cbfa.be/fr/sanc/sanc.asp  (29 July 2010). 
42 criminal financial sanctions imposed by the judici al authorities, Source: Annual Report 2008, p. 158; 
Report 2007, p. 162. Also to be taken into account are cases in which proceedings were terminated 
following a payment – 17 in 2006, 14 in 2007 and 12 in 2008. additional information by DE authorities 
43 Source: Annual report 2008, p. 197; Annual report 2007, p. 197; Annual Report 2006, p. 227; additional 
information by FR authorities 
44 Does not include criminal fines imposed, source: Annual report 2008/2009, p. 33; Annual Report 07/08 
P. 23Press releases 
45 Source: Annual report 2008, p. 241 
46 Number of sanctions imposed "mainly concerning market abuse, source: Annual Report 2008, p 210-
211 
47 Financial sanctions, source: Annual Report 2007, p. 38; Annual Report 2008, p. 40. 
48 Does not include criminal fines imposed by the judicial authorities, source: 
http://www.cbfa.be/fr/sanc/sanc.asp (29 July 2010). 
49 Source: Annual Report 2008, p. 145; Annual Report 2007, p. 133; Annual Report 20006, p. 137. 
50 Does not include criminal fines imposed, Source: Annual Report 2008, p. 118); additional information 
by AU authorities 
51 only criminal sanctions imposed by the courts 
 
EN 16   EN of regulatory announcements such as takovers ( it is the only Member State to do so). The 
latest data available, for the year 2010, es timates the level of abnormal pre-announcement 
price movements (APPMs) at 21.2% of all announcements52. However the survey only 
focuses on one form of abuse ( possible insider deali ng) and does not relate to other forms 
such as manipulation through distor tion of price-setting mechanisms , or data relating to false 
or misleading information.  
The UK FSA has started pursuing criminal pros ecutions for market abuse more aggressively 
in recent years, as part of its "credible deterrence" strategy, and the data from the last market 
cleanliness survey shows measur able progress in the indicator  since 2009 – a reduction from 
30.6% (in 2009) to 21.2% in 2010 in a bnormal pre-announcement price movements53. While 
care should be taken in attributing a causal link between this improvement and the greater 
focus on criminal prosecutions for market abuse,  the FSA considers that a 5% movement is 
statistically significant, and th is is the lowest level of APPMs since 2003. In its 2009-10 
annual report the FSA argued that  "our credible deterrence ag enda has become increasingly 
visible in the last twelve months  and as a result we would exp ect to continue to see further 
progress in this area"54. In its 2010/11 annual report, the FSA  is again cautious in attributing 
causality in its conclusions about the apparent progress in the market cleanliness data, saying 
that "while this fall has take n place against the backdrop of in creasing focus on market abuse, 
due to the nature of the statistic, the reason behind this decline canno t be determined with 
certainty. We cannot say whether improved market behaviour is a contributory factor, but the 
change in the outcome is nevertheless to be welcomed"55. 
A further analysis of insider tr ading across 10 international markets attempts to quantify this 
in terms of profit as a perc entage of total market turnov er. These estimates, provided by 
Capital Markets CRC, estimate that profit from  insider trading account s for between 0.01 and 
0.05% of total market turnover56. However, again it should be em phasised that this data is 
likely to underestimate the true ex tent of market abuse as it only relates to insider dealing, not 
market manipulation, and only re lates to equity markets, not taking into account markets for 
other financial instruments. 
As shown in annex 12, the weighted averag e profit gained from insider dealing in 3 
exchanges57 representing 48% of market turnover,  which equates to the detriment for 
investors due to this form of market abuse, is  estimated at 0.0356% of total market turnover in 
the period 2003-2009. However, this data only estim ates the profit due to  insider dealing and 
does not encompass the estimated profit due to market manipulation. In order to reach an 
estimate of the full cost of market abuse, including both insider dealing and market 
manipulation, it seems reasonable to assume that  that the cost of ma rket manipulation would 
be of the same order of magnitude as inside r dealing, namely 0,0353% of market turnover. 
Based on this assumption, the cost of market ab use, including both insi der dealing and market 
manipulation, on these 3 markets is estimated at 0.0712% of total market turnover. When 
applied to the market turnover on equity markets within the EU  in 2010, the value of market 
abuse due to market manipulatio n and insider dealing is estim ated at EUR 13.3 billion in 
                                                 
52 See FSA Annual report 2010/11, p. 62.  
53 Ibid. 
54 See FSA Annual Report 2009/10, Financial Services Authority, pp. 35-36. 
55 See FSA Annual report 2010/11, p. 62.  
56 Capital Markets CRC Limited, Enumerating the cost of insider trading,  unpublished, 2010, p. 8. 
57 Euronext, Deutche Börse, LSE Group 
 
EN 17   EN 2010. This is an annual estimate of market abuse which evolves with the size of the market. It 
likely underestimates the true extent of market abuse as it only encompasses equity markets. 
A more detailed analysis  of this data can be found in Annex 12.  
3.1.4.  Stakeholders concerned by market abuse 
The stakeholders concerned by market abuse ar e the following: investors (institutional and 
individual), financial intermediaries, tradin g venues, issuers, small and medium sized 
enterprises (SMEs) and regulators and all natura l and legal persons that  could be subject to 
market abuse investigations. Further considerati on of how these stakehol ders are affected is 
included in annex 6. 
3.2. Problem definition 
The MAD has introduced a framework to harmonise core concepts and rules on market abuse 
and strengthen cooperation between regulators. However, a number of  problems have been 
identified by the Commission services and these can be broadly categoris ed in five groups: (i) 
gaps in regulation of new markets, platform s and over the counter trading in financial 
instruments, (ii) gaps in regul ation of commodities and commod ity derivatives, (iii) regulators 
cannot effectively enforce the MAD, (iv) lack of legal certainty undermines the effectiveness 
of the MAD, and (v) administrativ e burdens, especially for SMEs.  
The figure below provides an overview of the various problems, their drivers and their 
consequences. 
 
EN 18   EN  
Regulatory and 
market 
developments 
Regulators 
lack certain information or 
powers 
Options and 
discretions in 
MAD  
Lack of clarity 
on certain key 
concepts Gaps in regulation of 
new markets, platforms and OTC 
instruments  
Regulators cannot effectively enforce 
Lack of legal 
certainty undermines effectiveness of MAD Negative impact on 
market integrity 
Negative impact on 
investors 
No single rulebook - 
unlevel playing field  Sanctions 
lacking or not 
dissuasive 
Administrative 
burdens, especially 
for SMEs Gaps in regulation of 
commodities and 
commodity 
derivatives  
Compliance costs 
and disincentive for 
SMEs to raise 
capital through 
securities markets 
 
Driver Problem Consequences 
The following sections provide an executive su mmary of the problems highlighted above; for 
a more detailed explanation and background in relation to these problems please see annex 7. 
3.2.1.  Problem 1: Gaps in regulation of new ma rkets, platforms and OTC instruments  
General scope of MAD 
Section 3.1.1 has explained the scope of the M AD prohibitions on inside r dealing or market 
manipulation of specified financial instruments; if the instruments are admitted to trading on a regulated market, the MAD applies irrespective  of where the instrument is traded. When 
MAD was adopted, instruments traded on regu lated markets were used as a proxy for 
instruments with the most liquid and mature ma rkets. Instruments admitted to those markets 
were considered to be sufficiently standardis ed, the subject of enough public information and 
to have a broad range of invest ors (including retail investors), to warrant the MAD protections 
being applied. However, this focus on instru ments traded on regulated markets has been 
overtaken to some extent by market develo pments. Increased competition and use of 
technology has led to greater us e of MTFs and to a lesser ex tent broker electronic systems 
 
EN 19   EN (such as crossing networks and sw ap execution facilities) to trad e instruments. Further, there 
are still markets which existed when MAD was adopted that remain primarily OTC markets. 
Some instruments outside the scope of MAD 
If an instrument is not admitted to trading on a regulated market but is only traded on a MTF, 
another type of facility or OTC it will not be covered by MAD. Section 3.1.2 evaluates the changes in the financial landscape since the adop tion of the MAD. Of the 41 MTFs that trade 
shares in Europe, 25 admit to trading shares which are not admitted to trading on a regulated 
market
58. Trading in these instruments falls outside  the scope of the MAD, and only three 
Member States have extended the MAD regime in full at national level to all MTFs59. Eight 
other Member States have  extended the MAD regime in part to all MTFs60. Of the remainder, 
two have extended the MAD fully only to some MTFs61, 6 have extended the MAD in part to 
some MTFs (including 4 of the six largest)62, and 8 Member States have not extended the 
MAD to any MTFs at all63. Overall, the majority of Member States have only extended the 
MAD at national level to some MTFs, or to none  at all. Therefore in most Member States 
there are at least some MTFs which are partiall y or fully outside the scope of market abuse 
legislation. 
Similarly, with an increase in the use of technology there has been an emergence of new 
organised trading facilities such as broker cr ossing networks, swap ex ecution facilities and 
other inter-dealer broker systems bringing together third-party in terests and orders by way of 
voice and/or hybrid voice/electr onic execution systems. To the extent these systems trade 
financial instruments that are also admitted to trading on a regulated market the MAD will apply to trading on the facility. But if the facility is trading an instrument of a type that is not 
traded on a regulated market the MAD will not apply to that trading. The nature of these other 
instruments will vary. Some are extremely liquid and standardised (for example credit default 
swaps) while others will be il liquid and/or customised. In add ition, the current review of the 
Markets in Financial Instruments Directive (M iFID) is considering the option of requiring 
more standardised and liquid OTC instru ments to be traded  on organised venues
64, which is 
expected to result in more trading of inst ruments such as CDS on organised venues. As a 
result of the development of th ese new organised trading venues it is necessary to consider 
how to adapt the provisions of the MAD to ensure that financial instruments only admitted to trading on these trading facilities are subject to the same protections to ensure market integrity 
and investor protection as those admitted to trading on regulated markets.  
Market fragmentation 
The evaluation of the MAD revealed that some stock exchanges are concerned that with the 
increasing trend for trading of a single instrument to be spr ead across a number of different 
markets this may make it more difficult for a sing le market operator to detect possible abuse. 
                                                 
58 Source: PWC report , p. 315 
59 ES, HU, NL. Source: CESR Review Panel report, MAD: Options, Discretions and Gold Plating , 
November 2009, Ref CESR/09-1120. 
60 AT, DK, LT, LU, PL; PT, SE, SK. Source: CESR/09-1120 
61 EL, MT. Source: CESR/09-1120. 
62 .BE, DE, FI, FR, IT, UK. Source: CESR/09-1120. 
63 BG, CY, CZ, EE, IE, LV, RO, SI. Source: CESR/09-1120. 
64 Public consultation on the review of the Markets in Financial Instruments Directive (MiFID), 8 
December 2010, p.12.  
 
EN 20   EN This may inhibit effective enforcement. Also, they argue that surveillance requirements and 
standards may differ according to  the nature of the venue whic h creates an unlevel playing 
field.  
Use of related instruments to manipulate a market 
In their evaluation of the M AD, regulators have noted that  manipulation of financial 
instruments on a market can be achieved by the use of related financial instruments traded 
outside the relevant market, a nd have called for this to be more clearly addressed in the 
MAD65. For example the use of an OTC deriva tive instrument not covered by MAD to 
manipulate a financial instrument covered by MAD on a market. Currently the MAD does not 
explicitly prohibit market manipulation by the us e of related instruments although in practice 
a number of States already prohibit such conduc t. This has negative consequences for market 
integrity and investor protection. 
Automated trading 
Finally, the increased trend towa rds algorithmic and high frequenc y trading has raised issues 
about how regulators monitor su ch trading and whether MAD adequately captures specific 
strategies that may be abusive practices. Th e MAD definition of "mar ket manipulation" is 
already very broad and expressl y states that it shoul d be adapted to cover new practices but 
the application of this wide definition to au tomated trading may not be sufficiently clear and 
precise to provide certainty to market participants. 
3.2.2.  Problem 2: Gaps in regulation of comm odity and commodity derivatives markets 
Market abuse may take place across markets. Manipulative strategies can extend across 
different types of markets, and a person can bene fit from inside information in one market by 
trading on another. This raises special concerns for commodity an d related derivative markets, 
where market integrity and transparency rules a pply to the derivatives markets but not to the 
underlying markets. Because commodity and comm odity derivatives markets are integrally 
linked, we shall discuss the problems that apply to  these markets as a whole. Just as the price 
of a financial derivative depends  on that of the underlying, so does the price of a commodity 
derivative depend on that of the underlying. When the price of a share goes up, the price of an 
option on that share or of an index that incl udes that share goes up. The same holds for 
commodities: when the price of oil goes up, oil i ndices and options to receive oil in the future 
go up. 
Scope of this initiative 
These concerns are highlighted here, and will be  discussed in more detail in annex 7.1.2 
below. However, while concerns may extend to both commodity and commodity derivatives 
markets, the options assessed below are focused on derivatives markets. It is beyond the scope 
of this initiative to consider the regulation of non-financial ma rkets. This is because each 
underlying commodity market has a different market structure an d set of price drivers. The 
degree to which commodities are interchangeab le and portable may also vary greatly, and 
their production patt erns are global. In cont rast, financial instrument s are fungible and tied to 
                                                 
65 CESR’s response to the European Commission’s call for evidence on the review of Directive 
2003/6/EC (Market Abus e Directive), p.3. 
 
EN 21   EN a specific underlying instrument  in a particular jurisdictio n. Strong business secrecy and 
geopolitical issues may also affect and abrupt ly alter information fl ows and there is less 
systematic disclosure of market relevant information than in the case of financial instruments
66.  
The interconnected and international nature of commodity and related derivative markets 
While the structure of each commodity market differs, they share the common features of 
being global and linked to financial commodity markets an d prices through the actions of 
market participants, who carry out trading, he dging and arbitrage operations in both markets. 
For instance, many commodity trading firms are based in Switzerland, where they generate 
one third of world trade in crude oil.67 The global nature of commodity markets can also be 
clearly seen by the volume of trading in ag ricultural commodity futures on the Chicago 
Mercantile Exchange (CME), wh ere average daily volumes in maize futures contracts exceed 
those in Paris (EuroNext) by a ratio of more than 100 to 1.68 The detection of  market abuse 
may be more difficult for commodities due to the global nature of these markets. When 
manipulative strategies exte nd across both the commodity a nd the commodity derivatives 
market, detection and prosecution would require  cooperation between authorities overseeing 
these markets. 
Currently, there is no obligation in the MAD fo r financial supervisors to take into account 
developments on physical commodity markets when monitoring financial markets for 
possible market abuse, or to cooperate and ex change information with  regulators of physical 
markets in the EU or in third countries. This means that they will be looking at derivatives 
markets in isolation from the underlying market , which makes it hard to detect suspicious 
behaviour. Financial regulators ha ve signalled the need to take a greater interest in the 
physical commodity markets a nd to cooperate more clos ely and share information69. This lack 
of cooperation between physical and financial ma rket regulators could un dermine the integrity 
of both physical and financial markets70. 
Market manipulation can occur across phy sical and financial commodity markets 
Commodity markets are not subject to the same market integrity and transparency rules for 
trading activity as financial markets. General rules, such as the prohibition against fraud, 
apply, but there are no general provisions that ensure transparency of trading activity and 
prices, and that govern ho w traders are required to behave. Su ch rules may be set by a market 
                                                 
66 Issues specific to each commod ity market, as well as further issues arising from their 
interconnectedness with financial markets, are addressed in the Commission Communication on 
commodity and related derivative markets. 
67 These commodity traders act as intermediaries, selling commodities on a forward basis, and hedging 
themselves in both the commodity and derivatives mark ets. They will therefore also be the counterparty 
to many derivatives trades. See http://www.g tsa.ch/geneva-global-trading-hub/key-figures 
68 The December 2010 average daily volumes for mai ze futures contracts in Chicago equalled 183,150, 
while the Paris maize contract average daily volume equalled 1,264 contracts. Sources: Monthly 
Agricultural Update , CME Group, December 2010 and da ta supplied by NYSE-Euronext. 
69 Task Force on Commodity Futures Markets, Final Report, Technical Committee of the International 
Organization of Securities Commissions, March 2009 
70 The Commission has adopted a proposal on Energy Market Integrity and Transparency, which 
introduces a new energy market regulator, and a proposal on the timing, administration and other 
aspects of auctioning of greenhouse gas emission allowances establishing a scheme for greenhouse gas 
emission allowances trading. These proposals do not cover other commodities markets. 
 
EN 22   EN operator, at the market level by a self-regulatory body, at national level, or they may not exist 
at all. As a result, the leve l of regulation that applies to the underlying market may be 
different for each commodity. 
First, there are no general ru les that specify what trading behaviour is permissible in 
commodities markets. As a result, market mani pulation in commodities markets is currently 
not prohibited. This is a probl em for derivatives markets beca use manipulative strategies may 
involve conduct that takes place on commodity  futures, OTC derivatives and physical 
commodity markets. Regulators have noted that manipulative schemes in commodities 
markets may involve conduct that  takes place on commodity fu tures, OTC derivatives and 
physical commodity markets.71 A simple example is that it is  possible to benefit from certain 
types of behaviour in the physical market by trad ing in the derivatives market. For instance, a 
trader can drive up the spot price of a commod ity by hoarding it. For instance, if a trader 
stockpiles grain, the price of grai n goes up. This also affects deri vatives prices, so  that a trader 
could benefit from stockpiling in the physical market through derivatives in the financial 
market. This hoarding behaviour may be perf ectly legitimate in the underlying market, 
depending on the rules that govern that market. 
The behaviour in the underlying a nd the derivatives market can also  be more integrally linked. 
For instance, a manipulative strategy may i nvolve taking a large derivatives position; 
stockpiling the underlying commodity, and then requiring the counterpar ties on the derivative 
deals to settle the derivatives  contracts by physical delivery  of the underlying. It will be 
difficult for the counterparties in the derivatives market to acquire the physical commodities, because they have been stockpiled. As noted, stoc kpiling is not necessarily illegal. In addition, 
forcing physical delivery is not necessarily abusive, as it may be a condition of the contract that it can be settled in this way. 
Of notable concern here are cas es where derivatives are used  to manipulate the underlying 
commodities market. The potential impact of such  cross-market schemes is illustrated by the 
recent Amaranth case for energy markets.
72 Derivatives contribute to price formation in the 
underlying and as such can impact its price. Di storted commodity prices will affect end users 
in the real economy. This type of behaviour is  currently not prohibite d. Derivatives trading 
which distorts the price of financial instrument s is prohibited, but derivatives trading which 
distorts the prices of physical markets is no t covered under the current definition of market 
manipulation73. 
Lack of clear rules on disclosure of  information on commodity markets 
Second, there are no general rules that specify what information needs to be disclosed in 
commodity markets. What needs to be disclose d is only determined by the rules and practices 
that govern individual commodity markets. These rules an d practices may not be precise 
enough or not even legally binding, and may vary fr om one market to the next. This has led to 
                                                 
71 Task Force on Commodity Futures Markets, Final Report, Technical Committee of the International 
Organization of Securities Commissions, March 2009, page 15 
72 Proposal for a regulation on Energy Market Integrity and Transparency, Impact Assessment, 
SEC(20101510), 08/12/2010  
73 Article 2 of Directive 2003/6/EC defines market manipulation as meaning, inter alia , transactions or 
orders to trade "which secure, by a person, or person s acting in collaboration, the price of one or several 
financial instruments at an abnormal or artificial level". 
 
EN 23   EN a lack of transparency of fundamental co mmodity market information in certain key 
commodity markets. In addition to the question of what needs to be disclo sed, there is also the 
issue of who needs to disclose it. It will t ypically be market par ticipants in the product 
markets who possess such information. Because they are not generally required to disclose 
price sensitive information in the commoditie s markets, such information may not be 
published, or only published in a fragmented way.74 
In recent years, several studies have drawn atten tion to a lack of transparency of fundamental 
commodity market information.75 This lack of transparency of fundamental information is 
also a problem for investors in commodity de rivatives markets, because the value of a 
derivative is largely determined by the underlyi ng instrument or commodity. For commodity 
derivative markets, what should be  regarded as inside information is largely determined by 
the transparency standards prevalent in both the s pot and the derivative market of the relevant 
commodity. These standards are often not precise enough and are different for each 
commodity market, which creates legal uncertainty  for market participan ts. Because there is 
no legal disclosure obligation in  the underlying market, there is  currently also no legally 
binding definition of what is considered to be  inside information in commodity derivatives 
markets. This means that investors on commod ity derivatives markets are less protected from 
information asymmetry in the underlying market than investors in derivatives of financial 
markets. 
The absence of transparency rules in commodity  markets is not only a problem for investors, 
but also for supervisors. Tran sactions in commodities markets are not reportable, nor are OTC 
instruments that are referenced to commodities.  This means that supervisors cannot monitor 
these transactions for possible a buse. Regulators have noted that  the required information that 
would enable them to detect market abuse in energy markets is not available and express concern about the potential fo r such abuses to take place.
76 
3.2.3.  Problem 3: Regulators c annot effectively enforce 
The report by the High-Level Gr oup on Financial Superv ision in the EU recommended that "a 
sound prudential and conduct of bus iness framework for the financial sector must rest on 
strong supervisory and sanctioni ng regimes". To this end, th e group considers supervisory 
authorities must be equipped w ith sufficient powers to act and should be able to rely on 
"equal, strong and deterrent sanc tions regimes against all financial crimes sanctions which 
should be enforced effectively". Effective en forcement requires that, in accordance with 
article 14 of Directive 2003/6/EC , measures are "effective, proportionate and dissuasive". 
This implies that sanctions should be availa ble to competent authorities and sufficiently 
dissuasive. In addition, effective enforcement also relates to the resources of competent 
authorities, their powers and thei r willingness to detect and inve stigate abuses. However, the 
                                                 
74 European Commission Consultation Paper on a Revision of the MAD, Contribution des autorités 
françaises 
75 Task Force on Commodity Futures Markets, Final Report, Technical Committee of the International 
Organization of Securities Commissions, March 2009, page 11 
The Need for Transparency in Commod ity and Commodity Derivatives Market s, Piero Cinquegrana, European 
Capital Markets Institute (ECMI) (2008) 
IMF,  Word Economic Outlook,  October 2008 
76 CESR and ERGEG advice to the European Commissi on in the context of the Third Energy Package, 
Response to Question F.20 - Market Abuse, October 2008, page 3 
 
EN 24   EN High-Level Group considers that "n one of these is currently in  place" and Member States 
sanctioning regimes are regarded as  often weak and heterogeneous.  
Lack of data on suspicious transactions in OTC derivatives 
Competent authorities lack some of the necessa ry powers to detect market abuse. Competent 
authorities lack data on suspicious transact ions in OTC derivatives. However, securities 
regulators consider that OTC deri vatives have the potential to be  used for insider dealing and 
market manipulation77 which remains undetected.  
Lack of access to telephone and dat a traffic from telephone operat ors in some Member States 
Article 12 of the MAD stipulates that comp etent authorities must have the right to “require 
existing telephone and existi ng data traffic records” . In accordance with article 12(1) of the 
MAD, this powers can be exercised (a) directly; or (b) in collaboration with other authorities 
or with the market; or (c) under its responsibility by delegation to  such authorities or to the 
market undertakings; or (d) by appl ication to the competent judici al authorities. In practice, 
two types of data constitute important evidence to detect and prove the existence of market 
abuse such as market manipula tion and insider dealing: data records from investment firms 
executing transactions and telephone data  records from telecom operators.  
First of all, Member  States can require  access to telephone and data tr affic records relating to 
trading kept by investment firms (e.g. to provide evidence of th e conclusion of a contract) to 
ensure that competent authorities are able to investigate and detect suspected market abuse. 
Second, in more specific cases, for example to establish whether inside  information has been 
transferred from a primary insider to someone tr ading with this inside information, access to 
telephone data records held by telecom operato rs can be very important evidence. For 
example, this data can be sometimes the sole evidence in a case where a board member of an 
company in possession of inside information may have transferred inside information by 
phone to a friend, relative or family member wh o afterwards executes a suspicious transaction 
based on the inside information received. The telephone traffic records from telecom 
operators can be used by the regulator to de monstrate that a call had been placed by the 
primary insider to their friend or relative shortl y before that person then  called their broker to 
instruct them to make a suspicious transacti on. The traffic records from telecom operators 
provide evidence of a link which could be used as evidence to sanction the case. 
Therefore, access to this data from telecom ope rators is considered among the most important 
issues for the accomplishment of the invest igatory and enforcement tasks of CESR 
members.78 Access to the data held by telecom opera tors by the competent authorities is 
covered by article 15 of Directive 2002/58/EC79 (e-Privacy Directive)  which restricts access 
to these records to cases where it is " a necessary, appropriate and proportionate measure 
within a democratic society to safeguard national security (i.e. St ate security), defence, public 
security, and the prevention, inves tigation, detection and prosecution of criminal offences or 
of unauthorised use of the electronic communication system, as referred to in Article 13(1) of 
                                                 
77 CESR’s response to the European Commission’s call for evidence on the review of Directive 
2003/6/EC (Market Abuse Directive), p. 6 
78 CESR answer to the call for evidence on the review  of the MAD, of 20 April 2009, available at 
http://ec.europa.eu/internal_market/consultations/2009/market_abuse_en.htm. 
79 Directive 2002/58/EC of the European Parliament and of the Council of 12 July 2002 on processing of personal 
data and the protection of privacy in  the electronic communications sector.  
 
EN 25   EN Directive 95/46 /EC." Some Member States80 have reported that this provision has made it 
impossible for them to obtain access to exis ting telephone data records from telecom 
operators to provide evidence fo r the investigation and sanctioni ng of market abuse when the 
authority does not have the possi bility to pursue criminal cases. As a result, specific market 
abuses subject to administrative measures a nd/or administrative sanctions may remain 
undetected and unsanctioned rega rdless of the powers provided by article 12 of the MAD.  
It should be noted that any po licy measures with regard to access to telephone data records 
from telecom operators should be assessed on their necessity and proportionality, in 
compliance with article 8 of the EU charter of fundamental rights and article 16 of the TFEU.  
Lack of access to private premises 
Some regulators lack th e power to ask permission from a c ourt to enter private premises and 
seize documents81. This power is necessary in certain market abuse cases where a demand for 
access has not been complied with, or that important information would be removed, 
tampered with or destroyed.  
Lack of protection for whistle blowers 
In addition, regulators may be deprived from  access to important primary information on 
suspicious transactions from "whistle blowers"82 as these sources of information lack 
incentives and may not be suffici ently protected. As a result, market participants who may be 
aware of market abuse may not feel confident to report their suspicions, as they risk 
discrimination or loss of employment. More over, regulators lack the tools to address 
"attempts at market manipulati on" which do not succeed, and wh ere it is often difficult to 
prove the effect of the attempt but where there is clear evidence of an intention to manipulate 
the market. 
Administrative sanctions lack deterrent effect 
Furthermore, an evaluation of national admi nistrative sanctioning regimes under the MAD 
shows that not all competent authorities have a full set of powers at thei r disposal to ensure 
they can respond to all situations with the ap propriate sanction corresp onding to the severity 
of the market abuse observed. As shown in table 1 below, 4 Member States do not have 
administrative measures available for insider dealing and market ma nipulation. Further, 
respectively 4 and 8 Member Stat es do not have pec uniary administrative sanctions available 
for insider dealing and market manipulation.  
Table 1: overview of availabili ty of administrative sanctions83 
                                                 
80 CY, ES, FI, LV, NL, CESR report, p.98, Ref. CESR/09-1120, available at www.cesr-eu.org ; CESR answer to 
the call of evidence on the review of the MAD, of 20 April 2009.  
81 In this respect, of relevance are the decision of  ECHR of 21.12.2010 in cases Primagaz versus France 
(No 29613/08) and Sociéé Canal Plus and others v. France (no 29408/08) 
82 Alerts of suspicious transactions, which may come from a diverse range of participants often employed 
in financial industry itself, are sometimes referred to as "whistle blowing"  
83 Executive summary to the CESR re port on administrative measures an d sanctions as well as criminal 
sanctions available in Member States under the Ma rket Abuse Directive (MAD), p 2, ref CESR/08-099 
available at www.cesr-eu.org  
 
EN 26   EN Administrative sanctions  Insider dealing  Market 
manipulation  
MS without administrative measures 4 4 
MS without administrative 
pecuniary sanctions  8 4 
Source: Executive summary to the repo rt on administrative measures and sanc tions as well as criminal sanctions 
available in Member States under the market a buse directive (MAD), CESR/08-099, available at www.cesr-
eu.org , and additional information received from Member States in 2010.  
In 8 Member States, competent authorities do not have the possibility to withdraw the 
authorisation in case of violations. As a result, in certain  market abuse cases where it would 
be appropriate and proportionate to withdraw  certain market players from the market, 
competent authorities would be unable to do so . Moreover, 18 Member States do not provide 
for the disqualification/dismissal of the ma nagement and/or supervisory body in cases 
involving market manipulation. In addition, while it is acknowledged that publication of 
sanctions has a deterrent effect and is of high importance to enhance transparency and 
maintain confidence in financial markets84, not all competent authorities ensure that all 
imposed sanctions are published, which is an important factor for effective enforcement.  
The level of administrative pecuniary sanctions  varies widely among Me mber States and in 
some cases the maximum fine can be considered low and insufficiently dissuasive. When the gains of a market abuse offence are higher than the expected sanctions, the deterrent effect of 
the sanctions is undermined. This is reinforced  by the fact that the offender might consider 
that his offence could remain undetected. As sh own in table 2, respec tively 4 and 9 Member 
States have sanctions lower or equal to EUR 200.000 while respectively 10 and 14 Member 
States have sanctions of more then EUR 1 M illion for the same offences. These sanctions can 
be considered weak as insider dealing and ma rket manipulation offen ces covered by Directive 
2003/6/EC can lead to gains of several million euros, in excess of the maximum levels of 
fines provided for in some Member States.
85  
Table 2 Level of sanctions for insider de aling and Market Manipulation among Member 
States. 
 Insider 
dealing Market 
manipulation 
≤ 200. 000  4 9 Member States with maximum 
administrative sanctions  
> 1 Million  10 14 
Member States with administrative sanctions linked to the benefit 9 11 
                                                 
84 CESR, review panel report on MAD options and discretions, p 19, ref. CESR/09-1220, available at 
www.cesr-eu.org 
85 European Commission, Impact a ssessment on Sanctions in the financial Services Sector, p 12; FSA 
Market Watch newsletter, Our strategy and key objectives for tackling market abuse, issue 26, April 
2008, p.7, available at: www.fsa.gov.uk  
 
EN 27   EN No administrative pecuniary sanctions  8 4 
Source: Executive summary to the repo rt on administrative measures and sanc tions as well as criminal sanctions 
available in Member States under the market a buse directive (MAD), CESR/08-099, available at www.cesr-
eu.org , and additional information received from Member States in 2010.  
Criminal offences are not harmonised and crimi nal sanctions are lacking in some Member 
States  
An analysis of the market abuse offences wh ich are defined as criminal offences and are 
therefore subject to criminal sanctions shows that there is considerable divergence among the 
Member States.  
Table 3 – Offences of insider dealing and mark et manipulation subject to criminal sanctions 
in Member States 
Article of MAD and offence Number of EU countries with 
criminal sanctions Countries without criminal 
sanctions 
Article 2 (insider dealing by a 
primary insider) 26/27 BG (SI has criminal fines not 
imprisonment) 
Article 3a (disclosure of inside 
information by a primary insider)  22/27 BG; CZ; EE; FI; SI 
Article 3b ("tipping" by primary 
insiders) 25/27 
 BG;SI 
Article 4 (insider dealing by 
secondary insiders) 23/27 BG; IT; SI; ES 
Article 4 (disclosure of inside 
information by secondary insiders) 19/27 BG; CZ; ET; FI; DE; IT; SI; ES 
Article 4 ("tipping" by secondary 
insiders) 21/27 
 BG; CZ; DE; IT; SI; ES 
Article 5 (market manipulation) 23/27 
 AT; BG; SK; SI 
Source: Executive summary to the repo rt on administrative measures and sanc tions as well as criminal sanctions 
available in Member States under the market a buse directive (MAD), CESR/08-099, available at www.cesr-
eu.org , and additional information receive d from Member States in 2010.  
The analysis in table 3 shows that none of the offences of insider dealing or market 
manipulation is subject to criminal sanctions in all EU Member States. For example, for the offence of improper disclosure of inside info rmation by secondary insiders, 8 Member States 
lack criminal sanctions, while for the offence of "tipping" by secondary insiders, 6 Member 
States lack criminal sanctions. Since maket abuse can be carried out across borders, this 
divergence can be expected to have negative e ffects on the single market and could encourage 
potential offenders to carry out market abuse in  Member States which have the least strict 
sanctions. It also complicates  cross-border cooperation by la w enforcement authorities. 
 
EN 28   EN Further, since criminal sancti ons have a greater deterrent e ffect, potential offenders in 
Member States lacking criminal sanctions ma y be less likely to abst ain from carrying out 
market abuse due to fear of criminal  prosecution and possible imprisonment. 
3.2.4.  Problem 4: Lack of clar ity and legal certainty 
The MAD includes certain options  and discretions as well as  provisions leaving room for 
interpretation in practical application. An ev aluation of how the MAD options and discretions 
are exercised by Member States shows that they have resulted in divergences and ambiguities 
in the rules applicable in the Member States86. The De Larosière report has identified options 
and discretions as one reason for competitive dist ortions and regulatory arbitrage thus as a 
hindrance for the efficient functioning of the single market. As a consequence the 
Commission, in its Communicati on on Driving European Recovery, has expressed the need to 
identify and remove key differences in na tional legislation stemming from options and 
discretions in secondary law87. For the MAD Review the focu s in that respect is on the 
concept of accepted market practic es (AMPs), the disclosure of inside information by issuers 
and the obligation on issuers' dire ctors to report their dealings in financial instruments. Other 
options and discretions are addr essed elsewhere in this problem definition and a full list of 
these is included in annex 11. 
AMPs are certain behaviours when dealing in  financial markets that can reasonably be 
expected in one national market, for example, due to local, long-esta blished customs while 
potentially constituting market abuse in others . The MAD acknowledges the existence of such 
behaviours and allows for a defe nce. The regulators in each Me mber State can establish an 
AMP for the market they are responsible for. As a result the behaviour s covered by that AMP 
will not constitute market abuse in that particul ar market. Inevitably the AMP concept leads to 
divergences in the practices allo wed and the rules applicable in  the different Member States, 
preventing a truly harmonised framework. 
Issuers have to disclose inside information dir ectly concerning them as soon as possible. This 
obligation is a cornerstone of the MAD, ensuring that information which is likely to affect the price of a financial instrument is made availabl e to the public so that all investors can act on a 
level playing field. However, under specific conditions issuers can delay the disclosure of inside information (in short if the delay serves a legitimate interest of the issuer, does not mislead the public and the information can be ke pt confidential). Market participants have 
expressed the view that these conditions lack the necessary degree of clarity
88. Legal 
uncertainty in this area can be particularly harmful if it concerns an emergency situation at a bank with potential consequences for financial stability as a whole. 
Directors of issuers need to report transactions in financial instruments related to the issuer. 
This obligation deters direct ors from engaging in insider trading and provides useful 
information to the investing public
89. At the moment the scope of the obligation is not 
                                                 
86 The provisions of the Directive which provide for such flexibility and the resulting divergence have 
been mapped by CESR in their Review Panel report "MAD – Options, Discretions and Gold Plating, 
2009", CESR/09-1120, January 2010. 
87 Communication for the Spring European Council, Driving European Recovery, COM (2009) 114 final, 
4.3.2009, p. 6. 
88 See e.g. ESME report. 
89 Article 6.4 of Directive 2003/6/EC and Directive 2004/72/EC. 
 
EN 29   EN sufficiently clear. This lack of clarity refers to applying the ob ligation to transactions taken on 
behalf of the director by a portfolio manager a nd to the manager pledging or lending shares.  
In conclusion, the problems desc ribed above, due to the options provided to Member States in 
the MAD and the lack of clarity of certain provisions, give rise  to possibilities for regulatory 
arbitrage and overall sta nd in the way of a level playing fi eld and an efficient functioning of 
the single market.  
3.3. Problem 5: Disproportionate administra tive burdens on issuers, especially 
SMEs 
According to a survey by the European Central Bank in 2009,  SMEs rely mainly on bank 
lending, with only 0.9% of SMEs issuing debt securities and 1.3% issuing equity90. Some 
stakeholders have argued that th is is in part because the in itial and ongoing costs of listing 
outweigh the benefits for SMEs, and that EU  legislation represents a barrier to access 
financial markets which is too high for SMEs91.  
Specialised SME markets92 aim at providing smaller, growin g companies with a platform to 
raise capital both through initial offerings and ongoing fund raising. Currently, these SME 
markets mostly fall within the MTF regime un der MiFID. As explaine d in problem 1, such 
MTFs are currently not within the scope of the MAD. Although some Member States have 
extended some or all MAD provisions to MT Fs, SME markets in some Member States93 
benefit from an adapted regime to keep co sts of listing down for SME issuers. Some 
stakeholders argue that if all the MAD ob ligations are extended without adaptation to 
instruments only traded on MTFs, SMEs listed on, or considering a li sting on, SME markets 
would face higher costs to access the market94. Stakeholders have iden tified as particularly 
problematic in this regard the obligations to disclose price sensitive information, draw up insider lists and disclose  managers' transactions
95. Estimates of the administrative burdens and 
one-off costs to comply with the information obligation imposed on SMEs are set out in the 
table below. 
Overview of obligations on issuers in the MAD considered to impose one of costs to 
comply with the information obligation or ad ministrative burdens on issuers, including 
SMEs96 
Issuer obligation Nature of one off costs to 
comply with information 
obligation or administrative 
burden imposed on issuers, 
including SMEs Estimated one off cost to 
comply with information 
obligation and administrative 
burden for SMEs 
                                                 
90 Survey on the access to finance of small and medium -sized enterprises in th e euro area, European 
Central Bank, September 2009, p. 4. 
91 Fabrice Demarigny, An EU-listing Small Business Act,  March 2010, p. 13 
92 There are currently 14 specialist markets for SMEs th at operate across Europe, including AIM and AlterNext.  
93 For example AIM in the UK, Alternext in France,  Deutsche Börse Entry Standard in Germany. 
94 See response by European Issuers to public consultation, 27 July 2010, p. 2. 
95 See response by European Issuers to ca ll for evidence, 15 June 2009, p. 1. 
96 All data taken from EIM, Effects of the changes in the Ma rket Abuse Directive – Impact on 
Administrative Burden of Firms in the EU , EIM, December 2010. See annex 13. 
 
EN 30   EN Disclosure of inside 
information Requires issuers to identify inside 
information and disclose it immediately, with option for Member States to require notification of intention to delay disclosure to regulator identify inside information (one-
off cost to comply with information obligation ): €0.5m
97 
assess conditions for delay (one 
of cost to comply with information obligation): €1.7m
98 
reporting intention to delay disclosure to regulators (administrative burden): €1.5m
99 
Insiders' lists Requires issuers to draw up and keep updated lists of persons with 
access to inside information for use by regulators if needed.  
€1.8m (administrative burden)
100 
Managers' 
transaction reports Threshold for reporting managers' 
transactions is €5,000, although not applied in some Member States.   
€0.3m (administrative burden)
101 
In light of these costs, some SME markets (such as AIM in the UK) therefore impose adapted 
disclosure requirements for SME issuers102. If the MAD disclosure obligations were extended 
unchanged to SME markets authorised as MTFs , these costs would be extended in full to 
small issuers listed on those MTFs, and could ac t as a disincentive to SMEs from seeking a 
listing on such SME markets. 
The MAD requires issuers to draw up and update  insider lists, which indicate the persons 
working for or on behalf of the issuer  who have access to insider information103. Insider lists 
                                                 
97 EIM (2010), p. 13. 
98 EIM(2010), p. 37. 
99 EIM(2010); p. 38. 
100 EIM(2010), p. 38. 
101 EIM(2010), p. 39. 
102 AIM is the London Stock Exchange’s international market for smaller growing companies. Since 1995, 
over 3,200 companies have joined the market and currently it is home to over 1,100. AIM is not a 
regulated market and instead is classified as an MT F. However, it is not only a trading venue but also 
has a primary market function with relevant admission and ongoing requirements set out in the AIM 
rules. The UK Financial Services & Markets Act und erpins the market framework with day-to-day 
regulation being the responsibility of the London Stock Exchange. Every AIM company is required to maintain a full time corporate finance adviser as a nominated adviser or Nomad. A Nomad, approved 
by the Exchange to act in that capacity, is respon sible for assessing a company's appropriateness at 
admission and on an ongoing basis. When seeking to join the market, a company is required to produce an AIM admission document - based on the Prospectus requirements but adapted for smaller 
companies. The continuing obligations for AIM comp anies are based on the principles of MAD and the 
Transparency Directive bu t are less prescriptive than the requirements for Regulated Markets. For 
example, there is no specific requirement for companies to maintain insider lists at all times but the 
requirements to disclose inside information in a timely manner and to disclose all directors' deals regardless of size are fundamental to the market framework. For the latest copy of the AIM rules see 
http://www.londonstockexchange.com/companies-and-advisors/aim/advisers/rules/regulation.htm
  
103 Article 6.3 of Directive 2003/6/EC and 5 of Directive 2004/72/EC. 
 
EN 31   EN are considered useful by competent authorities in investigating suspected market abuse and 
have a deterrent effect. But SM E stakeholders consider that the requirement to draw up and 
update insider lists creates significant expens e and management burdens for smaller quoted 
companies and that the MAD regime needs to be simplified104. The different national 
requirements on the information to be included ha ve also been criticised, as these lead to 
additional compliance and administrative cost s for issuers listed in several countries105.  
The MAD also requires issuers to report manage rs' transactions, to deter insider trading by 
managers and provide useful information to the market106. An optional threshold for such 
disclosures of EUR 5,000 is appl ied by some Member St ates. Some stakeholders consider that 
an adapted regime for SMEs or a higher threshold is necessary in relation to the disclosure of 
managers' transactions, on the grounds that  they are burdensome and time-consuming.107  
In conclusion, the one of cost  to comply with the information obligation and recurring 
administrative burdens described above exist due  to the differences in national legislation 
arising from options and discreti ons in the MAD or the lack of clarity of certain provisions. 
They have as a consequence that issuers and in particular SMEs face higher compliance costs which may act as a disincentive to SMEs to  raise capital through securities markets. 
3.4. The Baseline Scenario  
The evaluation of the options and discretions in  the MAD shows that ni neteen Member States 
have already opted to extend some or all prov isions of the MAD to some or all MTFs at 
national level108, and some already apply the Direct ive to market manipulation in OTC 
transactions. However, it is likely that in the absence of EU action the current wide 
divergence in national approaches would continue, with the result that in some jurisdictions 
MTFs and OTC transactions will continue not to be subject to market abuse rules at all or 
only in part, with the consequent risk of market abuse remaining unsanctioned in those 
jurisdictions. In addition,  the divergence in national approach es would continue  to leave scope 
for higher compliance costs on market partic ipants operating across several markets. 
In relation to sanctions, it could be argued th at most Member States already provide for 
administrative sanctions in relation to the MAD, and most also provide for the possibility of 
criminal sanctions, and therefore that furthe r harmonisation would provide limited benefit. 
However, the evaluation of the national sanc tioning regimes under the MAD shows that in 
some parts of the Union certain market abus es would remain unsan ctioned or would be 
sanctioned less severely than in others. This w ould limit the deterrent effect of sanctions and 
leave scope for regulatory arbitrage in th e case of administrative sanctions and  leave a certain 
scope for perpetrators who can often make use of  the most lenient criminal sanction systems. 
                                                 
104 The Quoted Companies Alliance, response to the co nsultation, 28 July 2010, p.4; EuropeanIssuers, 
response to the consultation, 27 July 2010, p. 2; see also the report prepared by Fabrice Demarigny in 
March 2010 on "An EU-Listing Small Business Act" , available at: 
http://www.eurocapitalmarkets.org/node/446 . 
105 See response by Herbert Smith to the ca ll for evidence, 15 June 2009, p. 6. 
106 Article 6.4 of Directive 2003/6/EC and Directive 2004/72/EC . 
107 The Quoted Companies Alliance, response to the consultation, 28 July 2010, p. 4. The Association of 
Italian Issuers (Assonime) have argued that the low level of the threshold has resulted in markets being 
flooded with irrelevant information 
108 ES, HU, NL, AT, DK, LT, LU, PL, PT, SE, SK, EL, MT, BE, DE, FI, FR, IT, UK. See CESR/09-1120 
(November 2009), p. 6-7. 
 
EN 32   EN In addition, even the Member States who already apply crimin al sanctions do not necessarily 
do this with regard to the same forms of mark et abuse. Therefore, EU -wide minimum rules on 
the forms of market abuse that are consider ed to be a criminal conduct would further 
contribute to the effectiveness of enforcement of the Union's legislative framework on market 
abuse.  
With regard to divergences in national impl ementation due to options and discretions or 
different interpretations of key concepts, in  the absence of EU action further convergence 
might be achieved through cooperation by nati onal competent authoriti es in CESR (now 
replaced by ESMA). While CESR has evaluated the options and discretions it has largely not 
managed to achieve consensus on a more converg ent approach – therefore these differences 
are likely to persist in the ab sence of EU action. Further, di fferences in national law arising 
from divergent interpretations of key concepts in the Directive are likely to persist unless 
these are clarified in an agreed way. The ne w ESMA authority could contribute to a common 
supervisory culture. In particular , it could have the power to conduct peer reviews of national 
authorities enforcement approach, and is exp ected to receive information about sanctions 
applied by national authorities.  ESMA could also issue r ecommendations, guidelines and 
adopt common standards.  
It should also be noted that unl ess the MAD is updated to reflect evolutions in the markets due 
to the MiFID and technological developments, the regulatory framework for market abuse 
will probably fall even further behind market change as derivative markets and new electronic means of trading seem likely to continue to grow. 
Other legislative proposals alrea dy, or shortly to be, adopted  by the Commission complement 
the MAD in terms of increasing market integrity and investor protection. The proposal for a 
Regulation on short selli ng and certain as pects of Credit Default Swaps
109 includes a short 
selling disclosure regime which would make it easier for regulator s to detect possible cases of 
market manipulation or insider dealing linked to  short selling. The pr oposal for a regulation 
on OTC derivatives, central counte rparties and trade repositories110 will also increase 
transparency of significant positions in OTC derivatives which will assist regulators to 
monitor for market abuse thr ough the use of derivatives. Th e issues of transparency 
requirements and manipulative behaviours specific  to physical energy markets, as well as 
transaction reporting to ensure the integrity of energy markets, are the subject of the 
Commission proposal for a Re gulation on energy market in tegrity and transparency111. 
The review of the Markets in Financial Instruments Directive112 considers options to widen 
the current scope of reporting in  relation to transactions in  instruments only traded on 
multilateral trading facilities (MTFs) and re porting on over the counter (OTC) transactions 
including derivatives. The reporting to compet ent authorities of OTC transactions in 
instruments not admitted to trading on a regulat ed market is not currently mandatory, and 
                                                 
109 Proposal for a Regulation on Short Selling and certain aspects of Credit Default Swaps, COM 
(2010)482 final, 15.9.2010 
110 Proposal for a Regulation of the European Parliament and of the Council on OTC derivatives, central 
counterparties and trade repositories, COM(2010) 484 final, 15.9.2010 
111 See public consultation on the DG ENER initia tive for the integrity of energy markets, 
 http://ec.europa.eu/energy/gas_electricity/consultations/2010_07_23_energy_markets_en.htm 
112 Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in 
financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 
2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC 
 
EN 33   EN such reporting would make it ea sier for regulators to detect  possible market abuse through 
such instruments.  
Overall, if no action is taken at EU level the problems defined in this section are likely to 
remain without a coordinated response  and to occur again in the future. 
3.5. Subsidiarity and proportionality 
According to the principle of s ubsidiarity (Article 5.3 of the TEU), action at EU 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 th e proposed action, be better 
achieved by the EU. The preceding analysis has shown that although all the problems outlined 
above have important implicati ons for each individual Member St ate, their overall impact can 
only be fully perceived in a cro ss-border context. This is because market abuse can be carried 
out wherever that instrument is listed, or over the counter, so even in markets other than the 
primary market of the instrument concerned. Therefore there is a r eal risk of national 
responses to market abuse being circumvented or ineffective in the absence of EU level 
action. 
Further, a consistent ap proach is essential in order to avoid re gulatory arbitrage and since this 
issue is alrea dy covered by the acquis of the existing Ma rket Abuse Direc tive addressing the 
problems highlighted above can best be achieved in a co mmon effort. Against this 
background EU action appears appropriate in terms of the principl e of subsidiarity. 
The principle of proportionality requires that any intervention is targeted and does not go 
beyond what is necessary to ach ieve the objectives. At the identification of alternative 
options, as well as throughout the analysis and comparison of opti ons, this principle has been 
guiding the process. 
4. OBJECTIVES  
4.1. General, specific and operational objectives 
In light of the analysis of the problem above , the general objectives of the review of the 
Market Abuse Directive are to increase market  integrity and investor protection, while 
ensuring a single rulebook and level playing field and increasing th e attractiveness of 
securities markets for capital raising for SMEs.  
Reaching these general objectives requires the realisation of the following more specific 
policy objectives: 
1. Ensure regulation keeps pace with market developments 
2. Ensure effective enforcement of market abuse rules 
3. Enhance the effectiveness of the market ab use regime by ensuring greater clarity and 
legal certainty 
4. Reduce administrative burdens where possible, especially for SMEs 
 
EN 34   EN The specific objectives listed above require th e attainment of the following operational 
objectives: 
1. (a) Prevent market abuse on organised markets, platforms & OTC transactions 
(b) Prevent market abuse on commodities and related derivatives markets 2. (a) Ensure regulators have necessary info rmation and powers to enforce effectively 
(b) Ensure consistent, effective and dissuasive sanctions 3. Reduce or eliminate options and discretions 4. Clarify certain key concepts An overview of the various objectives and their interrelationships is described in the figure 
below. 
 
EN 35   EN  
Prevent market abuse 
on organised markets, platforms & OTC 
transactions
 
Ensure regulators 
have necessary 
information and 
powers to enforce 
effectively 
Reduce or eliminate options and 
discretions  
Clarify certain key 
concepts Ensure regulation 
follows market 
developments 
Ensure effective enforcement  
Ensure clarity and legal certainty  Increase market 
integrity 
Increase investor 
protection 
Move towards a single 
rulebook and create a 
level playing field 
Reduce administrative 
burdens where 
possible, especially for 
SMEs Ensure consistent, 
effective and 
dissuasive sanctions Prevent market 
abuse on 
commodities and 
related derivatives  
markets 
Increase attractiveness 
of securities markets 
for  capital raising for 
SMEs 
 
Operational objective Specific objective General objective 
4.2. Consistency of the objectiv es with other EU policies 
The identified objectives are coherent with the EU's fundamental goals of promoting a 
harmonious and sustainable development of  economic activities, a high degree of 
competitiveness, and a high level of consumer protection, which includes safety and economic interests of citizens (Article 169 TFEU). 
These objectives are also cons istent with the re form programme proposed by the European 
Commission in its Communication 
Driving European Recovery113 , the recently adopted 
proposals for regulations on short selling and derivatives, as well as the recently adopted 
initiatives of the Commission on energy market in tegrity and transparency  and on integrity of 
emission allowance markets and the ongoing Mi FID review. As emission allowances are 
proposed to be reclassified as financial instrume nts as part of the MiFID review, they will also 
                                                 
113 Communication for the spring European Council, Driving European recovery, COM(2009)114. 
 
EN 36   EN fall into the scope of the market abuse framew ork. Specific provisions will be introduced to 
ensure that the market abuse ru les adequately capture market integrity issues with regards to 
these instruments. 
4.3. Consistency of the objectives with fundamental rights  
The legislative measures setting out rules for market abuse and insider dealing, including 
sanctions should be in compliance with relevant  fundamental rights and particular attention 
should be given to the necessity and propor tionality of the legislative measures. 
The following fundamental rights of the Charte r of Fundamental Rights are of particular 
relevance: 
– Respect for private and family life (Art.7) 
– Protection of personal data (Art.8) 
– The fundamental rights provided for in Title VI Justice: right to  an effective remedy 
and to a fair trial (Art. 47); presumption of innocence and right of defence (Art.48), 
principles of legality and proportionality of criminal offences and penalties (Art. 49), 
right not to be tried or  punished twice for the same offence (Art.50) 
Limitations on these rights and freedoms are allowed under article 52 of the Charter. The 
objectives as defined above are consistent with  the EU's obligations to respect fundamental 
rights. However, any limitation on the exercise of these rights and freedoms must be provided 
for by law and respect the essenc e of these rights and freedoms . Subject to the principle of 
proportionality, limitations may be made only if  they are necessary and genuinely meet the 
objectives of general interest re cognised by the Union or the n eed to protect the rights and 
freedoms of others114. In the case of market abuse, th e general interest objective which 
justifies certain limitations of fundamental right s is the objective of en suring market integrity. 
The need to protect the right to  property (article 17 of the Charter) also justifies certain 
limitations of fundamental rights , as investors are entitled to see the value of their property 
(e.g. shares or bonds) protected from losses ca used by market abuse. A summary assessment 
of the impacts in terms of fundamental rights of the various policy options under 
consideration is set out for each option in the summary tables in section 6, and the full 
assessment for each option can be found in Annex 8. 
5. POLICY OPTIONS  
In order to meet the objectives set out in the previous section, the Co mmission services have 
identified different policy opti ons. The table below assigns "shor t titles" to the options and 
sets out a brief explanation of the option. Wh ere necessary, further detail on the content of 
each option is included in the detailed analysis of the impacts in annex 8. 
Table of policy options 
5.1 Policy options to prevent market abuse on organised markets, platforms & OTC transactions 
                                                 
114 Article 51 of the charter of Fundamental rights of the European Union. 
 
EN 37   EN Option 5.1.1 no action Take no action at EU level 
Option 5.1.2 align the definition of 
financial instrument with the 
MiFID definition and clarify application of MAD to CDS The definition of "financial instrument" would be aligned with the 
definition in the MiFID covering derivatives such as credit default swaps 
and clarify elsewhere the application of  provisions to use of credit default 
swaps; currently it is unclear in the MAD if CDS are within the scope and 
given the significance of these instruments, this option would clarify this.  
Option 5.1.3 extend scope to cover 
market manipulation by use of related instruments traded OTC, 
notably derivatives The prohibition of market manipulation would be extended to the use of 
related instruments traded OTC (notably derivatives, including CDS) to manipulate the underlying market, where such instruments can have an 
impact on the underlying market. 
Option 5.1.4 extend market abuse 
rules to instruments only admitted to trading on MTFs Market abuse rules would be extended to apply to any financial 
instrument only admitted to trading on a MTF (irrespective of whether the 
transaction in that instrument takes place on that MTF). This corresponds 
to, and would consolidate, current practice in several Member States. 
Option 5.1.5 extend market abuse 
rules to instruments only admitted to trading on other trading facilities 
(other then MTFs)  Market abuse rules would be extended to instruments only admitted to 
trading on an organised trading facility. The application would be calibrated to ensure that the rules would be applied in a proportionate 
manner. An organised trading facility would be defined (e.g. by reference 
to a definition in the revised MiFID) in a very general manner to cover any facility or system operated by an investment firm that brings together 
client orders or interests relating to financial instruments and that is not 
already classified as a regulated mark et, MTF or systematic internaliser.  
Option 5.1.6 extend market abuse 
rules to instruments traded purely 
OTC  Market abuse rules would be extende d to instruments that are traded 
purely OTC. Pure OTC transactions ar e bilateral transactions between two 
parties which take place off market th rough a contractual agreement, in 
financial instruments that do not have any impact on other financial 
instruments traded on a trading venue or facility. This option goes further 
than option 5.1.3, which would only extend the scope to instruments traded OTC, notably derivatives, which can have an impact on an 
underlying market in related instruments. 
Option 5.1.7 provide examples of 
specific automated trading strategies that constitute market 
manipulation This option would prescribe specific strategies by way of automated 
trading, including high frequency trading, which may be contrary to the prohibition on market manipulation in level 2 measures. 
Option 5.1.8 Improve monitoring for market abuse of investment firms operating trading facilities 
such as MTFs This option would extend the obligation to adopt structural provisions 
aimed at preventing and detecting market manipulation practices to investment firms operating an MTF and to entities operating organised 
trading facilities. Currently this ob ligation only applies to regulated 
markets. 
Except for 5.1.1, the above polic y options are not mutually exclusive and can complement each other 
5.2 Policy options to prevent market abuse on commodities and related derivatives markets 
Option 5.2.1 No action Take no action at EU level. 
Option 5.2.2 extend the definitions 
of inside information and market 
manipulation to include commodity spot contracts This option would bring the definitions of inside information and market 
manipulation for commodity markets in line with the general definitions 
that apply to financial instruments. This alignment would be accompanied by an extension of the requirement to disclose inside information to all 
 
EN 38   EN market participants. 
Option 5.2.3 define inside 
information for commodity 
derivatives This option would bring the definition of inside information for 
commodity derivatives in line with the general definition for financial 
instruments by clarifying that inside information is non-public information which would be likely to have a significant effect on the 
prices of such derivatives or the underlying commodities. 
Option 5.2.4 obligation for spot 
market traders to respond to information requests from 
competent authorities This option would explicitly grant competent authorities the power to 
request information from any person, to include direct access to spot 
market information, the power to re quire such information according to 
standardised formats, reporting of suspicious trading within the firm, and 
access to traders' systems. 
Option 5.2.5 promote international cooperation among regulators of 
financial and physical markets This option would require financial regulators to cooperate and exchange 
information with international physical commodity market regulators to 
ensure a consolidated overview of  physical and financial commodity 
markets, and to detect and sanction cross-market abuses. 
Option 5.2.6 require issuers of commodity derivatives to publish 
price sensitive information.  This option would require issuers of commodity derivatives to gather and 
publish on their web site all publicly available price sensitive information 
on the underlying commodities, as well as information with regard to 
trading in the commodity derivatives they have issued. 
Option 5.2.7 clarify market manipulation for commodity 
derivatives This option would clarify that in relation to commodity derivatives, the 
definition of market manipulation also extends to transactions in financial 
instruments that distort the price of the underlying commodity markets. 
Except for 5.2.1, the above polic y options are not mutually exclusive and can complement each other 
5.3 Policy options to ensure regulators have necessary information and powers to enforce effectively 
Option 5.3.1 No action Take no action at EU level. 
Option 5.3.2 introduce reporting of 
suspicious orders and OTC 
transactions This option would introduce reporting of  suspicious orders and suspicious 
OTC transactions. 
Option 5.3.3 prohibit attempts at market manipulations This option would extend the prohibition of market manipulation to 
attempts at market manipulation. 
Option 5.3.4 ensure access to telephone and data traffic records 
for market abuse investigations  This option would clarify the power of competent authorities to obtain 
telephone and data traffic record s from telecom operators where a 
reasonable suspicion exists of insider dealing or market manipulation . 
Option 5.3.5 ensure access to 
private premises to seize documents for market abuse 
investigations  This option would grant competent authorities the power to enter private 
premises and seize documents where necessary to investigate specific 
cases of suspected market abuse, subject to  permission from a judge. 
Option 5.3.6 grant protection and incentives to whistleblowers This option would grant protection from retaliation and set rules for 
incentives to whistleblowers who report market abuse to the authorities in compliance with the data protection principles
115. 
                                                 
115 Article 29 working party Opinion 1/2006 on the application of EU data protection rules to internal 
whistle blowing schemes in the fields of accounting,  internal controls, aud iting matters, fight against 
 
EN 39   EN Except for 5.3.1, the above polic y options are not mutually exclusive and can complement each other 
5.4 Policy options to ensure consistent, effective and dissuasive sanctions 
Option 5.4.1 No action Take no action at EU level 
Option 5.4.2 common minimum 
rules for administrative measures 
and sanctions This option would introduce minimum principles on type and level of 
administrative measures and administrative sanctions 
Option 5.4.3 uniform 
administrative measures and 
sanctions This option would introduce uniform types and level of administrative 
measures and administrative sanctions across the EU.  
Option 5.4.4 requirement for criminal sanctions  This option would introduce a requirem ent for Member St ates to provide 
for effective, proportionate and dissuasive criminal sanctions for the most serious insider dealing and market manipulation offences as defined at EU 
level.  
Option 5.4.5 common minimum 
rules for criminal sanctions  Common minimum rules for criminal sanctions for insider dealing and 
market manipulation offences as defined at EU level would be introduced under this option.  
Option 5.4.6 improved enforcement 
of sanctions This option would improve the enforcement of sanctions by requiring 
Member States to publish the imposed sanctions and encourage Member 
States to further cooperate where n ecessary through ESMA in relation to 
market abuse investigations 
Options 5.4.2 and 5.4.3 are mutually exclusive as well as option 5.4.4 and 5.4.5 option 5.4.6 is complementary to 
all options. 
5.5 Policy options to reduce or eliminate options and discretions 
Option 5.5.1 No action Take no action at EU level. 
Option 5.5.2 harmonise accepted 
market practices With this option the concept of AMPs would be harmonised through 
coordination by ESMA, who would initiate a consultation process with all 
national regulators before an AMP recognised as not constituting market 
abuse in one Member State is endorsed by all Member States. 
Option 5.5.3 remove accepted 
market practices and phase-out 
existing practices This option would remove the concep t of accepted market practices from 
the legal framework and gradually phase-out the practices already 
existing. 
All options are mutually exclusive 
5.6 Policy options to clarify certain key concepts  
Option 5.6.1 No action  Take no action at EU level. 
Option 5.6.2 Clarify conditions of 
delayed disclosure of inside information Under this option, one of the criteria for judging whether or not the 
disclosure of inside information can be delayed, namely that delay should not be likely to mislead the public, would either be clarified (e.g. by 
                                                                                                                                                         
bribery, banking and financial crime, available at: 
http://ec.europa.eu/justice/policies/privacy/docs/wpdocs/2006/wp117_en.pdf  
 
EN 40   EN specifying that it is information which goes against what the market's 
expectations are) or deleted altogether because it is too narrow. 
Option 5.6.3 Reporting of delayed 
disclosure of inside information. This option would introduce an obligation for issuers who delayed 
disclosure of inside information to in form their regulator of their having 
delayed disclosure when publishing the information, so that the regulator 
can verify if the conditions for delay were met.. 
Option 5.6.4. Determine conditions 
of delayed disclosure in case of systemic importance. Under this option, in cases where inside information is of systemic 
importance (e.g. information that a ba nk is receiving emergency liquidity 
from a central bank) and it is in the public interest to delay its publication, 
the regulator would be given the power to permit a delay in disclosure of 
the information for a limited period 
Option 5.6.5 clarify disclosure of managers transactions This option would clarify that transactions made for managers of the 
issuer by portfolio managers, or transactions where managers of the 
issuers pledge or lend their shares, do qualify as transactions that need to 
be reported under the market abuse rules.  
Except for 5.6.1, the above policy options are not mutually exclusive 
5.7 Policy options for reducing administrative burdens, especially on SMEs (SME specific options in 
bold)  
Option 5.7.1 No action Take no action at EU level 
Option 5.7.2 SME regime for 
disclosure of inside information Under this option, SME issuers would be required to disclose inside 
information in a simplified market-specific way.  
Option 5.7.3 SME exemption for 
disclosure of inside information Under this option SME issuers would be exempted from the obligation to 
disclose inside information 
Option 5.7.4 harmonise insiders' 
lists This option would introduce harmonised requirements for drawing up 
insiders' lists and would entail prescribing the precise data an insider list 
has to contain in relation to each individual included on the insider list 
Option 5.7.5 SME exemption for insiders' lists This option would exempt SMEs from the obligation to draw up insiders' 
lists while requiring directors of SMEs to ensure all employees were 
informed of their responsibilities not to engage in market abuse.  
Option 5.7.6 abolish managers' 
transactions reporting Under this option the rules requiring managers of issuers to report 
transactions in shares of the said i ssuer, or in associated derivatives or 
other financial instruments by managers and persons closely associated 
with them, would be abolished. 
Option 5.7.7 harmonise 
managers' transactions reporting requirements with an increased 
threshold for all issuers, 
including SMEs This option would raise the threshold below which managers' transactions 
do not need to be reported from EUR 5,000 to EUR 20,000. This threshold would apply uniformly across the EU for all issuers, including 
SMEs. 
Option 5.7.8 SME regime for 
managers' transa ction reporting This option would introduce an alternative and proportionate regime for 
reporting managers' transactions fo r issuers listed on SME Markets. 
Options 5.7.2 and 5.7.3 are mutually exclusiv e, as are options 5.7. 6, 5.7.7 and 5.7.8. 
 
EN 41   EN 6. ANALYSIS OF IMPACTS AND CHOICE OF PREFERRED OPTIONS AND INSTRUMENTS  
This section sets out in the form of summary tables the advantages a nd disadvantages of the 
different policy options, measured  against the criteria of their effectiveness in achieving the 
related objectives (to be specified for each basket  of options), and their efficiency in terms of 
achieving these options for a give n level of resources or at l east cost. Impacts on relevant 
stakeholders are also considered. Impacts on fundamental rights are al so considered where 
appropriate with reference to the Ch arter of Fundamental Rights (CFR). 
The options are measured against the above-m entioned pre-defined cr iteria in the tables 
below. Each scenario is rated between "---" (very negative), 0 (neutral) and "+++" (very 
positive). The assessment highlights the policy op tions which are best placed to reach the 
related objectives outlined in sectio n 5 and therefore the preferred one. 
For a more detailed analysis of the impact s, including an assessment of the impacts on 
fundamental rights for each option wher e appropriate, please see annex 8. 
6.1. Analysis of impact s of policy options 
6.1.1.  Policy options to ensure regulation keeps pace with market developments 
6.1.1.1.  Policy options to prevent market abuse on organised markets, platforms & OTC 
transactions  
 Impact on stakeholders Effectiveness Efficiency 
Option 5.1.1 
(baseline) n.a. n.a. n.a. 
Option 5.1.2 
(align the definition of 
financial instrument 
with the MiFID definition and clarify 
application of MAD to 
CDS) (+) regulators have increased clarity 
about instruments covered by the MAD 
and their ability to enforce is assisted 
(++) investors receive greater 
protection  
(+) market integrity is increased for 
investors 
 (++) achieves specific 
objective  
(++) increases investor 
protection and 
(++) market integrity by 
ensuring market abuse 
through CDS is clearly prohibited 
 
 (0)  
 
Option 5.1.3 
(extend scope to cover 
market manipulation by use of related 
instruments) (++) regulators have clearer mandate 
to take action against manipulative 
behaviour using other instruments  
(++) investors in a market are better 
protected from use of other related 
instruments to manipulate the underlying market  
 (++) achieves specific 
objective for instruments 
traded OTC (such as derivatives) which impact on 
prices of related instruments 
traded on trading venues or facilities 
(++) increases investor 
protection as manipulation of financial instruments traded 
on trading venues or facilities 
through related instruments (such as derivatives) will be prohibited and (0) 
 
EN 42   EN (++) increases market 
integrity by ensuring market manipulation through related 
OTC instruments is 
prohibited 
 
Option 5.1.4 (extend the MAD to 
financial instruments 
traded only on a MTF) (++) investors trading instruments 
only traded on a MTF receive greater protection 
(+) there is improved market integrity 
for instruments only traded on MTFs (++) achieves specific 
objective for MTFs 
(++) increases investor 
protection on MTFs 
(++) increases market 
integrity of MTFs 
 (0) SME issuers listed 
only on MTFs could face increased costs to 
disclose inside 
information and keep insider lists in 
accordance with MAD 
but these would be mitigated by SME 
specific options below 
(-) some MTF 
operators could face 
some increased costs of 
monitoring for MAD compliance by issuers 
and investors 
Option 5.1.5 
(extend the MAD to 
instruments only 
traded on other trading facilities (other than MTFs) ) (++) increased protection and market 
integrity for investors on such facilities 
(-) possible legal uncertainty for 
operators, investors and issuers in applying the MAD to differing instruments and facilities – could be 
mitigated by calibration of measures 
 (++) achieves specific 
objective for organised 
trading facilities  
(++) increases investor 
protection on OTFs 
(++) increases market 
integrity of OTFs 
 (-) issuers could face 
increased costs to 
disclose inside 
information and keep insider lists in accordance with MAD, 
but these costs could be 
mitigated by calibration of measures
(-) some operators of 
facilities could face some increased costs of 
monitoring for MAD 
compliance by issuers and investors 
 
Option 5.1.6 
(extend market abuse 
rules to instruments 
traded purely OTC ) (0) negligible effect on investor 
protection since instruments are traded 
privately 
(--) un certainty for users and issuers 
about when and how the MAD applies 
to instruments (+) partially achieves specific 
objective,  
(0) negligible effect on 
investor protection as there is no market to protect from 
abuse in the case of purely 
bilateral OTC transactions and 
(0) negligible effect on market 
integrity for the same reasons as above (--) increased 
compliance costs for 
parties to private 
transactions to determine if and how 
Directive applies to 
them. 
 
Option 5.1.7 (provide examples of 
specific algorithmic or HFT strategies that 
constitute market 
manipulation) (++)greater clarity will help 
regulators to take enforcement action against automated trading strategies that are manipulative 
(++) greater clarity will help prevent 
and provide increased protection for other investors against manipulative (++)achieves specific 
objective without compromising broad scope of existing definition of market 
manipulation 
(++) increases investor 
protection and (0)  
 
EN 43   EN  
 strategiess 
 (++) market integrity by 
making it easier for regulators to sanction market 
abuse through automated 
trading strategies 
 
Option 5.1.8 (Improve monitoring 
for market abuse of 
investment firms 
operating trading facilities such as 
MTFs and OTFs) (++) regulators can benefit from 
structural provisions implemented by venues against market abuse in 
carrying out their role of preserving 
market integrity 
(++) investors are better protected 
against market abuse on MTFs and 
OTFs 
(+) issuers would have more certainty 
that their instruments are traded in a 
properly protected environment (++) achieves specific 
objective  
(++) also achieves objectives 
of increasing investor 
protection and  
(++) market integrity (0) firms operating 
platforms could face increased costs, 
however, these will in 
most cases be mitigated due to arrangements 
already in place 
Over three quarters of responde nts to the public consultation who expressed an opinion on 
option 5.1.3 expressed support fo r extending the scope in this way, including strong support 
from institutional and individual investor representatives116. There was limited opposition, 
although some respondents felt that  the current regime already covered these products to a 
sufficient extent. There was strong support in the public consultation for the extension of 
MAD to instruments solely traded on MTFs. Respondents acknowledged the growth of MTFs 
and their significance in current markets. Ho wever, some respondents commented that some 
Member States had already modified local regimes to accommodate specialist MTFs; for 
example specialist SME markets. These respo ndents felt that current bespoke regimes for 
these MTFs were appropriate, that harmonisa tion would need to encompass these different 
evolutions, and that this may be a difficult task.  
Most respondents to the public consultation did not address opti on 5.1.7 specifically in their 
responses, although there was specific support for it from some stakeholders.117 Respondents 
to the public consultation, including invest or groups, generally supported option 5.1.8, 
although some noted the difficulties  that a trading venue may have  in monitoring its market – 
such as market fragmentation and multiple listings, sharing of data, and understanding the 
reasoning of transactions.  
The highest scoring policy options are options 5.1.2, 5.1.3, 5.1.4, 5.1.5, 5.1.7 and 5.1.8. These 
options are not mutually exclus ive and in several respects re inforce each other. MTFs and 
OTFs can share certain characteristics, for exam ple they are electronic, they can be operated 
by investment firms, they can admit to trading financial instruments not admitted to trading on a regulated market. Therefore in cluding OTFs within the scope of market abuse rules (option 
5.1.5) in addition to MTFs (option 5.1.4) woul d ensure that trading facilities with similar 
characteristics are subject to the same rules and investors on both type s of platform benefit 
                                                
 
116 Investors representatives who supported extending the scope to MTFs in their responses were: the 
Association of Private Client Investment Managers and Stockbrokers (APCIMS), Danish Shareholders 
Association, Finnish Shareholders Association, EU MEDION (Dutch institutiona l investors), Investment 
Managers Association, European Fund and Asset Management Association (EFAMA). 
117 The Association of British Insurers, Autorité des marchés financiers and Ministère de l'économie, de 
l'industrie et de l'emploi. 
 
EN 44   EN from the same protection. If adopted in isola tion, either option 5.1. 4 or option 5.1.5 could 
leave scope for those wishing to commit market  abuse to migrate to the other electronic 
platform. So the combination of the two options ensures greater market integrity and better protection of investors th an either option alone.  
Similarly, if option 5.1.3 (extending scope to  OTC instruments) were not combined with 
options 5.1.4 and 5.1.5, this would leave sc ope for market manipulation by OTC instruments 
to impact financial instruments traded on regul ated markets, MTFs or OTFs. Combining the 
three options gives a more optimal result in te rms of the objective of market integrity and 
investor protection. Co mbining option 5.1.2 with the above options would ensure that it is 
beyond doubt that CDS are within the scope of ma rket abuse legislation, which is important 
also as these instruments are often traded on OTFs as well as OTC.  
Option 5.1.7 adds to the combined effect of the above-mentioned options by further ensuring 
that they keep pace with market developments, as it will enable the Commission to clarify if 
specific new strategies employed by algorithmic or high frequency trad ing fall within the 
definition of market manipula tion. Finally, combining option 5.1.8 with the above options 
ensures that the different types of trading venue s and facilities which are within the scope of 
market abuse legislation are subject to similar requirements to monitor tr ansactions to detect 
possible market abuse. Option 5.1.8 therefore al so reinforces the options in section 6.1.3.1 
seeking to strengthen the power s of competent authorities to detect and sanction market 
abuse. 
In light of the above, the preferred option is a comb ination of options 5.1.2, 5.1.3, 5.1.4, 5.1.5, 
5.1.7 and 5.1.8. 
6.1.1.2.  Policy options to prevent market abuse on commodities and related derivatives 
markets  
- 
 Impact on 
stakeholders  Effectiveness Efficiency  
Option 5.2.1 
(baseline) n.a. n.a. n.a. 
Option 5.2.2 
(extend MAD to 
commodity spot 
markets) (+) insures market 
transparency and integrity rules apply to all commodity 
markets 
(+) gives competent 
authorities a consolidated 
view over commodity (spot 
and derivatives) markets 
(-) financial market rules may 
not be appropriate for market 
participants in certain markets  (-) financial market rules 
may overlap and conflict with existing sectoral 
legislation 
(-) commodity markets 
are global and EU rules 
will not apply to all 
relevant firms 
(-) difficult to apply 
general rules to 
heterogeneous markets (-) will increase 
compliance costs for market 
participants not 
currently obliged to disclose price 
sensitive 
information 
(-) competent 
authorities may not 
have the expertise and manpower to monitor spot 
markets effectively 
Option 5.2.3 
(define inside 
information for  (+) improves legal certainty 
for producers as to when they need to disclose and are 
allowed to trade (+) captures all 
information relevant for derivatives prices (+) does not affect 
the underlying market itself 
 
EN 45   EN commodity 
derivatives) (++) clarifies which 
information investors can expect to receive 
(+) gives supervisors clear 
benchmark to assess insider dealing (++) creates information 
symmetry between investors 
(+) creates incentives for 
disclosure of inside information 
(--) does not ensure that 
all inside information will be published- 
(-) those only active in the 
underlying market will continue to be allowed to 
trade on inside 
information (-) may make 
hedging more expensive for 
producers 
 
Option 5.2.4 (clarify 
the power to request 
information from spot market traders) (+) improves competent 
authorities' ability to monitor 
spot and derivative markets in a comprehensive way (++) allows competent 
authorities easier access 
to spot market data 
 (+) less 
complicated data 
handling for competent 
authorities 
(-) imposes 
additional costs on 
non-financial 
market participants to 
submit information 
in a specific format, allow access to their 
systems, and to 
report suspicious transactions. 
Option 5.2.5 
(promote 
international 
cooperation among 
regulators of financial and 
physical markets) (+) gives supervisors a 
consolidated overview of the market 
(+) allows supervisors to 
combine their market experience (++) increases market 
integrity by reducing risk of cross-market 
manipulation 
 (+) no additional 
obligations on market 
participants 
(-) supervisors will 
incur costs for 
transmitting and 
processing data 
Option 5.2.6 
(require issuers of 
commodity derivatives to 
publish price 
sensitive information) (+) provides investors with a 
single feed to all relevant 
information (--) published 
information can be 
inaccurate or incomplete 
(-) time lag compared to 
news feeds (+) lowers investor 
costs of gathering 
information 
(--) issuer costs 
may deter issuance 
of such instruments 
Option 5.2.7 
(clarify market 
manipulation for 
commodity derivatives) (+) allows supervisors to 
sanction the offence of 
manipulating commodity 
markets through derivatives 
(+) allows supervisors to 
sanction the offence of 
manipulating derivatives markets through commodity 
markets (++) closes the 
regulatory gap for forms 
of market abuse that 
affect commodityand derivatives markets 
(++) increases protection 
of investors and 
(++) market integrity (-) financial 
competent 
authorities will 
need to incur costs to gain access to 
necessary data 
and extend monitoring 
capability 
 
EN 46   EN (+) promotes investor 
confidence in derivatives markets 
(++) promotes stable prices 
for producers and users of commodity markets 
 
Option 5.2.3 was raised in the public consultation and generated diverse opinions. 
Approximately one third of respondents to the public consultation were in favour of this 
option, including some institutional and individual investor representatives118. This included 
strong support from regulators. There was strong opposition from energy companies and 
associated bodies, who supported coordination with th e proposal for a regulation on energy 
market integrity and transpar ency, while approximately one third of respondents had no 
strong opinion.  
In the public consultation option 5.2.5 was not sp ecifically raised. However, the majority of 
all respondents agreed, to differi ng extents, that there are key differences between commodity 
markets and financial markets. In particular it was noted by one respondent that for regulation 
to be effective there needs to be strengt hened co-operation between physical market 
regulators and financial regulators119. 
The highest scoring policy options are options 5.2.3, 5.2.4, 5.2.5, and 5.2.7. These options are 
not mutually exclusive and some reinforce each  other. The package of preferred options will 
clarify existing definitions and prohibitions . All preferred options  serve to address 
shortcomings of the existing legal framework, and are therefore expected to yield greater 
benefits than the baseline scenario of doing nothing. 
Commodity derivatives markets are much like other derivatives markets, but they are 
crucially built on commodity markets rather than  on other financial markets. The differences 
in the underlying commodity markets lead to diffe rences in the derivatives markets that are 
built on them. Currently, insider dealing and market manipulation rules draw on the rules that govern the underlying commodity markets. The preferred options ensure that the same 
disclosure standards apply to al l commodity derivatives markets and that all cross-instrument 
manipulative strategies are fully in scope, and thereby offer a leve l playing field to investors. 
In terms of costs, hedging may become more expensive for producers, and supervisors will 
need to invest in additional da ta processing and monitoring tools. 
Option 5.2.4, the power to request information from spot market participants, is notably 
important for markets where such requests canno t be done through a sectoral supervisor. 5.2.4 
is thereby complementary to option 5.2.5 (s trengthening internati onal cooperation between 
spot and derivative market superv isors). Even in markets where a sectoral supervisor is active, 
the power to request the necessary  information directly may be more efficient in certain cases. 
                                                
 
118 See responses by the Association of Private Client Investment Managers and Stockbrokers (APCIMS), 
Danish Shareholders Association, Finnish Shareholders Association, Investment Managers Association. Most members of the European Fund and Asset Management Association (EFAMA) supported this 
option, although some were opposed. 
119 Ministère de l'économie, de l'industrie et de l'emploi 
 
EN 47   EN The extension of the prohibition against market manipulation laid down in 5.2.7 would not be 
effective without 5.2.4 and 5. 2.5. The latter are necessary tools in order for competent 
authorities to be able to detect and sanction the offences defined under 5.2.7. 
Option 5.2.3 requires disclosure from those ac tive in the derivatives market. In terms of 
benefits, it will be clear to investors which info rmation they may expect to receive, and how 
they are to conduct themse lves in the derivatives markets. Th is package achieves this without 
extending financial regulation to underlying commodity market s, the costs of which would 
clearly outweigh the benefits. 
In light of the above, the preferred option is a co mbination of options 5.2.3, 5.2.4, 5.2.5, and 
5.2.7. 
6.1.2.  Policy options to ensure effective enforcement  
6.1.2.1.  Policy options to ensure regulators have n ecessary information and powers to enforce 
effectively 
 Impact on stakeholders Effectiveness Efficiency 
Option 5.3.1 
(baseline) n.a. n.a. n.a. 
(++) investors: benefit from 
increased market integrity due 
to further reduction of market abuse 
(++) regulators: improved 
possibility to detect market 
abuse by availability of suspicious orders and OTC 
transactions  (++)contributes to the 
objective of dissuasive 
sanctions by improving detection of market abuse based on orders 
and suspicious OTC 
transactions  Option 5.3.2 
(introduce reporting 
of suspicious orders and suspicious OTC transactions) 
Impact on fundamental rights 
Option interferes with rights in Articles 7, 8, 16 of Charter 
of Fundamental Rights (CFR). Option provides for 
limitation of these rights in law while respecting essence of 
these rights. 
Limiting these rights is necessary to meet general interest 
objective of ensuring market integrity (by facilitating 
detection of market abuse) and to protect fundamental right to property (article 17 of Charter). It is proportionate 
as it limits access to tran saction data to competent 
authorities for a time-limited period for the sole purpose of market abuse investigations to ensure market integrity. 
Access would have to be in compliance with data 
protection law. (+) adaptation of 
internal monitoring 
systems are proportionate and therefore reporting 
is an efficient tool 
to detect market abuse . 
Option 5.3.3 (prohibit attempts at market manipulations) (++) investors: benefit from 
increased market integrity due to further reduction of market abuse 
(++) regulators: gain wider 
scope to sanction abuses by new offence of attempted 
market manipulation  (++) contributes to the 
objective of dissuasive sanctions by extending powers to sanctions 
attempts to market 
manipulation 
(++) overall 
contribution to the 
general objective of market integrity  (++) facilitates 
sanctioning of market abuse by competent 
authorities, who 
can sanction failed attempts  
 
EN 48   EN Impact on fundamental rights: 
Option interferes with Articles 8 and 16 of CFR. Option 
provides for limitation of these rights in law while 
respecting essence of these rights. 
Limiting these rights is necessary to meet general interest 
objective of ensuring market integrity (by permitting 
sanctioning of attempted market manipulation where 
proven) and to protect fundamental right to property (article 17 of CFR). It is proportionate as it would be 
limited to cases where intent to manipulate can be proven 
even in the absence of an effect on market prices.  
(++) regulators are enabled to more easily establish and sanction market abuse by 
access to telephone and data 
traffic records in cases of a reasonable  suspicion of 
insider dealing or market  
manipulation 
(++) investors: indirect 
benefit from increased market 
integrity 
(++) market participants: 
benefit from increase market 
integrity due to more easy detection of market abuse.  (++) contribution to the 
objective of dissuasive sanctions by increasing 
possibility to detect and 
sanction market abuse 
(++) contribution to the 
general objective of 
market integrity Option 5.3.4 (ensure access to telephone and data traffic 
records from 
telecom operators for market abuse 
investigations)  
Impact on fundamental rights: 
Option interferes with Articles 7 and 8 of CFR. Option 
provides for limitation of these rights in law while respecting essence of these rights. 
Limiting these rights is necessary to meet general interest 
objective of ensuring market integrity (by improving detection and sanctioning of market abuse) and to protect 
fundamental right to property (article 17 of CFR). It is 
proportionate as it is only being provided to competent authorities in specific cases when a reasonable suspicion 
exists of insider dealing or ma rket manipulation. Further, 
data should be limited to what is strictly necessary for the investigation, should only used for that purpose and should 
be deleted when the investigation is closed without further 
action. (+) facilitates the 
detection of market abuse by enabling 
collection of 
evidence. 
Option 5.3.5 ensure 
access to private 
premises to seize documents for MA 
investigations (++) regulators are enabled 
to more easily detect market 
abuse by enabling access in specific cases when suspecting 
market abuse 
(++) investors: indirect 
benefit from increased market 
integrity 
(++) market participants: 
benefit from increase market 
integrity due to improved 
detection of market abuse. (+) contribution to the 
objective of dissuasive 
sanctions by increasing possibility to detect 
market abuse 
(+) contribution to the 
general objective of 
market integrity (+) facilitates 
detection of market 
abuse by enabling collection " on-site" 
of evidence.  
 
EN 49   EN Impact on fundamental rights: 
Option interferes with Articles 7, 8 and 16 of CFR. Option 
provides for limitation of these rights in law while 
respecting essence of these rights. 
Limiting these rights is necessary to meet general interest 
objective of ensuring market integrity (by improving 
detection of market abuse) and to protect fundamental 
right to property (article 17 of CFR).  
It is proportionate as it is based on the safeguards of 
permission from a judge a nd access being granted to 
competent authorities only when a reasonable suspicion of insider dealing or market manipulation exists, and that 
without such access a strong risk exists that evidence 
would be removed, tampered with or destroyed. 
(++) increases protection available to individuals 
reporting market abuse. 
(+) provides regulators with 
primary information and 
assistance in market abuse 
cases. 
(+) increases the accessibility 
of regulators. (++) enhances the 
information available to 
regulators. 
(+) acts as a deterrent 
against potential market 
abuse. 
(+) ensures legal clarity 
for the protection of 
whistle blowers. Option 5.3.6 (grant 
protection and 
incentives to 
whistleblowers) 
Impact on fundamental rights: 
Option interferes with Articles 7, 8 and 48 of CFR. Option 
provides for limitation of these rights in law while 
respecting essence of these rights. Limiting these rights is necessary to meet general interest objective of ensuring 
market integrity (by improving detection of market abuse) 
and to protect fundamental right to property (article 17 of CFR).  
It is proportionate as it will ensure the protection of whistle 
blowers, including of their personal data, and in considering information from whistle blowers competent 
authorities should assess if there are reasonable grounds 
to suspect market abuse, based on the presumption of innocence and right of defence. (+) highly efficient 
due to limited 
associated costs 
Generally, respondents to the public consultati on supported an extension of the suspicious 
transaction reporting regime to include orders and OTC transactions (over three quarters of 
respondents who expressed an opinion supported th e extension, including representatives of 
institutional and i ndividual investors120). Regulators and member states were strongly in 
favour of an extension, and while most othe r respondents also support ed the extension, a 
number raised potential issues as to the in creased costs and its practical implementation 
(although no specific details of  costs were presented). 
                                                 
120 For positive investor responses see those of the Asso ciation of Private Client Investment Managers and 
Stockbrokers (APCIMS), Danish Shareholders Association, Finnish Shareholders Association. However, EUMEDION (Dutch institutional investors) , Investment Managers Association, European 
Fund and Asset Management Association (EFAMA) either had no clear opinion or were unconvinced 
of this option. 
 
EN 50   EN The public consultation highlighted that there is broad support from stakeholders for the 
option of prohibiting attempts at market mani pulation. Overall, th ree quarters of those 
respondents who expressed an opin ion on this issue were in fa vour of the proposed extension 
of the MAD regime, includi ng investor representatives121. However, respondents were 
generally also concerned about the need to im prove the clarity of the proposed definition as 
they felt this needs to be very clear about the elements of the offence and what must be proved. Some respondents questioned how inte nt would be proven on a practical level. 
On option 5.3.4, responses to the public cons ultation from regulators and member states 
generally differed from those of industry part icipants. Several public authorities welcomed 
this option in their responses to the consultatio n or noted that they already used this power 
and welcomed this clarifica tion on the grounds that the data  was vital for identifying and 
confirming market abuse cases
122. Industry respondents mainly responded that competent 
authorities should make better us e of existing information they receive and apply fully their 
current powers. 
Few respondents addressed option 5.3.5 specifica lly but some respondents stated that public 
authorities in their Member State already had such a power and supported clarifying that all 
should have it123. Industry respondents mainly responded that competent authorities should 
make better use of existing information they receive and apply fully their current powers. 
Option 5.3.6 was not included in  the public consultation, but one respondent stated that a 
systematic approach to protected whistle-blow ing could play an important role in ensuring 
stable and well-functioning financial markets in general124.  
Based on the analysis in the tabl e above, options 5.3.2, 5.3.3, 5.3.4, 5.3.5 and 5.3.6 receive the 
highest score. These options are compatible  with each other and could be combined.  
Options 5.3.2 and 5.3.6 usefully complement each other in providing additional sources of 
information for regulators about possible market  abuse; currently regulators do not receive 
information about suspicious unexecuted orders and suspicious OTC tran sactions, nor do they 
all receive information from whistle blowers. Combining these options will therefore make it easier than at present for regulators to detect pos sible market abuse with a view to sanctioning 
it. Options 5.3.4 and 5.3.5 will ensure that when they have reasonable grounds to suspect 
market abuse, competent authorities have access to telephone data records from telecom operators and can enter private premises in orde r to obtain evidence to sanction market abuse. 
Finally, by including the prohibition of attempts at market manipul ation (option 5.3.3) in the 
package of preferred options, re gulators will be able to sanction such attempts. This will 
reduce further the scope for manipulative behavi our to remain unsanctio ned and will thereby 
promote market integrity a nd investor protection.  
The powers outlined in the above-mentioned options are necessary to meet the general interest 
objective of ensuring greater market integrity, by  making it easier for regulators to prove and 
                                                
 
121 See supportive responses by the Association of Private Client Investment Managers and Stockbrokers 
(APCIMS), Danish Shareholders Association, Finnish Shareholders Association, Investment Managers 
Association and a large majority of European Fund and Asset Management Association (EFAMA) 
members. However, EUMEDION (Dut ch institutional investors) were unconvinced of this option. 
122 Joint FSA/HM Treasury Response (UK), Ministry of Finance of th e Czech Republic, CNMV (Spain), 
Ministère de l'économie, de l'industrie et de l'emploi 
123 Joint FSA/HM Treasury response (UK), Central Chamber of Commerce of Finland, Athens Exchange 
124 Response by UNI-Europa Finance 
 
EN 51   EN sanction market abuse, but are proportionate as they are subj ect to appropriate safeguards 
(notably a reasonable suspicion of insider dealing or market manipulation for options 5.3.4 
and 5.3.5 and permission from a judge for option 5. 3.5). A detailed analysis of their impact on 
fundamental rights can be found in annex 8.  
There are synergies between these options and those outlined in section 6.1.1. As already 
mentioned, option 5.1.8 will strengthen further the capacity of regulators to detect market 
abuse by ensuring that ope rators of MTFs and OTFs adopt structural provisions to detect 
market abuse on their facilities, enabling them  to report any suspected breaches to the 
regulator. Option 5.1.7 will ease enforcement by  ensuring regulators have clarity on which 
specific strategies relating to automated or high frequency trading are in breach of the 
prohibition of market abuse. Optio n 5.2.5 will also facilitate th e enforcement task of financial 
regulators by promoting good international co operation with physical commodity market 
regulators, thereby making the de tection of cross-border and cro ss-market abuse easier. There 
is also a natural complementarity with the optio ns assessed in the ensu ing section (6.1.2.2), 
because the market abuse powers of a regulator can only be effective if abuses are not only 
detected, but can also be sanctioned in an effective, consistent and dissuasive manner. 
In light of this analysis, the pr eferred option is a combination of  options 5.3.2, 5.3.3, 5.3.4, 
5.3.5 and 5.3.6.  
6.1.2.2.  Policy options to ensure consistent , effective and dissuasive sanctions 
_ Impact on stakeholders Effectiveness Efficiency 
Option 5.4.1 
(baseline) n.a. n.a. n.a. 
(++) all market actors will be assessed 
based on same standards for sanctions 
and similar offences will be sanctioned 
based on same standards 
(++) investors will be better protected 
against market abuse due to more 
effective, proportionate and deterrent sanctioning regimes across EU (++) minimum rules of 
sanctions contribute to 
deterrence 
(++)level playing field: 
similar market abuse 
sanctioned based on the same 
common standards  
(++) minimum rules reduce 
regulatory arbitrage Option 5.4.2 
Introduction of 
minimum rules on 
administrative measures and 
sanctions  
Impact on fundamental rights: 
Option interferes with Articles 47 and 48 of CFR. Option provides for 
limitation of these rights in law while respecting essence of these rights. 
Limiting these rights is necessary to meet general interest objective of 
ensuring market integrity (by ensuri ng effective sanctioning of market 
abuse) and to protect fundamental right to property (article 17 of CFR).  
It is proportionate as it will ensure that the administrative measures and 
sanctions which are imposed are proportionate to the breach of the offence and respect the presumption of innocence and right of defence. (+/0) compliance costs 
for competent 
authorities for those 
Member States which lower level of sanctions 
in place  
 
 
EN 52   EN (++) all market actors will be assessed 
based on same types of sanctions and market abuse will be sanctioned the 
same way across the EU.  
(++) investors will be better protected 
against market abuse due to more 
effective, proportionate and deterrent 
sanctioning regimes across EU (++) minimum rules of 
sanctions contribute to deterrence 
(++)level playing field: 
similar market abuse sanctioned based on the same 
common standards  
(++) uniform rules reduce 
regulatory arbitrage  
 Option 5.4.3 – 
uniform administrative 
measures and 
sanctions  
Impact on fundamental rights: 
Option interferes with Articles 47 and 48 of CFR. Option provides for 
limitation of these rights in law while respecting essence of these rights. 
Limiting these rights is necessary to meet general interest objective of ensuring market integrity (by ensuri ng effective sanctioning of market 
abuse) and to protect fundamental right to property (article 17 of CFR).  
It is proportionate as these uniform rules will particularly ensure that 
the administrative measures and sanctions which are imposed are 
proportionate to the breach of the offence across all Member States. 
Therefore, they contribute to "right to an effective remedy and to a fair trial" and the right of innocence and right of defence (Article 48) will be 
preserved.  (-) distinct market 
situations and legal traditions 
Option 5.4.4 –
requirement for 
criminal sanctions for market abuse  
 
 (+) regulators gain a tool to sanction 
market abuse in those MS where this is 
not yet available 
(+) all market participants will be 
subject to criminal sanctions for 
market abuse improving level playing 
field 
(+)Investors will benefit from greater 
market integrity due to the additional 
deterrent effect of criminal sanctions (++) evidence from studies 
and Member States shows 
that criminal sanctions contribute strongly to the objective of increasing 
deterrence.  They have a 
deterrent effect due to the stigma attached to criminal 
conduct
125; criminalisation 
and in particular incarceration are considered 
by companies to be the 
strongest possible deterrent
126 
(+) criminal sanctions 
contribute to improved 
market integrity127 and (+) a limited number of 
Member States without 
criminal sanctions will need to introduce new rules on criminal 
sanctions and ensure 
enforcement 
(+) harmonisation of 
the definitions of 
certain offences would facilitate cross-border 
law enforcement 
cooperation  
 
                                                 
125 Michael Levi, Suite justice or sweet charity? Some explorations of shaming and incapacitating business 
fraudsters,  Vol. 4 No. 2, Sage Publications, 2001, pp. 147-162. Levi argues that criminal law is 
effective as it embodies a comprehensive enforcement mechanism and has a deterrent effect due to the 
stigma that is attached to criminal conduct. 
126 Report for the Office of Fair Trading (UK) , An assessment of discretionary penalties regimes , London 
Economics, October 2009. In a survey by the OF T, companies ranked criminal penalties first in 
motivating compliance with the law (p. 24). The report argues that "criminalisation and other forms of 
personal sanctions are important added elements to the deterrent power of corporate fines and 
(particularly incarceration) are arguably the strongest possible deterrent for a potential infringer" (p. 9). 
127 One Member State authority, the Financial Services Authority in the UK, publishes an annual "market 
cleanliness survey" which measures  abnormal price movements ahead of key issuer announcements 
(such as takeovers). While many factors other than insider trading could cause such movements, such as 
media speculation or strategic leaks of information, and it is not possible to determine which factors are behind each abnormal price movement, this measure provides at least an indicator, albeit imprecise, o 
insider dealing. The UK has starte d pursuing criminal prosecutions fo r market abuse more aggressively 
in recent years, and the data from the last ma rket cleanliness survey sh ows some progress in the 
 
EN 53   EN (+) contribute to improved 
investor protection128 
(+) improves level playing 
field by ensuring that in all 
Member States criminal sanctions will be available 
Impact on fundamental rights and compliance with article 83 TFEU: 
Option interferes with Articles 47, 48, 49 and 50 of CFR. Option 
provides for limitation of these rights in law while respecting essence of 
these rights. Limiting these rights is necessary to meet general interest 
objective of ensuring market integrity (by ensuring effective sanctioning of market abuse) and to protect fundamental right to property (article 17 
of CFR). It is proportionate as most Me mber States already consider that 
criminal sanctions are necessary and proportionate, and the option is limited to the most serious offences. 
In accordance with article 83(2) of the Treaty (TFEU), the requirement 
of criminal sanctions for commonly defined serious forms of market abuses of the Member States is considered essential to ensure the 
effective implementation of the Unio n policy on ensuring the integrityof 
the financial market. In this context, the majority of Member States have 
introduced criminal sanctions in national law to address market abuse. 
Nevertheless, the present divergent systems undermine the level playing 
field in the internal market and ma y provide an incentive for offenders to 
carry out market abuse in jurisdictions  which do not provide for criminal 
sanctions for these offences. In addition, there is no EU-wide 
understanding on which conduct is c onsidered to be such a serious 
breach. Common minimum rules on definitions for the most serious 
market abuse offences would facilitate the cooperation of law 
enforcement authorities in the EU.S uccessfully prosecuting market abuse 
offences under criminal law often results in extensive media coverage, 
which helps to deterpotential defenders and has an important 
demonstration effect, as it shows that the competent authorities are 
serious about tackling market abuse. The introduction of criminal sanctions for the most serious and commonly defined market abuse 
offences by all Member States is therefore essential to ensure the 
effective implementation of Union policy on fighting market abuse. 
                                                                                                                                                         
indicator in 2009 on one measure – a reduction from 10% (in 2008) to 4.2% in abnormal price 
movements for the 350 largest companies on the London Stock Exchange. While care should be taken in attributing causality, the FSA considers that a 5% movement is statistically significant. The FSA 
argues that "our credible deterrence agenda has beco me increasingly visible in the last twelve months 
and as a result we would expect to continue  to see further progress in this area"; See FSA Annual Report 
2009/10 , Financial Services Authority, pp. 35-36. 
128 Utpal Bhattacharya and Hazem Daouk, The World Price of Insider Trading , Journal of Finance, 
February 2002, p. 25, concludes that although the in troduction of insider trading laws in itself is not 
associated with a reduction in the cost of equity "the  difficult part - the enforcement of insider trading 
laws - is associated with a reduction in the cost of equity in a country". 
 
EN 54   EN  
(+) regulators gain a tool to sanction 
market abuse in those MS where this is not yet available 
(++) all market participants will be 
subject to criminal sanctions based the same minimum principles for market 
abuse improving level playing field 
(+) Investors will benefit from greater 
market integrity due to the additional 
deterrent effect of criminal sanctions (++) availability of criminal 
sanctions contributes to the objective of deterrence of 
market abuse 
(+) criminal sanctions 
contribute to improved 
market integrity and  
(+) improved investor 
protection.  
(+) contributes strongly to 
creation of a level playing field as similar market abuse 
can be addressed by criminal 
sanctions Option 5.4.5 – minimum rules for criminal sanctions  
Impact on fundamental rights and compliance with article 83 (2) 
TFEU: 
Option interferes with Articles 47, 48, 49 and 50 of CFR. Option 
provides for limitation of these rights in law while respecting essence of 
these rights. Limiting these rights is necessary to meet general interest 
objective of ensuring market integrity (by ensuring effective sanctioning of market abuse) and to protect fundamental right to property (article 17 
of CFR). It is proportionate as most Me mber States already consider that 
criminal sanctions are necessary and proportionate, and the option is limited to the most serious offences. 
In the spirit of Article 83 (2) certain caution is required when 
introducing EU criminal law for the enforcement of a policy area. Currently, not even the definition of  the most serious offences are 
harmonised between Member States nor  is there a general requirement 
for criminal sanctions. It would be premature to already foresee common 
minimum rules on types and levels of cr iminal sanctions without specific 
evidence that a basic approximation would not be sufficient. In due 
course, once there is enough evidence on the level of effectiveness of the 
policy option 5.4.4. it can be reconsid ered whether any further EU level 
harmonisation is required in this area. (--) the majority of 
Member State will need to introduce new rules 
to ensure compliance 
Option 5.4.6 –improve 
enforcement by 
providing for 
publication of sanctions and 
cooperation on 
investigation of market abuse  (+) improved detection of sanctions by 
improved cooperation on market abuse 
by regulators. 
(+) improved detection of sanctions 
and publication ensure that issuers are 
treated equally 
(+)Investors will be subject to more 
integer market due to the additional 
deterrent effect of publication of 
sanctions (++) publication of sanctions 
contribute to the objective of 
deterrence of market abuse 
(name and shame) 
(+) improved detection of 
sanctions and publication 
contributes to investor protection.  
(+) improved level playing 
field by better detection of market abuse and improved 
inforcement by publication of 
sanctions in all Member States  (0/-) limited additional 
effort generated by 
publication of 
sanctions and improved cooperation 
among regulators . 
 
 
EN 55   EN Respondents to the MAD public consul tation, including investor groups129, generally 
supported harmonisation of sanctions at the EU level as a means to increase their deterrent 
effect. There was support for harmonisation of ad ministrative sanctions at  the EU level, with 
respondents noting that at presen t sanctions differed greatly betw een Member States and that 
Member States should enfor ce and apply MAD in a more c onsistent and harmonised way, 
with a view to reducing regulatory arbitrag e. However there was also some potential 
uncertainty as to the practicality of complete harmonisation, especially due to the differences 
in markets between Member States. 
In relation to the setting of minimum levels for financial penalties,  there was a general 
consensus supporting minimum levels but some concerns about the practical implications 
were raised by some respondents. 
There was limited specific discussion of harmonis ation of criminal sanctions in the responses 
to the public consulta tion on the MAD review. Two responde nts felt that penal measures 
should be left to member States130, while others noted the difficulties of implementing 
regimes in criminal law. One respondent co mmented that harmonisation was needed to 
prevent the same wrongdoing being a crime in one member state and an administrative 
offence in another131.  
There was a mixed response to the option of harmonising crim inal sanctions in financial 
services legislation in  general outlined in the responses to the Communication on reinforcing 
sanctioning regimes in the financial serv ices sector. On the one hand some public 
authorities132 and industry or union groups133, as well as some individual and institutional 
investor groups134, were favourable to, or not against, harmonisation of criminal sanctions in 
the financial services sector. On th e other hand, other public authorities135, industry and 
institutional invest or representatives136 or others137 were opposed to, or sceptical of, 
                                                 
129 See responses by the Association of Private Client Investment Managers and Stockbrokers (APCIMS), 
Danish Shareholders Association, Finnish Shareh olders Association, EUMEDION (Dutch institutional 
investors), Investment Managers Association, European Fund and Asset Management Association 
(EFAMA). 
130 Finnish Ministry of Finance and Central Chamber of Commerce of Finland 
131 German Insurance Association (GDV) 
132 Central Bank of Ireland (offences to be clearly defined), Danish FSA (but subsidiarity to be addressed) 
Ministry of Finance Finland (compliance with fundamental rights to be ensured), Estonian Ministry of 
Finance (but not a priority - EU inte rference with criminal law in genera l to be avoided, offences to be 
clearly defined), Spanish CNMV (o ffences to be clearly defined). 
133 Association Française des marches financiers (offences  to be clearly defined in cooperation with ESAs), 
Nordic Financial Union, British Bankers association (but limited consistency can be achieved due to 
different approaches in sentencing and standards of proof).  
134 Financial Services User Group, Private Client Investment Managers and Stockbrokers (but to be 
properly targeted an d applied carefully). 
135 Czech National Bank, Swedish Minist ry of Finance, Austrian FSA, Ministry of Finance and National 
Bank of Slovakia, Ministry of Finance of Czech Republic, ESMA; German Federal Government – not 
proved that conditions of Article 83(2) TFEU are met.  
136 ING Group (to be left to MS, could be only defined violations eligible for criminal sanction); Austrian 
Federal Economic Chamber (impact on constitutional law); German Insurance association, Legal and 
General Group; European Association of Public Banks; European federation of Insurance Intermediaries; London Stock Exchange Group (f urther consultation needed); Unicredit; EUMEDION 
(institutional investor group), UBS AG (procedural fairness and ne bis in idem to be complied with); 
Bundesverband Deutscher Banken – not necessary. 
 
EN 56   EN harmonisation of criminal sanctions. At the same time, many respondents from public 
authorities, industry and one inve stor/user group took the view th at criminal sanctions for the 
most serious offences were appropriate138, and several banking and institutional investor 
representatives specifically cited market abuse as being an appropriat e sector for criminal 
sanctions139. A smaller number of respondents from  public authorities, industry and one 
consumer organisation argued that  administrative sanctions were  equally or more effective140.  
Based on the analysis above, options 5.4.2, 5.4. 4 and 5.4.6 receive the highest score. These 
three options are compatible with each other and could be combined. Options 5.4.2 and 5.4.4 
reinforce each other as toge ther they more effectively strengthen the consistency, 
effectiveness and dissuasive effect of administra tive and criminal sanctions than either option 
would alone. These options would provide also for an EU-wide understanding on which 
conduct is considered to be a serious breach of market abuse rules. The combination of these 
options will ensure that sanctions for similar market abuse offences across the EU are more 
comparable and are stricter, which will reduce th e scope for regulatory arbitrage in the case of 
administrative sanctions and provide room for more effective law enforcement cooperation. 
Option 5.4.6 will reinforce options 5.4.2 by making it the rule (with limited e (with limited exceptions) that sanctions s hould be published, and by stre ngthening cooperation between 
regulators in investig ating market abuse. 
These three options will also benefit from synergies with the preferred options relating to 
powers of regulators (section 6.1.2.1), as regulat ors will be able to sanction market abuse 
offences which currently may go undetected, wh ich will further strengthen the dissuasive 
effect of sanctions. There are also synergies with the options to prevent market abuse on 
organised markets and platforms and in relation to commodity and related derivative markets. 
Clarifying and extending the scope of applicati on of market abuse legislation as outlined in 
section 6.1 will ensure that market abuse on markets which currently may escape sanction 
altogether is sanctioned in a consistent, comparable and diss uasive way across the EU. As 
mentioned, there is a natural synergy with the op tions relating to powers of regulators, as the 
options on sanctions will ensure that where re gulators detect more abuses thanks to the 
                                                                                                                                                        
 
137 Linklaters (may be an obstacle to consistent app lication of EU law) IMF (may create problems in 
cooperation between authorities). 
138 Central Bank of Ireland, Danish FSA (for both lega l and natural persons), Romanian National Securities 
Commission, Association for Financial Markets in Europe (AFME – to be avoided application of both criminal and administrative); Swedish Ministry of Finance (only as a last resort + relationship with 
administrative sanctions and cooper ation issues to be reflected); Association Française des marches 
financiers; FSUG (but right to claim damages to be dissociated from  the result of crim inal proceedings), 
UBS AG (useful only against individuals); Nordic Financial Union (but financial institution to be 
punished instead of individuals if it benefits from the violation); Centre d'étude et de perspective 
stratégique (against management, more efficient than fines imposed to financial institutions); Association of Private Client Investment Managers and Stockbrokers; IMF; Estonian Ministry of 
Finance; CNMV (but some disadvantages: longer procedures, role of supervisors limited).  
139 Association of banking insurers (e.g. for market abuses); Deutsche Bank (only in some areas e.g. 
market abuse); AXA Investment managers (but only where some degree of fraud is involved, e.g. 
market abuses, misuse of client assets).  
140 ING Group, Austrian FSA, CFA In stitute (civil proceeding to be preferred because faster and reduce 
burden of proof), European Association of Public Banks, law professor, Unicredit, Federation of 
German consumer organisation - VzBv (potential problems of criminal sanctions linked to lack of expertise of prosecutors, long proceedings and low priority given by Courts), ESMA (disadvantages of 
criminal sanctions: longer, resource consuming proceedings, lack of harmonised rules on cooperation, 
possible increased divergence in enforcement), Italian Banking Association.  
 
EN 57   EN additional information and powers th ey receive, they will be able  to ensure that these breaches 
are appropriately sanctioned. 
Options 5.4.2, 5.4.4 and 5.4.6 are all in line with approach outlined in the Communication 
reinforcing sanctions in  the financial sector141. They are in conformity with the Charter of 
Fundamental Rights as the limitations they im pose on fundamental rights are necessary and 
proportionate to meet the general interest objective of ensuring ma rket integrity and to protect 
the fundamental right to property. In accordance with article 83 (2) of the Treaty (TFEU), the 
introduction of a requirement for criminal sancti ons to address market abuse is likely to lead 
to increased successful prosecution of market ab use offences and to c ontribute to ensuring the 
effective functioning of the internal market, (f or a more detailed eval uation of the impacts on 
fundamental rights and compatibility w ith article 83 (2), see annex 8).  
In light of the above analysis, the preferred optio n is a combination of options 5.4.2, 5.4.4 and 
5.4.6. 
6.1.3.  Policy options to reduce or elim inate options and discretions 
 Impact on stakeholders Effectiveness Efficiency 
Option 5.5.1  
(baseline) n.a. n.a. n.a. 
Option 5.5.2 
(harmonise accepted 
market practices) (0) investment firms and investors 
would have the certainty of safe 
harbours applying EU-wide but 
investors' trust would be affected as practices potentially on the fringe of 
market abuse would be explicitly 
allowed in the entire EU 
(0) regulators would need to assess 
and consult on AMPs as they do now, 
but the effects of their action would have a further reach 
 (+) contribution to objective 
of creating a single rulebook 
and 
(+) enhancing clarity and 
legal certainty 
(-)small negative impact on 
investor protection and 
(-) on market integrity 
 (0) no discernible 
impact on resources of 
or compliance costs for 
market participants 
 
Option 5.5.3 
(remove accepted 
market practices and phase-out existing practices) (+) investment firms and investors 
would benefit from greater legal 
certainty and a gradual move towards a single rulebook 
(0) regulators would not need to assess 
new AMPs anymore but periodically 
review the existing ones 
 (+) contribution to objective 
of creating a single rulebook 
(+) enhancing clarity and 
legal certainty 
(0) no discernible impact on 
investor protection and 
market integrity 
 (0) no discernible 
impact on resources of 
or compliance costs for market participants 
 
Based on the analysis above, the highest scorin g option is option 5.5.3. Implementing this 
option would reduce a source of le gal uncertainty, clarify the legal framework applicable and 
would be a step towards the creat ion of a single rulebook in the EU. 
                                                 
141 COM (716) 2010 "Reinforcing sanctioning regimes in  the financial services sector", available at: 
http://ec.europa.eu/internal_market/consultations/docs/2010/sanctions/COM_2010_0716_en.pdf 
 
EN 58   EN Other options assessed elsewhere will also contribute to the objective of reducing or 
eliminating options and discreti ons and reinforce the effect of  this option. In particular, 
options 5.1.4 and 5.1.6 will ensure that all Me mber States have the same approach to the 
regulation of MTFs and suspicious transaction reports, whereas currently Member States have 
the discretion not to apply the MAD to MTFs. Also option 5.4.6 will remove the discretion 
Member States currently have not to require the publication of sanctions for market abuse. 
From the ensuing sections, option 5.6.3 to requi re issuers to inform the regulator after the 
event of a delay to the disclosure of inside information, option 5.7.4 to harmonise the items 
which regulators can request in lists of insiders and option 5.7.7 to harmonise the 
requirements for managers' transaction reports w ill also eliminate options and discretions in 
the current legislation. Taken together, all these options w ill go a long way towards the 
objective of creating a single rule book and a level playing field. 
In light of the above analysis, opt ion 5.5.3 is a preferred option. 
6.1.4.  Policy options to clarify certain key concepts  
_ Impact on stakeholders Effectiveness Efficiency 
Option 5.6.1 
(baseline) n.a. n.a. n.a. 
Option 5.6.2 
(clarify conditions for 
delayed disclosure of inside information) (+) issuers obtain greater freedom to 
delay disclosure of inside information 
(- - -) investors have less transparency 
on actions of issuers in their investment decisions 
(-) regulators may have to investigate 
more cases of delayed disclosure or insider trading (+) Partially meets objective 
of greater legal certainty (for 
issuers) 
(+) Partially meets objective 
of a level playing field (for 
issuers) 
(- - -) Negative impact on 
investor protection  (+) Likely to reduce 
costs for issuers but 
(-) Could increase 
costs for regulators who may have to 
investigate more cases 
of delayed disclosure or insider dealing 
Option 5.6.3 
(Reporting of delayed 
disclosure of inside 
information) (-) issuers face costs (see section 6.8) 
(+++) regulators gain a mechanism to 
control delays to disclosure 
(+++) investors better protected by 
strictly limited delays to disclosure (+++) Meets objectives of 
increasing investor protection 
and market integrity 
(+++) Eliminates an option 
in the current directive (-) Likely to impose 
increased costs on 
issuers and regulators, 
but these are mitigated by 'ex post' option 
Option 5.6.4 
(Determine conditions 
of delayed disclosure 
in case of systemic 
importance) (+) issuers obtain greater clarity  
(0) neutral for investors as permission 
of regulator needed and losses due to 
failure or financial instability limited 
(+) regulators gain legal certainty (+++) Meets objective of 
greater legal certainty 
(0) Neutral impact on 
investor protection and 
market integrity (0) Cost implications 
limited as such cases are relatively rare 
Option 5.6.5  
(clarify disclosure of 
managers transactions) (+) issuers and 
(+) regulators would benefit from 
enhanced legal certainty 
(+) investors would benefit from 
additional publicly available 
information (+) Meets objective of greater 
legal certainty for issuers and 
regulators 
(+) Meets objective of 
increasing investor protection 
  (-)Likely to slightly 
increase costs for 
issuers due to additional reports  
 
EN 59   EN  
Most respondents to the public consultation did not address opti on 5.6.3. However, one public 
authority argued that the risk of no disclosure at  all by an issuer was greater than the risk of 
that issuer illegitimat ely delaying disclosure142. Many respondents to th e public consultation 
did not address option 5.6.4. Of those who di d respond, while there was some support for 
regulators to have the power dire ctly, the majority of respondents (across all categories) felt 
that the issuer itself rather  than the competent authority  should have the appropriate 
responsibility. Some respondents felt this coul d be done by the competent authority granting a 
waiver from the disclosure rules. One responde nt felt that the trigger should not be if the 
institution is systematically important, but rather if the information is systematically important, and respondents also noted that at times of emergency, regulators and issuers 
would already be involved in  close communication. Option 5.6.5 is supported by CESR
143. 
Based on the analysis above, the highest scoring options are opti ons 5.6.3, 5.6.4 and 5.6.5. 
These options are compatible with each other and could be combined. Indeed a combination 
of options 5.6.3 and 5.6.4 would ensure greater le gal certainty in respect of delayed disclosure 
while eliminating an option in the Directiv e. Combining these options would therefore 
contribute effectively to the ob jective of creating a single rule book and a level playing field. 
These options would also provi de additional tools for enfor cement by regulators, as they 
would be systematically informed of delayed disclosure and could therefore sanction delays 
which were not in compliance with market ab use rules; regulators wo uld also have clear 
powers to allow a delay to disclosure of inside information in the case of systemically important information. In combination these options would therefore also contribute to 
achieving the specific objective of effective enforcement by regulators. 
The preferred option is therefore a combina tion of options 5.6.3, 5.6.4 and 5.6.5. 
6.1.5.  Policy options for reduci ng administrative burdens,  especially on SMEs 
 Impact on stakeholders Effectiveness Efficiency 
Option 5.7.1  
(baseline) n.a. n.a. n.a. 
Option 5.7.2 
(SME regime for 
disclosure of inside 
information) (++) SMEs would profit from a 
simplified regime 
(-) regulators would need to adapt by 
supervising a modified, additional rule 
(+) investors may benefit from a wider 
choice of SMEs accessing the capital 
markets (+) contribution to objective 
of reducing administrative burden 
(++) one feature in concept 
of making the raising of finance on capital markets 
more attractive to SMEs  
(-) limited impact on market 
transparency and  
(-) investor protection as 
disclosure obligation would (+) SMEs would need 
slightly fewer resources to comply 
with disclosure 
obligation 
(-) regulators would 
need to commit slightly 
more resource to cope with an adapted rule 
 
                                                 
142 See response by FSA/HM Treasury. 
143 CESR Consultation Paper, "Market Abuse Directive Level 3 – Fourth set of CESR guidance and 
information on the common operation of the Directive to the market" , CESR/10-1168, p. 10 
 
EN 60   EN be reduced in scope 
 
Option 5.7.3 
(SME exemption for 
disclosure of inside information) (-) SMEs would not have to adhere to 
the obligation anymore but 
investments in SMEs would be limited due to a lack of investor confidence  
(---) regulators would face problems in 
supervising the insider trading prohibition  
(--) investors would rate a market as 
substandard where the disclosure obligation for inside information does 
not apply  (+) contribution to objective 
of reducing administrative 
burden 
(0) on balance, would not 
improve the attractiveness of 
raising finance on capital markets to SMEs 
(--- )severe impact on market 
transparency, 
(---) integrity and 
(---) investor protection  (++) SMEs would need 
significantly fewer 
resources to comply with issuer-related 
obligations on trading 
venues 
(--) regulators would 
need to expand on 
resources significantly to supervise SME 
markets 
 
Option 5.7.4  
(harmonise insiders' 
lists) (+) issuers would benefit from the 
certainty and uniformity of harmonised 
rules 
(0) regulators could work equally well 
with harmonised requirements 
(0) no discernible impact on investors (+) contribution to objective 
of reducing administrative 
burden 
(0) no discernible impact on 
market transparency, 
integrity and investor protection (+) issuers would need 
slightly fewer 
resources for compliance 
 
Option 5.7.5 (SME exemption for 
insiders' lists) (++) SMEs would not need to commit 
resources to drawing up insiders' lists 
(-) regulators cannot use lists as a 
supervisory tool for SME issuers 
(0) no discernible impact on investors (+) contribution to objective 
of reducing administrative 
burden 
(+) contribution to objective 
of making the raising of 
finance on capital markets more attractive to SMEs 
(0) no discernible impact on 
market transparency, 
integrity and investor protection (+) SMEs would not 
need to commit 
resources to the drawing up of insiders' 
lists  
Option 5.7.6 
(abolish managers' 
transactions reporting) (+) issuers would feel impact of 
reduction in regulatory complexity and transparency as to dealings of their 
directors 
(-) regulators would lose benefit of 
deterrent effect of disclosure duty in 
relation to engaging in insider trading  
(--) investors would lose access to an 
important feature of capital market 
transparency (++) strong contribution to 
objective of reducing administrative burden 
(---) severe impact on market 
transparency and  
(-) small impact on investor 
protection  (++) issuers could 
reduce resources committed to fulfilling 
issuer-related 
obligations significantly 
(--) market efficiency is 
reduced significantly due to important 
information not 
contributing to the valuation of 
instruments anymore 
Option 5.7.7 
(harmonise managers' 
transactions reporting 
requirements and raise threshold) (+) issuers would benefit of moderate 
reduction of transaction reports 
(0) regulators and  
(0) investors would not be discernibly 
affected  (+) contribution to objective 
of reducing administrative 
burden 
(0) negligible impact on 
market transparency and no 
impact on market integrity 
and investor protection (+) issuers could 
slightly reduce 
resources committed to 
compliance with reporting obligation 
 
 
EN 61   EN Option 5.7.8 
(SME regime for 
managers' transaction 
reporting) (+) SMEs would benefit of further 
moderate reduction of transaction reports 
(-) regulators would need to adapt to 
additional rule 
(-) investors would lose benefit of 
clearly fixed threshold applying 
uniformly for all issuers (0) negligible contribution to 
objective of reducing administrative burden and 
(0) making the raising of 
finance on capital markets more attractive to SMEs  
(-) small impact on market 
transparency (0) SMEs resources 
committed to compliance would not 
be discernibly reduced 
 
 
Over half of the respondents to the public consultation did not  express a strong opinion on 
option 5.7.2, although a number of these co mmented that further analysis should be 
conducted. Approximately a quarter  of respondents did not feel  a specialist regime for SME 
issuers was necessary, whilst approximately one  fifth supported an SME regime, with some 
investor groups supporting an SME regime and others opposed144. Those supporting a 
specialist regime felt that it was essential to give SMEs access to finance in order to 
encourage growth in the SME ma rket. Further, it was felt th at a proportionate regime would 
appropriately reflect the difference in size be tween SMEs, who have limited resources, and 
larger firms, who command more resources, whilst  striking a balance of  consumer protection. 
These respondents generally favoured the appli cation of secondary market aspects of the 
MAD but considered it proportiona te to modify some of the primary market requirements – 
such as insider lists and directors deali ngs obligations that apply to issuers. 
Of the approximately one quarter of responde nts who did not support a specifically adapted 
regime, most felt that MAD was a cornerstone of financial market stabil ity and that reductions 
in its scope could reduce investor protection which they feel is cr itical to EU markets. A large 
majority of respondents to the public consu ltation who addressed the issue opposed 
exempting SME issuers from the obligation to di sclose inside information as they felt that 
disclosure requirements were e ssential to market integrity, and that they should not be 
compromised. 
Most responses to the public consultation did not directly a ddress option 5.7.4. However in 
their response to the public consultation, the issuers association argued that issuer obligations should be simplified for all companie s in the EU, not just SME issuers
145. 
Based on the analysis above, the highest scoring options are opti ons 5.7.2, 5.7.4, 5.7.5 and 
5.7.7. These four options are compatible with each other and could be combined.  
A combination of such options would compre hensively reduce the administrative burdens 
related to the issuer-related requirements of th e market abuse framewor k, and would establish 
a tailored market abuse regime for SMEs with  a reduced administrative burden on them (see 
table below). Larger enterprises would benefit particularly from the reduction in 
                                                 
144 There was support from the following investor group s: the Association of Private Client Investment 
Managers and Stockbrokers (APCIMS), Danish Shareholders Association, Finnish Shareholders 
Association, although APCIMS and DSA insisted that tailored rules should not mean SMEs were not 
subject to rule. However, EUME DION (Dutch institutional investors), Investment Managers 
Association and European Fund and Asset Management Association (EFAMA) did not see the need for 
an adapted regime for SMEs. 
145 See response by European Issuers. 
 
EN 62   EN administrative burden associated with the harm onised conditions for insi der lists (5.7.4) and 
harmonised requirements for managers' transacti on reports (5.7.7), and these options would 
also eliminate discretions in the current le gislation for regulators to impose additional 
requirements, thereby reinforcing the options for creating a single rule book and level playing 
field (see section 6.1.3). 
As a result the preferred option is a combination of options 5.7. 2, 5.7.4, 5.7.5 and 5.7.7.  
An SME regime for issuer-specific obligations relating to market abuse, and consequent 
reduction in administrative burden146 
 Obligations for all 
issuers SME regime for 
issuer obligations Estimated reduction 
in administrative 
burden for SMEs 
Disclosure of inside 
information Inside information 
must be disclosed in 
a detailed and 
comprehensive 
fashion. Inside information 
must be disclosed in 
a simplified, 
market-specific way   
 
€1.1m 
Insiders' lists Insiders' lists must be 
drawn up. SMEs are 
exempted. €1.8m 
Managers' transaction 
reports Threshold for 
reporting managers' 
transactions is raised 
to €20,000. The same threshold 
applies, however the 
increase to €20,000 
will be of greater 
benefit to SMEs147.   
 
€0.1m 
Although these reductions in  administrative burden are not on a large scal e, were they to be 
combined with similar policy actions to the be nefit of SMEs in othe r financial services 
proposals the cumulative impact could contribute to increasing the attrac tiveness of securities 
markets for SMEs. These options also have the a dvantage of eliminating several options in the 
current legislation, contribu ting to the objective of ensuri ng a level playing field.  
6.2. The preferred policy options and instrument  
6.2.1.  The preferred policy options and their overall impacts 
Based on the analysis of the impacts, the prefe rred options to achieve th e objectives set out in 
this impact assessment have been identified in  the preceding sections. An overview of the 
preferred options is provid ed in the table below.  
– Specific objective 1:  Ensure regulation follows market developments 
                                                 
146 For details of the calculation of the impact on SMEs in terms of administrative burden see section 6.8. 
147 SME managers tend to execute smaller transactions so that more of these will be below the new 
threshold. 
 
EN 63   EN Prevent market abuse on organised markets, 
platforms and OTC transactions  
– align the definition of "financial instrument" with 
the definition in the MiFID (so it clearly covers 
derivatives such as credit default swaps); 
– extend the scope of the MAD to prohibit the use of 
related instruments (such as derivatives) to 
manipulate the underlying market where such 
instruments can have an impact on the underlying market; 
– extend the MAD to financial instruments traded 
only on a MTF (with the option of adapting issuer obligations for SMEs - see below); 
– extend the MAD to financial instruments traded 
only on a OTF, with calibration of the measures; 
– provide examples in level 2 measures of specific 
automated trading strategies that may be contrary 
to the prohibition on market manipulation;  
– extend the obligation to adopt structural provisions 
aimed at preventing and detecting market 
manipulation practices to investment firms 
operating an MTF and to entities operating 
organised trading facilities.  Prevent market abuse on  commodity and related 
derivative markets  
– Clarify definition of inside information in relation 
to commodity derivatives; 
– Require financial regulators to cooperate and 
exchange information wi th physical commodity 
market regulators; 
– Clarify that persons in possession of inside 
information in relation to commodities shall be prohibited from insider trading in related financial 
instruments; 
– Clarify that in relation to commodity derivatives, 
the definition of market manipulation also extends 
to transactions in financial instruments that distort 
the price of the underlyi ng commodity markets, 
and to transactions in commodities that distort the 
price of the derivatives markets.  
Specific objective 2:  Ensure effective enforcement 
Enhance information and powers for regulators to 
enforce effectively  
– Introduce reporting of suspicious orders and 
suspicious OTC transactions. 
– Extend the prohibition of market manipulation to 
attempts at some kinds of manipulation. 
– Clarify the power of competent authorities to 
obtain telephone and data traffic records where a 
reasonable suspicion of insider dealing or market manipulation exists.  
– Grant competent authorities the power to enter 
private premises and seize documents where necessary to investigate specific cases of suspected 
market abuse, subject to permission from a judge. 
– Grant protection and incentives to whistleblowers 
who report market abuse to the authorities.  Ensure consistent, effective and dissuasive 
sanctions  
– introduce minimum principles on type and level of 
administrative measures and administrative 
sanctions  
– ensure a coordination role for ESMA on 
application and enforcement of sanctions; 
– introduce an obligation to require criminal sanctions for the most serious insider dealing and market manipulation offences as defined at EU 
level across the EU.
  
– Specific objective 3: Ensure clarity and legal certainty 
Reduce or eliminate options and discretions  Clarify certain key concepts  
 
EN 64   EN Remove the concept of AMPs and phase out already 
existing AMPs.  – Introduce an obligation for issuers who delay 
disclosure of inside information to inform their 
regulator so the regulator can where appropriatefurther verify if the conditions for delay 
were met  
– Include an express power for the regulator to 
permit a delay in disclosure of systemically 
important information for a limited period. 
– Clarify that disclosure of managers' transactions is 
required where the transactions are made for the 
manager by a portfolio manager and where the 
manager pledges or lends his or her shares  
– Specify more clearly the obligations on market 
operators to detect market abuse.  
Specific objective 4: Reduce administrative burdens where possible, especially on SMEs  
– Introduce strictly harmonised requirements for drawing up insiders' lists. 
– Adapt and modify for SMEs the obligations to disclose inside information. 
– Exempt SMEs from obligation to draw up insiders' lists. 
– Harmonise provisions on the reporting of transactions by managers of listed issuers. 
– Raise the threshold for managers' transaction reports  
 
The overall impact of all the preferred policy op tions will lead to c onsiderable improvements 
in addressing market abuse within the EU. First of all, market integrity  and investor protection 
will be improved by clarifying which financial instruments and markets are covered, ensuring that instruments admitted to trading only on a MTF and other new types of organised trading 
facilities are covered. In addi tion the preferred options will im prove protection against market 
abuse in commodity derivatives  by improved market transpar ency. In addition they will 
ensure better detection of market abuse by offering the necessary powers to competent 
authorities to perform investigations and im prove the deterrence of sanctioning regimes by 
introducing minimum principles for administra tive measures of sanctions and requiring for 
the introduction of criminal sanctions. Furthermor e, the preferred options  will lead to a more 
coherent approach regarding market abuse by reducing options and discretions for member 
States and will introduce a proportionate regime  for SMEs. Overall, the preferred policy 
options are expected to contribute to the impr oved integrity of financial markets which will 
have a positive impact on investors' confidence a nd this will further cont ribute to the financial 
stability of financial markets. The table belo w seeks to summarise the cumulative impact of 
the packages of preferred options. 
Package of preferred options  Impact on stakeholders  Effectiveness  Efficiency  
 
EN 65   EN Preferred options to prevent 
market abuse on organised markets, platforms and OTC 
transactions:  
Options 5.1.2 + 5.1.3 + 5.1.4 + 
5.1.5 + 5.1.7 + 5.1.8  
(extend scope to CDS, to related 
OTC instruments, to MTFs, to OTFs, improve supervision of 
HFT, improve monitoring by MTFs 
and OTFs) +++ Regulators have clear mandate to 
act on manipulation through OTC instruments such as derivatives (e.g. 
CDS) and can enforce across all 
trading venues and facilities 
+++ Investors on a ll trading venues 
and facilities protecte d equally against 
market abuse, and level of protection is higher  
+++ Issuers benefit from fairer 
trading in their financial instruments across all trading venues, additional 
costs for issuers on SME markets and 
OTFs mitigated by calibration of measures 
++ Trading venues and facilities 
benefit from greater market integrity, but some MTF and OTF operators 
may face some increase in compliance 
costs +++ Specific  objective of 
ensuring regulation keeps pace with market 
developments fully achieved 
by combination of options 
 
+++ Optimal increases in 
level of market integrity and 
 
+++ investor protection 
across all trading venues, facilities and instruments (0) Cost neutral for 
SME issuers due to SME specific options 
and for issuers on 
OTFs due to calibration of measures 
 
- Some MTF and OTF 
operators could face 
some increased costs 
of monitoring compliance  
Preferred options to prevent 
market abuse on commodity and 
related derivative markets  
Options 5.2.3 + 5.2.4 + 5.2.5 + 
5.2.7  
(define inside information for 
commodity derivatives, power to request info from spot traders, 
international cooperation among 
regulators, clarify market manipulation for commodity 
derivatives) +++ Regulators benefit from 
comprehensive information and clear 
mandate to sanction market abuse which cuts across commodity 
derivative and underlying commodity 
markets 
+++ Investors benefit from greater 
transparency and better protection 
against market abuse occurring across 
commodity and related derivative markets and across borders 
++ Producers and users of commodity 
markets benefit from more stable prices  +++ Specific  objective of 
ensuring regulation keeps 
pace with market developments fully achieved 
by combination of options 
 +++ Optimal increases in 
level of market integrity and 
 
+++ investor protection 
across all trading venues, 
facilities and instruments  (0) Regulators will 
have clearer rules and 
more comprehensive data but will incur 
some additional 
compliance costs 
 (0) Producers will 
benefit from more 
stable prices but may face higher hedging 
costs  
Preferred options to ensure 
information and powers for 
regulators to enforce effectively  
Options 5.3.2 + 5.3. 3 + 5.3.4 + 
5.3.5 + 5.3.6  
(suspicious transaction reporting, 
attempts at market manipulation, 
access to telecoms operator data, access to private premises, 
whistleblowers protection) +++ Regulators gain wider ability to 
detect and sanction market abuse 
thanks to additional powers 
 +++ Investors benefit from increased 
market integrity and suffer fewer 
losses due to market abuse 
 
0 Limitations on fundamental rights 
necessary for general interest objective of market integrity and to 
protect right to property, 
proportionality ensured by necessary safeguards +++ Achieves specific 
objective of ensuring 
effective enforcement 
 +++ Optimal increases in 
level s of market integrity 
and 
 
+++ investor protection  ++ Benefits to 
regulators and 
investors of enhanced 
ability to detect and sanction market abuse 
outweigh additional 
compliance costs of suspicious transaction 
reporting 
Preferred options to ensure 
consistent, effective and dissuasive sanctions  
 +++ Regulators gain stricter powers 
to sanction market abuse  +++ Achieves specific 
objective of ensuring effective enforcement (0) Limited number of 
Member States will need to adapt existing 
rules on administrative 
 
EN 66   EN Options 5.4.2 + 5.4.4 + 5.4.6  
(min. rules on admin. sanctions, 
require criminal sanctions, 
publication of sanctions and 
cooperation in investigations)  
+++ Investors benefit from increased 
market integrity and suffer fewer 
losses due to market abuse 
 0 Limitations on fundamental rights 
necessary for general interest 
objective of market integrity and to protect right to property, 
proportionality ensured by necessary 
safeguards 
  
+++ Optimal increases in 
level s of market integrity 
and 
 +++ investor protection  sanctions or introduce 
new rules on criminal sanctions 
Preferred options to reduce or eliminate options and discretions  
 
Option 5.5.3  
(remove accepted market practices)  
NB – options 5.1.4, 5.1.6, 5.4.6, 
5.6.3, 5.7.4 and 5.7.7 above also contribute to this objective. (+) investment firms and investors 
benefit from greater legal certainty 
and a gradual move towards a single 
rulebook 
(0) regulators would not need to 
assess new AMPs anymore but 
periodically review the existing ones +++ In combination with 
other preferred options (5.1.4, 
5.1.6, 5.4.6, 5.6.3, 5.7.4 and 
5.7.7), meets general objective of creating a single 
rulebook and a level playing 
field 
 
(0) Neutral impact on market 
integrity and investor protection (0) No discernible 
impact on resources or 
compliance costs of 
market participants 
Preferred options to clarify certain key concepts  
Options 5.6.3 + 5.6.4 + 5.6.5  
(reporting delayed disclosure, 
delayed disclosure for systemic 
information, clarify disclosure of managers' transactions) 
 + Issuers benefit from greater clarity 
and legal certainty even if they face some additional compliance costs 
+++ Regulators gain legal certainty 
and tool to control delayed disclosure 
+++ Investors better protected by 
strictly limited delays to disclosure 
and additional publicly available 
information +++ Meets specific objective 
of ensuring clarity and legal certainty 
 
++ Contributes to objective 
of creating a single rulebook 
 
+++ Meets objective of 
increasing market integrity and investor protection (0) Limited 
compliance costs, mitigated by greater legal certainty and ex 
post reporting of 
delayed disclosure 
Preferred options to reduce administrative burdens, especially on SMEs  
 
Options 5.7.2+5.7.4 +5.7.5+ 5.7.7  
(SME disclosure regime, harmonise 
insider lists, SME exemption for insider lists, harmonise managers' 
transaction reports) +++ SMEs benefit from a regulatory 
framework specifically tailored to their needs 
 
(0) Neutral for regulators who can 
work equally well with tailored rules 
for SMEs 
 (+/0) Neutral to positive for investors 
as no discernible impact on investor 
protection but they may benefit from wider SME investment opportunities +++ Meets objective of 
reducing administrative burden where possible, 
especially for SMEs 
 (0) Negligible impact on 
market integrity and investor 
protection (+) SMEs and larger 
issuers will need to commit slightly fewer 
resources to 
compliance with these options 
 
 
EN 67   EN The diagram below explains below the envisage d scope of the MAD following the review. To 
contrast it with the current scope of the MAD, it should be compared to the diagram in section 
3.1.1. 
Diagram: envisaged scope of the MAD following the 
review
 
Financial instruments only 
admitted to trading on 
Regulated Markets (RM) Financial instruments only admitted to 
trading on Multilateral Trading 
Facilities (MTF) 
Financial instruments traded Over 
the Counter (OTC) Financial instruments only admitted to  
trading on other Organised Trading 
Facilities (OTF)  
Within scope of the new MAD 
Outside scope of the new MAD 
 
The new rules will extend the scope of the M AD to all instruments admitted to trading on 
MTFs and OTFs. They would also encompa ss market manipulation in OTC instruments 
which are related to instruments admitted to trading on RMs, MTFs or OTFs; for example, 
market manipulation in an equity derivative not admitted to trading on any of these venues or facilities, but which has a share as an underlyi ng that is admitted to trading on one of the 
venues or facilities, would also be prohibited.  Only those instrument s which are exclusively 
traded Over the Counter (OTC) and are not admitted to trading anywhere, i.e. pure OTC 
transactions, would remain out of the scope of the new MAD. 
6.2.2.
 Choice of instrument  
 
EN 68   EN 6.2.2.1.  Non-legislative cooperation between Memb er States with guidelines by ESMA  
One option to achieve the objectives set out in this report would be through cooperation 
between regulators in the EU Member States, coordinate d through ESMA. It is worth noting 
that under the current framework there is al ready extensive coordi nation and cooperation 
among regulators via CESR, for example due to common work on the convergent 
implementation of the market abuse provisio ns or due to coordi nation in cross-border 
investigations. This experience could be utilised and extended further in order to make 
progress in achieving certain objec tives outlined in this impact assessment by finding and 
agreeing on common and harmonised approaches. Fo r example, the precise reach of the duty 
to report managers' transactions could be clarifie d by regulators. Also a list of practices in the 
area of automated trading potentially constituti ng market manipulation could be agreed on by 
regulators and subsequently enforced accordingly.  However, differences in the application of 
the Market Abuse Directive still existing toda y illustrate the practical limits of voluntary 
cooperation.  
The substantial disadvantage of this approa ch is that it woul d be based on voluntary 
cooperation of regulators agains t the backdrop of an existi ng legal framework. Voluntary 
cooperation can only go so far as is allowed by the lette r of the law. It can not replace targeted 
amendments, additions or extensions of the legal provisions as envi saged by a large number 
of proposals in this impact a ssessment designed to strengthen market integrity and investor 
protection. For example, extending the scop e of MAD to prohibit the use of related 
instruments to manipulate the under lying market or to prohibit attempts at certain kinds of 
market manipulation would as a consequence es tablish offences punishable by administrative 
or criminal sanctions. Such extensions need  a proper legal basis and using non-legislative 
cooperation as an alternative in strument is not the appropriat e option. As another example 
SMEs could not be exempted from the oblig ation to draw up insiders' lists based on non-
legislative cooperation between Me mber States. In the current di rective text this obligation 
applies to all issuers alike and needs to be applied as such by the national supervisors. A 
differentiation exempting certain small issuers whic h are not even defined in the directive text 
would lack the necessary legal basis. Therefore,  based on the limitations associated with using 
non-legislative cooperation, this instrument  is discarded as a viable solution. 
6.2.2.2.  A Directive amending the Market Abuse Directive  
Having rejected the option of proceeding by non-le gislative cooperation, this leaves the option 
of trying to achieve the objectives described in  this impact assessment by a legal instrument. 
A harmonising legal instrument would have the effect of ensuring the application of the 
targeted amendments, additions and extensions of the market abuse framework in all Member 
States. The improvements for market integrity a nd investor protection w ould be attained in 
the entire EU, possibilities for regulatory ar bitrage would be minimised and compliance costs 
for market participants operating on a pan-EU basis would be reduced. A decision must be 
taken whether the suitable le gal instrument should be a Directive or a Regulation. 
Traditionally, the Directive has been the predom inant legislative instrument in the area of 
financial services. Directives were the most appropriate tool for gr adually aligning national 
rules affecting financial markets and their part icipants. The Directive as a legal instrument 
enables the EU to impose binding results on Memb er States but to give them the choice of 
form and method to achieve those results, for example by integrating new rules into national 
legal texts. Also Directives of ten give Member States the op tion of imposing stricter rules 
 
EN 69   EN than is foreseen in the EU legal act. A Dire ctive would leave Member States with a certain 
degree of discretion for maintaining diverg ent rules, as occurred with the practical 
implementation and application of the current Market Abuse Directive. However, as already today, this would be limited to matters whic h are not fully harmonised in the Market Abuse 
Directive together with the Commission measures.  
6.2.2.3.  Transforming the Market Abus e Directive into a Regulation  
The high level group on Financial Supervision148 highlighted that th e current regulatory 
framework within financial services lacks cohesion which is based on the options and 
discretions offered to Member States in th e transposition of Comm on Directives and its 
implementation at national level. The problem section149 has demonstrated this is also valid 
for the current Market Abuse Directive. Th e current set-up consists of one framework 
directive and four implementing m easures, three of them being directives. The directives were 
transposed into national law via a significant number of national acts and ordinances making 
the exact law applicable hard to find and co mprehend for undertakings  and ordinary citizens 
alike. To address the issue, the high level group  recommends that an effective single market 
for financial services should ha ve a harmonised set of core ru les, and the Eu ropean Council 
endorsed this by requesting the creation of  a Single Rulebook for financial services.150 .  
A Regulation would avoid that tr ansposition leads to diverging national rules, interpreted 
according to diverging cultures, and would en sure best a harmonised set of core rules 
applicable in the EU and contribute to the functioning of the single market. This is of 
particular importance for the re vision of the market abuse fram ework as a number of preferred 
options intend to reduce or elim inate existing options and discre tions and to clarify certain 
key concepts which can best be  achieved by the means of a directly applicable, precise 
regulation text. The application of a key con cept like the delayed disclosure of inside 
information can have significant effects on financial stability. Therefore, taking 
implementation as one potential source of diverg ences out of the process would contribute to 
legal certainty and uniform application in a sensitive area. At the same time, if in some limited areas flexibility is needed for Member States to lay down stri cter requirements or 
implementing provisions, this can be accommodated by an appropriate wording of the Regulation. For example, the Regulation can explicitly allow Member States to impose 
additional requirements, or it can require and empower Member States to lay down 
implementing provisions in certain limited areas. 
While a Directive requires national implementing provisions to be adopted, leaving scope for 
interpretation, the direct applicability of a Re gulation will offer greater legal certainty for 
those subject to the legislation across the EU. Especially those issuer s and investors operating 
on a pan-European basis would benefit from th e added legal certainty a comprehensive and 
uniform legal framework can deliver. In additi on, a regulation could make the market abuse 
law applicable in the EU more accessible to EU citizens, entities operating on a cross-border 
basis and third country i nvestors and regulators.  
                                                
 
148 Recommendation 10, Report by the High level group on financial supervision chaired by Jacques 
Delarosière, available at: http://ec.europa.eu/intern al_market/finances/docs/de_larosiere_report_en.pdf 
149 Particularly section 3.2.3 on enforcement and section 3.2.4 legal certainty and clarity 
150 Conclusions of 18/19 June 2009. 
 
EN 70   EN Using the instrument of a regulation would reduce regulatory complexity and may reduce 
compliance costs, for example by diminishing th e need for buying-in expensive legal advice 
for investors and issuers operating on a cross-border basis. Especially for i ssuers operating on 
a cross-border basis a uniform se t of rules does have the potential for significant cost savings 
as they can rely on identical rules applying throughout  the Union. The same goes for issuers 
who may seek a listing on a multilateral platform for the first time and who then can rely on 
identical obligations applying regardless of whic h venue they choose and where it is situated. 
A single Regulation directly applicable across th e EU will also reassure investors that market 
integrity standards follow the same  rules in all EU markets, a nd will contribute to encourage 
them to seek for investment opportunities in fore ign markets. It will also contribute to avoid 
any risk of regulatory arbitrage: the potential for violators to stru cture their trades in a way to 
avoid Member States with strong rules agai nst market abuse rules will be reduced. 
Furthermore, a regulation may from  the perspective of third count ries transmit the picture of a 
single market with a single rulebook being in pla ce that could be used as a source of reference 
when trying to export re gulatory standards.  
Technically, an impact of transforming the MAD in to a regulation is that the legal text will 
need to be redrafted in order to  provide for direct applicability of the rules. In addition, the 
three Level 2 implementing measures currently in the form of a directive will also need to be 
transformed into a regulation.  
Finally, it should be borne in mi nd that a Regulation is usually immediately appl icable after 
adoption by the legislator and therefore the re sponse to deficiencies in financial markets 
would be swifter. Any future modifications of the Regulation could be implemented more 
quickly as they would not require transposition by national legislators. However, at the stage 
of a switch from a Directive to a Regulatio n Member States coul d be given a certain 
minimum period to adapt their national rules in  order to facilitate a smooth transition.  
In conclusion, the Commission services consider a Regulation rather than a Directive to be the 
most appropriate instrument  for defining the future market abuse framework.  
6.3. Impact on retail investors and SMEs 
To the extent that retail investors invest in fina ncial instruments they tend to do so to save for 
the long term and primarily th rough life insurance and funded pension schemes; however, 
retail investors also save through term deposits and investment funds151. In some countries 
more than others, bonds are also ve ry popular with retail investors152. Investments in listed 
                                                 
151 "A review of the EU market in 1999-2005 points to the dominant role of life insurance and funded 
pension schemes which jointly account for nearly one half of the total long-term retail savings at the EU 
level. They are followed by term (and comparable) deposits (21%) and investment funds (c. 15%). 
However, the aggregate figures conceal pronounced and persistent differences among member states. Pension funds and life insurance dominate decisive ly in the Netherlands and the UK whereas many 
southern Europeans, for example, still save mainly  through interest-bearing instruments such as 
deposits and bonds." See The European Market for Consumer Long Term Retail Savings Vehicles , Final 
Report, BME Consulting, 15 November 2007, p. 11. 
152 "German households have 13% of their long term savings in fixed income products. The proportion in 
Italy is a remarkable 32%, a figure that, moreover, has increased from 26% in 1999. In other countries, 
only Spain (5%), Austria (10%), Portugal (11%), Belgium (14%) and Greece (14%) have retail bond 
holdings in excess of 5% of total household long term financial assets." Ibid, p. 42. 
 
EN 71   EN shares by retail investors have experi enced a pronounced decline between 1999 and 2005153. 
This continuous decline in the participation of  individual investors in listed share markets is 
confirmed by another study which shows that only 14% of the market value of listed shares is 
held by individual investors and households154. The participation of retail investors in listed 
share markets through collective investment in stitutions (investment and pension funds, unit 
trusts) has also declined, from  24% to 22%, between 1999 and 2007155. In contrast, 
derivatives remain of marginal importance for the retail market156. 
In light of the above, the opt ions which are likely  to have the greates t impact on retail 
investors are those which have an impact on the financial instruments and markets popular 
with retail investors and their institutional invest ors, which tend to be shares and bonds traded 
on regulated markets or MTFs. Therefore the options to extend the market abuse rules to 
instruments traded on MTFs and improve supervis ion of MTFs could be expected to benefit 
retail investors by increasing thei r confidence in the integrity of these markets. The options 
relating to instruments only traded on organised trading facilities and to commodity 
derivatives are therefore not likely to have any significant effect on retail investors, as such 
financial instruments and systems are unlik ely to be used by retail investors. 
However, retail investors coul d be expected to benefit from  the proposals to reinforce the 
powers of regulators to detect and sanction market abuse, which are expected to increase the 
integrity of markets and the protection and conf idence of investors. For example the option to 
prohibit attempted market manipul ation, which would make it easi er for regulators to sanction 
market manipulation and thereby increase the in tegrity of markets with  significant retail 
investor participation and the confidence of retail investors in those markets. Similarly the 
option to introduce reporting of suspicious or ders and suspicious OTC transactions is 
expected to facilitate the detection and sanctioning of market abuse, increasing market integrity and the protection of retail invest ors on those markets. Th e options which would 
make sanctions more deterrent and consistent  across Europe could al so be expected to 
increase investor confidence as more abuses  are sanctioned in a visible way and more 
severely. 
The application of MAD rules to instruments onl y traded on MTFs (such as SME markets) is 
expected to have a positive effect on market  integrity in SME markets and may encourage 
greater investment in SME shares due to increa sed investor confidence that there will be a 
reduced possibility of market abuse on these markets and an increase in the detection and 
sanctioning of market abus e where it does occur.  
Several preferred options are expected to ha ve an impact on SME issuers. The option to 
require issuers, including SME issuers, to notif y competent authorities ex post of delays to 
disclosure of inside information is expected to impose an additional administrative burden on 
SME issuers of 1.8 million euro recurring (see se ction 6.8). However, other preferred options 
that will have a positive impact on SMEs in te rms of administrative burd en are the tailoring of 
the MAD issuer obligations for SME issuers on SME markets by the establishment of an 
                                                
 
153 "Quoted stocks went  from accounting for 12.6% of the long term investment of European households at 
year-end 1999 to 8.8% at the end of 2005." Ibid, p.45. 
154 Federation of European Stock Exchanges (FESE), Share Ownership Structure in Europe , December 
2008, p.7. 
155 Ibid, p. 11. 
156 BME Consulting (2007), p.77. 
 
EN 72   EN SME regime for disclosure of inside informa tion and the exemption of SMEs from drawing 
up insider lists. These options are expected to  reduce administrative burdens by 1.1 million 
euro and 1.8 million euro respectively. SME issuers would also benefit from changes to the regime for managers transaction reporting, whic h would result in an estimated reduction of 
the administrative burden on SME issuers of 0. 1 million euro. The cumulative impact of the 
preferred options on SME issuers is  expected to lead to an over all reduction of administrative 
burden on SME issuers of an estimated 1.2 million euro. For further details see the table below and section 6.8.  
Impact on SMEs of proposed options in terms of administrative burden 
  
Total admin burden 
(million EUR)  
SME regime for SME issuers' disclosure 
requirements, consisting of:  
SME regime for disclosure of inside 
information -1.1 (reduction) 
Exemption SMEs from requirement to 
keep insider lists -1.8 (reduction)  
Harmonising the conditions for 
reporting of managers Transactions, including an increased threshold for all issuers including SMEs.  -0.1 (reduction) 
Total admin burden for SME regime for SME 
issuers' disclosure obligation -3 (reduction) 
Requirement on issuers to notify competent 
authorities ex post of delayed disclosure 1.8 
Total Administrative burden for SMEs -1.2 (reduction) 
6.4. Impact on third countries  
This initiative is expected to have an impact  on third countries in a number of respects. First 
of all, the proportion of non-EU resident investors in shares in the listed  shares of European 
markets has been rising between 1999 and 20 07, reaching a weighted average of 37% in 
2007157. It could be expected that the options envisaged in this initiative to increase market 
integrity and investor protection will make inve sting in EU shares even more attractive to 
investors in third countries, which could be expected to increase this trend further. 
The initiative is expected to have an impact on third countries, notably the United States, in 
another respect. An overvi ew of the US regime on market abus e is included in  annex 9. Since 
                                                 
157 FESE (2008), p. 6. 
 
EN 73   EN the preferred options will introduce greater symm etry with the US legislative framework for 
market abuse, this will facilitate the access of  EU trading venues to investors in the US 
market. In particular, the US market abuse regi me applies to alternativ e trading systems, the 
US equivalent of European MTFs. So extending  the European market abuse regime to MTFs 
would increase regulatory converg ence with the US and could be expected to make it easier 
for MTFs in EU Member States to be able to  access investors in the US market. Similarly, 
extending the scope of the MAD to other organi sed trading facilities will make it easier for 
these trading facilities to access the US market as  they could be deemed equivalent to the US 
"swap execution facilities", which the US has plans to include in it s market abuse regime. 
Another area where the EU approach would conve rge with that of the US is the granting of 
protection and incentives for whistle blowing.  
There is also likely to be an  impact on third countries in relation to proposals relating to 
commodity derivative markets. This is because  commodity derivative markets are integrally 
linked with the underlying commodity markets which are increasingly global, and although 
the proposals in this initiative focus on the co mmodity derivative markets located in the EU, 
for many commodities, the underlying market ma y be located outside the EU. For example, 
many commodity trading firms are based in Switz erland, where they ge nerate one third of 
world trade in crude oil. The Chicago Mercantile Exchange, wh ich trades several financial 
instruments including interest rates, equities, currencies an d commodities, has the largest 
number of options and futures contracts outstanding in the wo rld. Detecting and sanctioning 
market abuse in such cross-border and cross- market situations will require international 
cooperation between financial and commodity regul ators. This initiative will therefore require 
heightened international cooperation between regu lators. ESMA could be required to facilitate 
such cooperation by preparing templates for memorandums of understanding that could be 
used by national regulators, who could be requir ed to inform ESMA when they enter into 
such agreements.  
6.5. Social impact  
The options considered in this impact assessmen t will increase invest or protection, thereby 
also benefiting institutional investors such as pension funds who invest in financial 
instruments in order to secure a higher rate of return for pension po licy holders. It can be 
anticipated that greater market integrity will lead to higher investor confid ence and greater 
participation in financial markets, thereby maki ng it easier for enterprises to raise capital to 
grow and create more jobs. Employees who act  as whistle blowers and report suspected 
market abuse to the authorities will also benefit from better protection. 
6.6. Impact on human rights  
An assessment was made of the policy options  to ensure complianc e with fundamental 
rights158. A detailed analysis for each policy option can be found in annex 8. The proposal is 
in compliance with the charter as it will lead to more effective and harmonised regimes for 
market abuse and insider dealing improving market  integrity. To this end the policy options 
insure that access to telephone and data records, access to priv ate premises, data on whistle 
blowing are subject to appropria te safeguards. These policy opti ons will contribute to market 
integrity by facilitating the detection of market abuse within the EU. The proposed 
                                                 
158 Based on COM (2010) 573, Strategy for the effective implementation of the Charter of Fundamental 
Rights by theEuropean Union, particularly the check list.  
 
EN 74   EN sanctioning regime will ensure that similar mark et abuses are sanctioned alike throughout the 
EU, unless differences can be  objectively justified. 
6.7. Environmental impact  
It does not appear that the pref erred options identified will have any direct or indirect impacts 
on environmental issues. 
6.8. Estimated cumulative impact in  terms of benefits and costs 
Estimating the benefits of reducing an activity which is by definition illegal is very difficult 
and the benefits of addressing market abuse ca n only been determined indirectly. First, the 
size of the existing problem of market abuse need s to be estimated and second, the benefits, in 
terms of the estimated reduction of market a buse, should also be estimated. This methodology 
is described in more detail in Annex 12. 
As explained in section 3.1.3, to determine th e existing size of market abuse, the Commission 
services examined data from a study which attempts  to quantify the cost of  insider dealing, in 
terms of estimated profit gained from insider dealing159. Based on the total market turnover of 
equity markets, total market abuse is estimate d at EUR 13 billion per year. To estimate the 
expected benefits to  be achieved by applying the pr eferred policy options, we propose 
applying a conservative assumption that mark et abuse can be redu ced by 20% due to the 
package of measures. This assumption is base d on the experience of reinforced efforts to 
sanction market abuse in the UK (as part of th e FSA's "credible deterrence" strategy) which 
has experienced a significant im provement of market cleanlin ess of 58% in the period 2008-
2009160. In order to take a conservative approach to estimating the extent to which the 
preferred options could reduce market abuse, it seems reasonable to reduce this figure to 20%. 
Using this assumption, the benefits of the p ackage of measures are estimated at EUR 2.7 
billion per year. A more detailed  description of the calculation of the bene fits can be found in 
Annex 12. 
In order to determine the cost implications of the package of preferred policy options in this 
report, a study was carr ied out for the Commission by extern al contractors to estimate the 
impact of the possible changes to the Market Abuse Directive, particularly in terms of 
administrative burden, which has been summaris ed in section 6.9. Th e administrative burden 
impacts outlined in annex 6.9 are considered the main cost implications of the package of retained options, particularly for industry stakeholders.  
In addition, the Commission services assessed th e additional cost implications of the proposal, 
with regard to the transposition and supervision of the new rules by Member States. With regard to the compliance costs for Member States , the preferred options are expected to create 
some limited additional costs to conduct market  surveillance. For large markets (including 
UK, FR, DE, IT, ES), the Commission assumes that this would requi re up to 3 Full Time 
Equivalents (FTE's) and for the remaining smaller markets, it is expected to require 1 FTE in 
                                                
 
159 Capital Markets CRC Limited, Enumerating the cost of insider trading,  unpublished, 2010, p. 8. 
160 Market cleanliness in terms of abnormal pre-price announcements decreased from 10% to 4,2% in the 
period 2008-2009, Financial Services Authority, Annual Report 2009/2010, p35-36, table 2.2, the 
measures of market cleanliness fo r the FTSE 350, available at 
http://www.fsa.gov.uk/pubs/an nual/ar09_10/ar09_10.pdf 
 
EN 75   EN addition to EUR 20.000 annual co sts for surveillance systems.  Based on this the compliance 
costs as outlined in more detail in Annex 12 is  estimated at EUR EUR 3,2 Million per year for 
all Member States.  
Based on the above, the total package is exp ected imply a net bene fit to the European 
economy. The results of the analysis of the ex pected costs and benefits of the package of 
retained options are pr esented in table 3.  
Table 3. Summary of costs and benefits  of the package of retained options 
 Recurring (Million EUR) One-off (Million EUR) 
Benefits 2.667, 4  
Costs   
Compliance costs 3,2  
Administrative burden 297 320 
Total Costs 300,2 320 
Net Benefit 2.367,2  
The annual benefits in terms of the reduction of market abuse are estima ted at EUR 2.7 billion 
annually, and the annual costs are estimated at EUR 300 million (plus in the first year 
estimated one-off costs of EUR 320 million to comply with the information obligations). 
Therefore the package of preferred polic y options is expect ed to generate net benefits of an 
estimated EUR 2.4 billion per year.  
6.9. Estimate of impact in term s of administrative burden 
In order to evaluate the administrative burde n of the policy options , an external study161 was 
conducted by EIM on behalf of  the Commission. The methodol ogy of the study is based on 
the application of the Standard Cost Model (SCM) to determine the administrative burden 
caused by legislation. To  determine the impact of new rule s, interviews have been conducted 
with relevant stakehol ders including financial markets,  banks and investment firms and 
issuers including SMEs. Particular  attention was given to impact of administrative burden on 
SME issuers.  
The preferred options which are estimated to ha ve an impact on administrative burden are the 
following: extending the scope of  the MAD to MTFs and other organised tradi ng facilities; 
extending suspicious transac tion reporting to suspicious orders and suspicious OTC 
transactions; requiring issuers to notify competent authorities ex post of delays to disclosure 
of inside information; harmonising the requirem ents for insider lists; exempting SMEs from 
the requirement to keep insider lists; a nd harmonising the conditions for reporting of 
managers transaction reports, incl uding increasing th e threshold.  
                                                 
161 EIM, Effects of the changes to the Market Abuse Direc tive – Impact on administ rative burden of firms 
in the EU , Zoetermeer, December 2010. 
 
EN 76   EN The outcome of the study for the chosen policy options is shown in table 4 below. Extending 
the rules to new market venues or instruments such as MTFs, suspicious OTC transactions 
and orders, and requiring issuers to notify delayed disclosure of inside information will lead to 
an increase in administrative burden proportionate to the objectiv e of reducing market abuse. 
In addition, introducing an SME regime for disclo sure of inside information and an exemption 
for SMEs from the obligation to report insiders' lists will lead to a reduction in administrative 
burden for SMEs. This effect remains small due to the limited amount of SME issuers operating within the EU. Limited effects are ex pected from harmonising managers transaction 
reports. In light of the above, the revision of the MAD in term s of administrative burden is 
estimated to be of the order of EUR 297 million recurring cost. In addition a one off cost for 
complying with the information obligation is es timated at EUR 320 milli on. A more detailed 
analysis on the administrative burden  can be found back in Annex 10.  
Table 4: overview of admin burden of the MAD
 
Incremental cost per entity (EUR) Total incremental cost 
(Million EUR) Policy option description 
 Admin 
burden One of cost to 
comply with 
information 
obligation Total 
admin 
burden 
(million 
EUR Total one of 
cost to 
comply with 
the 
information 
obligation 
5.1.4 Extending scope to 
MTFs  4,810  0.2 0.3 
5.1.5 Extening scope to 
OTFs  4.810  0.5  
OTC 11,250 11,250 29 29 
Orders 28,000 56,000 145 291 5.3.2 reporting of 
suspicious OTC 
transactions and 
orders Total   147 320 
LE 17,550  127  
SMEs 1755  1.8  5.6.3 Reporting of 
delayed disclosure  
Total   129  
5.7.2 SME regime for 
disclosure of inside    -1.1 
(reduction)  
 
EN 77   EN information 
5.7.4  Harmonisation of 
insider lists  2,025  -1.2 
(reduction)  
5.7.5 SME exemption for 
insiders lists  945  -1.8 
(reduction)  
Large 
issuers 405  -2,2 
(reduction)  5.7.8 Harmonisation of 
managers 
transactions reports 
SMEs 135  -0.1 
(reduction)  
Overall admin burden  297  
one-off cost to comply with 
information obligation   320,3 
 Admin burden on SMEs  -1.2 
(reduction)  
7. MONITORING AND EVALUATION  
The Commission is the guardian of the Treaty and therefore will monitor how Member States 
are applying the changes proposed in the le gislative initiative on market abuse. When 
necessary, the Commission will pursue the proce dure set out in Article 226 of the Treaty in 
case any Member State fails to respect it s duties concerning the implementation and 
application of Community Law.  
The evaluation of the consequences of the app lication of the legislative measure could take 
place three years after the entry into force of the legislative measure, in the context of a report 
to the Council and the Parliament. 
The main indicators and sources of  information that could be used in the evaluation are as 
follows: 
• Data from national competent authorities on th e number of market abuse cases they have 
investigated and sanctioned; and 
• A report (which could be undertaken by ESMA ) on the experience gained by regulators in 
enforcing the legislation. 
 
EN 78   EN ANNEX 1 - RELATED INITIATIVES  
As announced in its Communication of 2 June  2010 on Regulating Financial Services for 
Sustainable Growth162, the Commission will complete its full financial reform programme in 
the coming months. Of the existing or pendi ng proposals listed in the Communication, a 
number are related to this initiative and will contribute to achieving its objectives of 
improving investor protecti on and enhancing market tr ansparency and integrity. 
The proposal for a Regulation on short selling and certain aspects of  Credit Default Swaps163 
includes a short selling di sclosure regime which would make it easier for regulators to detect 
possible cases of market ma nipulation or insider deali ng linked to short selling. 
The proposal for a regulation on OTC derivatives, central counterparties and trade 
repositories164 will also increase transparency of significant positions in OTC derivatives 
which will assist regulators to monitor for ma rket abuse through the use of derivatives. 
The review of the Markets in Financial Instruments Directive165 will consider options to 
widen the current scope of repor ting in relation to transactions in instruments only traded on 
multilateral trading facilities (MTFs) and re porting on over the counter (OTC) transactions 
including derivatives. The reporting to compet ent authorities of OTC transactions in 
instruments not admitted to trading on a regulat ed market is not currently mandatory, and 
such reporting would make it ea sier for regulators to detect  possible market abuse through 
such instruments.  
The issues of transparency requirements a nd manipulative behaviour s specific to physical 
energy markets, as well as transaction reporting to ensure the integrity of energy markets, are 
the subject of the Commissi on proposal for a Regulation on energy market integrity and 
transparency166. 
                                                 
162 Communication from the Commission to the European Parliament, the Council, the European 
Economic and Social Committee a nd the European Central Bank, Regulating financial services for 
sustainable growth , COM(2010) 301 final, 02.06.2010, p. 7. 
163 Proposal for a Regulation on Short Selling and certain aspects of Credit Default Swaps, COM 
(2010)482 final, 15.9.2010 
164 Proposal for a Regulation of the European Parliament and of the Council on OTC derivatives, central 
counterparties and trade repositories, COM(2010) 484 final, 15.9.2010 
165 Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in 
financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC 
166 See public consultation on the DG ENER initia tive for the integrity of energy markets, 
 http://ec.europa.eu/energy/gas_electricity/consultations/2010_07_23_energy_markets_en.htm 
 
EN 79   EN ANNEX 2 – SUMMARY OF CONTRIBUTIONS TO PUBLIC CONSULTATION  
Overview of Respondents 
The consultation raised interest and presen ted diverse comment am ong a broad range of 
stakeholders. A total of 98 responses were  received including some joint responses. 
Responses were categorised into the following broad definitions shown in Figure 1  and are 
summarised in the following section. 
17%
34%
16%3%10%20%
Regulator or Government Financial Company or Body
Energy Company or Body Commodities Company or User or Body
Exchange or Market Service Provider Other
 
Figure 1.  Chart of respondents to MAD consultation 
Section A – Extension on th e scope of the directive  
1. Alignment of the definition of inside in formation relating to commodity derivatives  
1.1. Approximately one third of respondents were in favour of a general expansion. This 
included strong support from regulators. There was strong oppos ition from energy 
companies and associated bodies, whilst a pproximately one third of respondents had 
no strong opinion.  
1.2. The majority of all responde nts agreed, to differing extents, that there are key 
differences between commodity markets a nd financial markets;  although opinion on 
how this impacted the suggested alignment was diverse. In particular one respondent 
noted that for regulation to be effective th ere needs to be strengthened co-operation 
between physical market regulat ors and financial regulators. 
1.3. The majority of supporting respondents agreed with the Co mmission services' 
analysis in that there was a need for increased transparency, that the current 
definition was too broad and there needed to be harmonisation. However, several 
 
EN 80   EN other reasons were cited in favour of the expansion. These incl uded its inclusion in 
the G20 agenda, the susceptibility of comm odity markets to "cornering" and other 
abusive practices and the significance of derivatives to the underlying commodity 
market. 
1.4. Approximately one third of all respondent s did not support an alignment of the 
definition of inside information for commodity derivatives. The main objections centred on the view that it was not appropriate to translate a financial regime directly 
across to a commodity market. While there was limited detail on the specific impact 
these changes would have on the curren t operation of MAD in the commodity 
(derivatives) market, some important issues were raised: 
• Most financial instruments are issued by single bodies, and inside information 
generally relates to this issuer. By contrast in commodity markets, inside 
information is much wider ranging e.g. from weather predictions to mining or 
production forecasts. 
• Some felt that the consultation did not pr ovide convincing argume nts that there is 
a sufficient problem to require  the expansion of scope; and 
• Some noted the difference between the commodity derivatives market and the 
physical underlying markets. 
1.5. Responses from energy companies and associ ated bodies raised concerns with the 
impact the alignment could have on energy markets (power, gas, CO2 etc), and were 
against a direct translation of the defin ition. These respondents reiterated the advice 
previously given by CESR/EGREG167 and ESME168 in 2008, noting some of the key 
differences in financial and energy mark ets (e.g. physical fundamentals such as 
generation and storage169). Several respondents noted possible side effects the 
alignment may present, such as undermining th e incentive to invest in infrastructure 
(as a firm would not be able to extract a ny value from informa tion flow relating to 
it).  
1.6. Respondents from the energy sector suppor ted coordination with the DG ENER 
proposal on integrity and transp arency in energy markets.  
2. Extension of MAD to attempts at market manipulation  
2.1. Overall, there was agreement with the Commission services' analysis and the 
majority of those respondents who expres sed an opinion were in favour of the 
proposed extension of the MAD regime. Howe ver, respondents were generally also 
concerned about the need to improve the cl arity of the proposed definition as they 
felt this needs to be very clear about the elements of the offence and what must be proved. Some respondents questioned how intent would be proven on a practical 
level.
 
                                                 
167 CESR/EGREG advice to the Europ ean Commission in the context of the Third Energy Package, 2008. 
168 Advice by the European Securities Markets Expert Group on commodity derivatives business, 2008. 
169 European Regulators´ Grou p for Electricity and Gas 
 
EN 81   EN 2.2. A small minority of respondents were not in favour of the general expansion, 
commenting that they felt the current provisions in the MAD were sufficient, that expansion would divert Comp etent Authorities' time and resources to cases that do 
not harm integrity, that the approach is not consistent with th e MAD (effects based) 
regime and that it could cause legal uncertainly. 
 
3. Extension of MAD to include manipulative actions committed through derivatives.  
3.1. Over three quarters of respondents who e xpressed an opinion expressed support for 
the extension to cover derivatives. In addition to the reasons cited by the Commission services, some respondents pointed  out that this is already in place in 
some member states and would lead to  a more harmonised regulatory regime. 
3.2. There was limited opposition, and some respondents felt that the current regime 
already covered these products  to a sufficient extent.  
4. Application of MAD to instruments admitted to trading on MTFs.  
4.1. There was strong support for the extension of  MAD to instruments solely traded on 
MTFs. Respondents acknowledged the growth of MTFs and their significance in 
current markets.  
4.2. While there was agreement on the general application, a number of respondents 
detailed how Member States had alrea dy modified local regimes to accommodate 
specialist MTFs; for example specialist SM E markets. These respondents felt that 
current bespoke regimes for these MTFs we re appropriate, that  harmonisation would 
need to encompass these different evoluti ons, and that this may be a difficult task.  
4.3. Although agreeing w ith the proposal in principle, so me energy companies (in line to 
their responses to question 1) considered it inappropriate to apply the regime to 
energy markets and associated derivatives traded solely on MTFs.  
4.4. One respondent felt that MAD s hould not apply to any issuers who had chosen to list 
on an MTF as this would remove their attractiveness to SMEs.  
5. Disclosure of inside information for is suers who only have in struments listed on 
MTFs .  
5.1. In general, there was limited support fo r any reduction in the requirements to 
disclose inside information. Respondent s from all areas felt that disclosure 
requirements were essential to market in tegrity, and that they should not be 
compromised.  
6. Adapted regime for SME issuers admitted to trading on regulated markets and/or 
MTFs  
6.1. Over half of the respondents did not e xpress a strong opinion, although a number of 
these commented that further analysis s hould be conducted. Approximately a quarter 
of respondents did not feel a specialist re gime was necessary, whilst approximately 
one fifth supported a specialist regime.  
 
EN 82   EN Supportive of an adapted regime for SME issuers  
6.2. Those supporting a specialist regime felt that  it was essential to give SMEs access to 
finance in order to encourage growth in the SME market. Further, it was felt that a 
proportionate regime would a ppropriately reflect the di fference in size between 
SMEs, who have limited resources, and larg er firms, who command more resources, 
whilst striking a balance of consumer protection.  These respondents generally 
favoured the application of secondary mark et aspects of the M AD but considered it 
proportionate to modify some of the primary market requirements – such as insider 
lists and directors dealings oblig ations that apply to issuers.  
Not Supportive of an adapted regime  
6.3. Of the approximate quarter of respondents who did not support a specifically adapted 
regime, most felt that MAD was a cornerstone  of financial market stability and that 
reductions in its scope could reduce investor protection which they feel is critical to 
EU markets. Some of these respondents felt  that the risks of market abuse are not 
necessarily smaller with SME's, that the regime is not considered unduly 
burdensome, that there could be possible incentives for re gulatory arbitrage and that 
investors in these markets need the same le vel of protection as for the issuers traded 
on Recognised Markets.  
To what extent should the adapted regime apply to SMEs or to “companies with reduced 
market capitalisation” as defin ed in Prospectus Directive? 
6.4. There was little support for basing an adaptiv e regime on the size of the firm. Only a 
limited number of respondents specifically fe lt the regime should be harmonised with 
the transparency and prospectus directives.  
6.5. Rather, a number of respondents felt it w ould be more appropriate to apply the 
regime on a market by market basis. A num ber of reasons for this were cited, 
including:  
• Ensuring that retail consumers and market users could sufficiently distinguish the 
difference in risk of the specialist regime;  
• Ensure that all issuers trading on the same  market are subject to the same rules; 
and 
• Enabling issuers to choose which market  they are traded on and the respective 
level of disclosure and orga nisational requirements that  are appropriate to their 
size. 
A number of respondents also commented that sp ecialist applications of  MAD, on a market 
by market basis, are already in effect in a number of Member States , including Ireland, the 
UK and France (such as ESM and GEM in Ireland,  AIM and PLUS in the UK, and Alternext 
in France).  
To what extent can the criteria to be fulfil led by SMEs as proposed for such an adapted 
regime be further specified through delegated acts? 
 
EN 83   EN 6.6. This question was largely unanswered by respondents.  
Section B – Enforcement Powers and Sanctions  
7. How can the powers of competent authori ties to investigate market abuse be 
enhanced?  
7.1. Responses from regulators and member st ates generally diffe red from those of 
industry participants. A number of responde nts noted that some regulators already 
used the proposed powers.  
7.2. Regulators and member states considered the following key areas of enhancement:  
• The removal of barriers in other legislat ion (including the dire ctive on privacy and 
electronic communications); 
• Establish the capacity to settle cases; 
• Implement cross market position limits in MiFID; 
• Extending Transaction reporting to OTC a nd derivatives incl uding harmonisation 
of client and trader IDs and increased use of algorithms; and 
• Competent Authorities should have access to platforms’ orderflow, either through 
transaction reporting or through a fe ed from the trading platforms. 
7.3. Some industry participants responded that competent authorities should make better 
use of existing information they receive and current powers, in cluding ensuring all 
competent authorities apply their full powers (e.g. require all firms to record relevant 
telephone conversations).  
Extension of suspicious transaction reporting to orders and OTC transactions?  
7.4. Generally, respondents supported an extensi on of the suspicious transaction reporting 
regime to include orders and OTC transa ctions (over three qua rters of respondents 
who expressed an opinion supported the extension).  
7.5. Regulators and member states were strongly in favour of an extension, and while 
most other respondents also s upported the extension, a numbe r raised pote ntial issues 
as to the increased costs and its practical implementation (no specific details of costs 
were presented). 
7.6. Several responses (from financial institutions or bodies) commented that intermediaries are not gene rally aware of a client's intention and that further 
definition of the requirements would be helpful. 
 
8. Review of sanctions - how can sanctions be made more deterrent?  
8.1. Respondents generally supported harmonisation of sanctions at the EU level as a 
means to increase their deterrence effect.  
 
EN 84   EN To what extent need the sanction regimes be harmonised at the EU level in order to prevent 
market abuse? 
8.2. There was support for harmonisation of admini strative sanctions at the EU level, 
with respondents noting that at present sanctions differed greatly between Member 
States and  that Member States should enforce and apply MAD in a more consistent 
and harmonised way, with a view to reducing regulatory arbitrage.  
8.3. However there was also some potential uncerta inty as to the practicality of complete 
harmonisation, especially due to the differe nces in markets between Member States.  
8.4. There was limited specific discussion of harmonisation of criminal sanctions. Two 
respondents felt that penal measures should be  left to member St ates, whilst others 
noted the difficulties of implementing regimes in criminal law. One respondent commented that harmonisation was needed to prevent the same wrongdoing being a 
crime in one member state and an administrative offence in another. 
 
Administrative measures and sanctions 
8.5. Over three quarters of re spondents did not have a st rong opinion on the proposed 
clarification of administra tive measures and sanctions.  
8.6. In relation to the setting of minimum leve ls for financial penalties, respondents had 
mixed views. While there was a general consensus supporting minimum levels the 
following points were also made:  
• Categorisation of financial penalties may l ead to situations where a fine is too 
small or large;  
• A financial penalty should be proportionate to the seriousness of the breach, but as 
no two breaches are the same a prescrib ed minimum fine is not appropriate;  
• There should also be a corres ponding maximum fine level;  
• Standardised fines are only appropriate for certain standardised violations, such as 
failure to update an insider list; and  
• One respondent felt the minimum should be three times the loss avoided or profit 
gained.  
8.7. Rather than set levels, th ere was some support for ES MA to provide guidance on 
appropriate levels. 
8.8. Some respondents referred to  the UK FSA which had recently assessed its financial 
penalty regime and introduced a new framew ork based on the following criteria - (1) 
disgorgement; (2) assessing  the seriousness of the conduct; (3) adjusting for 
aggravating or mitigating factors; (4) adju stment for deterrence; and (5) settlement 
discount.  
8.9. In relation to public disclosure of sanc tions, one respondent felt that this could 
disproportionately affect trus t in capital markets and gi ve misleading signals (and 
 
EN 85   EN also contravene data protection rules) , whilst other res pondents supported the 
measure but noted that there may be occasions when public disclosure may be inappropriate. 
 
8.10. Some respondents also noted the need to consider sanctioning proposals with regard 
to the "ne bis in idem principle" (the right  not to be tried or punished twice for the 
same offence) in relation to applying both administrative and penal measures for the 
same offence. 
9. Role of ESMA 
9.1. Over three quarters of re spondents did not have a st rong opinion on the proposed 
narrowing of the reasons for which a compet ent authority may refuse to cooperate 
with another.  
9.2. Of those who did respond, responses were mixed. Thos e not supporting the 
narrowing sought clarification of the reas oning of the proposals, and highlighted 
concerns over data protection. Those who supported the measure felt it would 
enhance co-operation.  
9.3. Respondents to the consultation were s upportive of ESMA having a co-ordination 
role for enforcement purposes; however there was limited support for any further 
powers or involvement in specific cases.  
10. Cooperation between European and Third Country Regulators 
10.1. There was widespread response from all ca tegories of respondent s to this topic; 
whilst most provided some specific indi vidual views the following areas of 
consistency were noted: 
• There was wide acknowledgement that the current IOSCO agreements were 
appropriate and worked well. A number  of respondents felt these would be a 
positive base from which ESMA could perform a coordination role; and  
• ESMA could set rules or gui delines on how data should be  shared both within the 
EU and the 3rd country framework. 
Section C – Single Rule Book  
11. Power to decide the delay of inside information 
11.1. A number of responses mis-interpreted this question, considering the case in terms of 
all disclosures of inside information, rather  than just those in the case of emergency 
funding.  
11.2. Of those who did respond to the questi on directly, the following views were 
presented:  
• Whilst there was some support for regulat ors to have the power directly, the 
majority of respondents (across all categor ies) felt that while the proposal was 
 
EN 86   EN beneficial, the issuer itself  rather than the competen t authority should have the 
appropriate responsibility;  
• Some respondents felt this could be done by the competent authority granting a 
waiver from the disclosure rules;  
• One respondent felt that the trigger should not be if the institution is 
systematically important, but rather if th e information is systematically important; 
and 
• Respondents also noted that at times of emergency, re gulators and issuers would 
already be involved in close communication.  
12. Should there be greater coordination between regulators on accepted market practices? 
12.1.
 The majority of respondents, including financial companies and bodies, supported 
enhancing harmonisation, although they also noted the difficulties of completing this. 
These responses generally felt harmonisa tion would help move towards a single 
market for financial instruments and w ould reduce legal uncer tainty for market 
participants. However respondents also co mmented that significant differences in 
markets currently exist, which justify dive rgent implementations of accepted market 
practices.  
12.2. While some public authoritie s felt involvement by ESMA in a co-ordination role 
would help, most felt that the current pro cedures were sufficient, and that further 
harmonisation would offer little benefit.  
12.3. One respondent commented that although they woul d support the proposal in 
principle, it may "give more freedom to competent authorities to create new AMPs, which would be against the spirit of the in ternal market and th e creation of a single 
rulebook". 
13.
 Do you consider that it is ne cessary to modify the threshold for the notification to 
regulators of transactions by managers of issuers? 
13.1. While more than half of respondents did not  have a strong opinion in relation to this 
question, the majority of those who di d felt the threshold should be increased.  
13.2. The respondents supporting an increase (i ncluding large support from financial 
institutions and bodies) gene rally felt that the current threshold was too low. The 
following rationale was provided:  
• There is a large administrative burden in  relation to applying the threshold and 
notifications; and  
• The low threshold means that many transactions will be reported, which may 
possibly increase noise in the data.  
13.3. However there were a number of responde nts who opposed an increase of the 
threshold for the following reasons:  
 
EN 87   EN • The threshold should be kept at €5000 (or re duced), as this enables the market and 
investors to have sufficient data to make its own judgements. Th is is in line with 
the objectives and prin ciples of the MAD;  
• Having a large amount of data is not an i ssue as the market can easily analyse and 
filter transactions; and  
• Applying a rule based on a defined single figure for all institutions may not be 
proportionate considering the vas tly differing sizes of issuers.  
13.4. Respondents also provided the following comments:  
• There was support for the threshold to be se t in level 2 measures and for ESMA to 
be given the power to review the threshold, in the future;  
• One respondent provided data showing the difference in impact the threshold 
would have on a large issuer compared to a smaller issuer; and  
• Several respondents noted that the thresh old was currently implemented at the 
discretion of the member state under the di rective, and that so me member states 
had not implemented a threshold (e.g. UK).  
Is a threshold of Euro 20,000 appropriate? 
13.5. In line with the mixed respons es to the previous question,  there was no conclusive 
view as to whether €20,000 is an appropr iate threshold. Many respondents supported 
the threshold, however some also felt a hi gher threshold was necessary, whilst others 
felt a lower threshold was more appropriate.  
14. Do you consider that there are other areas where it is necessary to progress towards a 
single rulebook? Which ones? 
14.1. Suggestions raised by respondents included:  
• There are potentially differing understandi ngs of the buy-back regime, and this 
should be discussed, possibly by CESR/ESMA.  
• Firms should be given the means to check whether a prospective employee was 
previously convicted of market abuse. 
• The content of suspicion transact ion reports should be harmonised. 
• There should be level three guidance for circumstances of deferred disclosure, 
especially on the criterion "not  likely to mislead the public". 
• From the employee perspective, ensuring sound and efficient “whistle blowing 
systems” could be an appropriate measur e, also in relation to disclosing e.g. 
market abuse practices. 
 
EN 88   EN • EC should review the issue of "using inside informati on" as raised in Spector 
Photo Group NV and Chris Van Raem donck v Commissie voor het Bank- 
Financie- en Assurantiewezen. 
15. Clarification of the obligations of market  operators to better  prevent and detect 
market abuse? 
15.1. Respondents generally supported clarifica tion, although some noted the difficulties 
that a trading venue may have in mon itoring its market – such as market 
fragmentation and multiple listings, sharing of data, and understanding the reasoning 
of transactions. 
 
EN 89   EN ANNEX 3 - SUMMARY OF PUBLIC HEARING  
Market Abuse: Promoting deterrence , market integrity and investor 
protection 
Public Hearing on the Revision of the Market Abuse Directive 
2 July 2010 
Keynote speeches 
Jonathan Faull , Director General, DG Internal Market and Services welcomed delegates to 
the public hearing. He explaine d that the MAD review formed  part of a broader set of 
initiatives, which included the review of MiFID as well as initiatives on derivatives and market infrastructure, short selling and credit  default swaps. Further, that all of these 
initiatives are interlinked and the Commission aime d to make sure that they complement and 
strengthen each other. Therefore, the revisi on of MAD is one part of the Commission’s 
overall programme for regulating financial serv ices, the overarching objec tive of which is to 
create robust, reliable and transparent markets,  to regain investor confidence and to create a 
sustainable economic model which will drive our economy out of the current crisis.  
Sharon Bowles  MEP and Chair of the Committee on Economic and Monetary Affairs of the 
European Parliament gave the second keynote speech. She discussed the review of the MAD 
under the three themes of transp arency, clarity and harmonisati on. She raised the issue of 
extending directive coverage to instruments tr aded solely on MTFs and providing greater 
clarity that credit default swap s are covered under the scope of th e Directive. In the context of 
debate about the use of naked credit default sw aps she highlighted the difficulty of separating 
out what is a legitimate use of  such an instrument from other uses. She thought greater 
transparency about the holding of  these instruments is what is  important. This would also 
prevent some of the uninformed speculati on about speculation. She supports greater 
publication by regulators of inform ation about sanctions imposed for market abuse. There is 
no excuse for regulators not publ icising such information. Re garding physical markets she 
suggested that although there are often differen ces between physical and financial markets, it 
is important to have a complete picture of both markets. She thought short selling issues 
should be addressed separately from the MAD. Sh e also discussed the po ssibility of adjusting 
the scope of insider lists. These lists are importa nt but, for example, sm all businesses might be 
exempted from routine maintenance of an in sider list and instead  required to provide 
information to supervisors on demand. Finally sh e advocated greater clar ity about when there 
can be delayed disclosure of inside informati on about an institution of systemic importance 
and also supported extending coverage of the Di rective to include attempts at manipulation. 
Carlos Tavares  CMVM Chair and vice-chair of CESR  gave the final keynote speech and 
considered that the MAD needed to be extende d beyond regulated markets, that the definition 
of financial instruments should be aligned with  the MiFID definition and that it should be 
clarified that the Directive applies to derivative instruments such as credit default swaps. He suggested there should be more stringent and consistent regulati on of financial analysis and of 
requirements for journalists wh en quoting third part ies' opinions. He gave examples of 
divergent approaches to the appl ication of MAD in Member Stat es and suggested that options 
 
EN 90   EN and discretions should be reduced. He also s upported removing uncertainti es about the rights 
of regulators to gain access to  telephone records and thought that MAD should be amended to 
make suspicious transaction reports on OTC derivatives mandatory. He expressed views 
about possible measures on short selling. Fina lly he talked about the need for greater 
harmonisation of sanctions fo r breaches of the MAD. 
Summary of panel 1: Ensuring comprehensive  and appropriate coverage of derivative 
markets in the MAD  
Maria Teresa Fabregas Fernandez, from the Commission, stressed the growing importance of 
derivatives, the serious influence they have in  the physical markets and the opaqueness of the 
OTC space. 
Alexander Justham (FSA, UK) em phasised that a holistic regime  was necessary in order to 
ensure market integrity, as the interaction be tween the derivatives and underlying markets was 
constant in both directions. He also explaine d that there was a clear  distinction between 
market abuse and speculation, the latter is not  contrary to the MAD. Nadège Jassaud (ESCB 
CDS Taskforce, Banque de France) stated that the scope of the MAD needed to be clarified, 
as it had been drawn up for equity markets, and increased transparency was needed. Stephen 
Obie (CFTC) explained that pr osecuting attempts at market manipulation was important, and 
that information sharing between regu lators world-wide was essential. 
In response to a question on the importance of transaction reporting to trade repositories, Mr 
Obie stated that this would he lp as it would deter wrongdoing and he lp regulators to detect the 
motive for market abuse. Mr Justham comment ed that a large numbe r of OTC transaction 
reports (5-10 million per day) were received by th e UK, so a system would have to be built to 
deal with such a vast  number of reports. 
With regard to concerns about the possible im pact of Credit Default Swaps on sovereign 
bonds markets, the panel agreed that access to da ta was important to investigate such cases, 
including that available from the DTCC and telephone or email traffic. On the question of 
whether a specific framework was needed for commodity derivatives, Mr Obie argued that it 
was vital for regulators to work together, and Mr Justham explained th at the definition of 
insider trading in commodities could not simp ly be translated from that for equities. 
Concerning the issue of rumours, Carlos Tava res (CESR) argued that journalists should be 
required to identify their source to a regulator in vestigating a suspected case of market abuse. 
Stephen Obie explained that the CFTC had so metimes gone to court to obtain information 
from journalists, and Ch arles Cronin agreed that journalists using inside information in their 
articles should have to reveal their source. 
Summary of panel 2: Closing the remaining regulatory gaps  
Tim Binning, from the Commissi on, gave a brief introduction a bout the main issues in the 
consultation paper relating to reducing regulatory gaps. 
Michael McKee (DLA Piper) gave  some historical background and context about the MAD. 
He explained for example that it predated th e commencement of the Markets in Financial 
Instruments Directive which is why its scope ma inly focussed on financial instruments traded 
on a regulated market (as regulated market was the main concept at the time and the concept 
of a MTF was introduced only when MiFID comm enced). He also pointed out that MAD does 
 
EN 91   EN currently cover trading of instruments when tr aded outside a regulated market (e.g. on a MTF 
or over the counter). But it does not cover inst ruments only admitted to trading on a MTF. He 
also explained that some Member States alre ady extend their regimes to cover instruments 
admitted to trading on a MTF.  
Fabrice Peresse (NYSE Eu ronext) explained the vi ew from the perspective of the operator of 
large exchanges. He thought it appropriate to extend the MAD prohibitions to cover 
instruments only traded on other organised trading platforms su ch as MTFs. He raised the 
issue of differences between operators of regulated markets and MTFs regarding the 
surveillance systems and methods they use to monitor and detect market abuse. He was 
concerned these are not always of the same leve l which can result in some operators incurring 
greater costs. He also discussed the potential di fficulty that has arisen for monitoring market 
abuse of a financial instrument now that tradi ng in a single instrument is now spread across a 
number of different financial markets (post MiFID). Previous ly, real time monitoring was 
done by a single exchange but now a single venue could not see all the trading of a single 
instrument. There was discussion about whether this is an issu e that can be resolved through 
the CESR information sharing sy stems such as TREM or thro ugh greater cooperation between 
regulated markets. 
Duncan Wales  (ICAP) welcomed the aims of the MAD re view, but stressed the need to take 
into account the nature of existing MTF’s and the wide rang e of different markets, financial 
instruments and issuers those MT Fs represent. In OTC markets, MTF’s are the evolution of 
bilateral and voice-brokered mean s of trading, and in many cas es even with full electronic 
capability available, several perform as “hybr id” markets, where liquidity on the MTF is 
enhanced and encouraged by voice broking. The original design of MAD was based on 
centralised equity markets, and great care should be taken in a pplying the directive to include 
all the diverse asset classes traded on MTFs without significant modi fications. It is, for 
instance, difficult to draw a direct comparison be tween disclosures required for an issuer of 
stock (and therefore what might constitute inside information) and disclosures required in OTC money and rates products, which correlate  to macro-economic, monetary and political 
factors (would central banks and governme nts be caught by the same regime?).  
Jose Sanz De Gracia (CNMV, Spain) spoke of his experience as a regu lator of dealing with 
the MAD. Regarding the issue of whether th ere may be a technical regulatory gap for 
attempts to manipulate the market he was not convinced from his experience that there was a 
significant problem. It has been suggested that the existing legislation requires regulators to 
prove that conduct actually had an effect on the market (which is a high onus). Mr Sanz de 
Garcia thought that the existing legislation can often cover such  situations without having to 
prove the effects of an attempt on the market. Th erefore he was less sure about the need for a 
new provision defining and prohibiting attempts to manipulate the market. 
Summary of panel 3: Powers of competent authorities and sanctions  
Bertrand Legris, from the Commission, made a short introduction to st ress the major points of 
the consultation document on those topics. 
Anastassios Gabrielides (President of the GCMC  and of CESR-Pol) insi sted on the usefulness 
of extending the scope of susp icious transactions reports,  along the lines proposed by the 
Commission (to orders and deri vatives). He emphasized the importance for regulators of 
getting telephone data and on the existence of some difficulties in  some Member States in this 
 
EN 92   EN regard. He favoured a role for ESMA in helpi ng requesting authorities to get data needed 
from requested authorities, notably through bind ing mediation. He stressed the necessity of 
having fines proportionate to th e importance of the abuse and in particular based on the 
advantage obtained from it. 
Tracey McDermott (Deputy of the head of  the enforcement division of the UK FSA) 
explained the new approach of the FSA in tack ling market abuse ("credible deterrence") and 
its recent achievements. She indicated how import ant it was for competent authorities in the 
course of their investigations to be able to ask judges for au thorisation to seize documents. 
She expressed the view that a clarification in the MAD about the conditions for accessing 
telephone data could be useful. She explained th e criteria applied by the FSA in deciding the 
levels of fines (4 times the pr ofit is a starting point that is then adapted to other criteria; 
100.000 euros for individuals is al so a principle which supports exceptions; the importance of 
the position of a person who committed an abuse, eg inside an issuer, needs to be considered 
closely). She considered that the proposal of the consultation to have a minimum sanction of 
twice the advantage from the infringement could probably no t function without exceptions. 
Laurent Combourieu (Deputy Head of enforc ement division of the AMF) underlined the 
progress generated by the MAD, notably in term s of convergence in defi ning market abuse in 
Europe and in interna tional cooperation. He explained howev er that MiFID has made the task 
more complex to detect abuse (in terms of ma nipulation across different platforms, reporting 
of trades, algorithmic trading, OTC transactio ns). He supported the proposals for covering 
manipulation through the use of derivatives , on Judges granting access to documents, 
suspicious transactions reports and the role for ESMA.  
Elisabeth Jacobs (Deputy Director of the Inte rnational division of th e SEC) stressed the 
increases in the number of trades for a few y ears and the "new face of greed" and gave a few 
examples of recent successes in SEC investigat ions. She also notably stressed the need for 
cooperation between European competent authorities and th e various US authorities.  
A few questions were asked by the moderator and by the audi ence. Carlos Tavares (vice 
president of CESR) stressed the importance fo r regulators of understanding how algorithmic 
trading works.  
Summary of panel 4: Moving towards a si ngle rulebook/Reducing administrative 
burdens, especially on SMEs  
Philip Tod from the Commission gave a brief introduction about the main issues in the 
consultation paper relating to the need to take into account the specificities of SMEs and how 
to ensure a more convergent implementation of the MAD. 
Concerning SMEs, Fabrice Demarigny (partner in Mazars) highlighted that it was necessary 
to find the right balance between  the general rule and a specif ic proportionate regime without 
undermining investor protection. He  said that nowadays the costs of listing are higher than the 
benefits. For him, it was crucial to find the ri ght definition of SME based on market criteria. 
He pleaded for a non-automatic ex tension of MAD to all companie s listed in MTFs, leaving it 
to national law. He said that some basic princi ples of market integrity  should be the same for 
all, but others, such as  insiders' list and mana gers' transactions, could be calibrated to the size 
of the company.  
 
EN 93   EN Charles Cronin (Head of the Center for Financ ial Market Integrity) emphasised that a single 
EU rulebook was crucial for the pan-EU structur e. He argued that nowadays SMEs are not 
disclosing enough information and thus have no t enough liquidity ; therefore he pleaded for 
the application of the MAD regime to SMEs. 
Carmine Di Noia (Deputy Director General As sonime) highlighted that the MAD had not led 
to harmonisation across Member States of im portant issues like the definition of inside 
information subject to the disc losure obligation and the conditions for delayed disclosure. He 
was against the extension of the disclosure obligations in the MAD (and the Transparency 
Directive) to issuers traded only on MTFs. He proposed to move the disclosure obligation for 
issuers from the MAD to the Transprency Directive and to replace the definition of inside information for disclosure with “material in formation”; treatment of rumours should be 
inserted in the MAD. 
Tim Ward (CEO, Quoted Comp anies Alliance) emphasised the need to take a holistic 
approach, requiring consistency within the Prospectus Directiv e, the Transparency Directive 
and MiFID and the obligation to report trades across th e EU to a single venue.  
Concluding remarks  
Maria Velentza (Head of Unit, Securities Mark ets, DG Markt G3) concluded the hearing by 
saying that the MAD review should be ambitious  making a real update and modernisation of 
the Directive, although wit hout changing its initial objectives of market integrity and efficient 
surveillance. 
The review should be holistic, avoiding the si lo approach that had prevailed until now. The 
main changes would concern the following four areas: 
– Filling the gaps. The Directive should capture as much as possible. Concerning the scope, 
it should go beyond the concept of  regulated markets and equiti es to a broader concept of 
"organised market" and all financial instrument s. Concerning the powers of regulators, it is 
necessary to enhance the inves tigatory powers of regulators and to deal with the attempts. 
Concerning the quality of supe rvision, more harmonisation a nd convergence in the field of 
sanctions is necessary to achieve a better deterrence. 
– Transparency. It is necessary to enhance tran sparency both with rega rd to the information 
to regulators (to better check the integrity of the markets) and the information to the 
markets (to ensure correct invest ment decisions and have better confidence in the markets).  
– Coherence with other policies. It is important to  keep the consistency wi th other policies to 
ensure resilient financial markets,  in particular in the field of  commodity derivatives. It is 
necessary to avoid duplication of  requirements and to avoid gaps  in the legislation, taking 
into account broader macroeconomic c onsiderations of market stability. 
– International coherence. More cooperation ha s to be sought among EU regulators and with 
other jurisdictions. The creati on of the European Securities and Markets Authorities 
(ESMA) will help in this process. 
 
EN 94   EN ANNEX 4 – EUROPEAN TRADING ESTIMATES  
The following provides a high level overview of EU trading venues, split into equity, debt and 
derivatives.  
1. EU  EQUITY MARKETS  
1.1. In Europe, secondary market equity tr ading mainly takes place on regulated markets 
(RM), over the counter (OTC), and multilateral trading facilities (MTFs). To a lesser 
extent, equities are also traded on br oker crossing networks and systematic 
internalisers (SIs). 
1.2. In March 2011, the European equity  market turnover was approximately €1,885 
Billion170. Of this, approximately 52% was conduc ted on traditional stock exchanges, 
14% on MTFs and 34% via bilateral OTC arrangements, which includes SI's (at about 2%) – see chart below. It should be noted that in 2010, total trading in EEA 
shares amounted to €18.7 trillion in 2010 with OTC trading accounting for 37%
171.  
European Equit y Tradin g Volume b y Venue T ype- March 
2011
Exchange; 
52%
MTF; 14%OTC; 34%
E xchange
MTF
OTC
 
1.3. The data shows RM and MTF trading accounting for approximately 66% of total 
equity trading whilst MiFID OTC trading accounts for approximately 34%. However it must be noted that OTC refers to a br oad range of trading, ranging from pure 
bilateral trading (considered more traditional OTC), to more organised arrangements (such as OTC initiated through an exchange, SIs and broker crossing networks – see below), therefore caution must be applied to  considering this figure as an absolute. 
1.4. Since their intr oduction in 2007, MTFs
172 have undergone large growth, and now 
occupy a significant proportion of the Europe an equity market turnover. Estimates 
based on the above data show that MTFs (such as BATS Europe, CHI-X, Turquoise, 
                                                 
170 Thomson Reuters Monthly Market Share Report, March 2011.   
171 All European Equities Market Activity by Trade Type (January 2010 to January 2011), Thomson 
Reuters, 2011 
172 There are currently 138 Multilatera l Trading Facilities authorised in th e EU, with several equity MTFs 
dominating their total volume – see Annex 4 for details. 
 
EN 95   EN Burgundy etc) currently account for approxima tely 10% of total European equity 
trading volume.  
1.5. Systematic Internalisers (S Is) were also introduced in 2007173, however they have not 
seen as significant a growth as MTFs - cu rrently only 12 SIs are registered with 
competent authorities. Trading on SIs is gene rally reported as part of OTC statistics. 
CESR data suggests that they do not repres ent a large proportion of equity trading 
within Europe – with estimates in the region of 2% of all European equity trading174. 
A breakdown of the currently registered SIs and an indicati on of their trading 
landscape (taken from CESR  data) is given below: 
Investment Firm  Competent 
Authority  Number of shares which the 
SI provided a quote for and 
traded in Q4 2008  Total volume Q4 
2008 Turnover  
Royal Bank Of Scotland 
N.V. (Formerly ABN 
AMRO BANK N.V.) AFM  1305  £18,834 million  
BNP Paribas Arbitrage AMF  42  £7 million  
Citigroup Global Markets  FSA  478  £22,438 million  
Citigroup Global Markets 
U.K. Equity  FSA  172  £7,174 million  
Credit Suisse Securities 
Europe  FSA  705  £33,234 million  
Danske Bank  Finanstilsynet 80  DKK 6,044 million  
Deutsche Bank 
Aktiengesellschaft, Frankfurt/Main, Germany  BaFin  792  £14,033 million  
Goldman Sachs 
International  FSA  98  £179 million  
Knight Equity Markets 
International (Started Jan 
09) FSA  n/a n/a  
Nomura International 
(Formerly Lehman 
Brothers) FSA  n/a n/a  
Nordea Bank Danmark 
A/S  Finanstilsynet 20  DKK 7,513 million  
                                                 
173 Systematic Internalisers (SIs) are trade matching systems run by investment firms - see Glossary in 
Annex 5 for details. 
174 CESR publication - Impact of MiFID on equity secondary markets functioning. Based on data from Q4 
2008. http://www.cesr-eu.org/data/document/09_355.PDF   
 
EN 96   EN UBS and UBS AG 
(London Branch)  FSA  827  £29,536 million  
1.6. Broker crossing networks175 are not subject to the same levels of transparency as 
RMs and MTFs, and their trading is also generally considered OTC. Whilst this 
opacity has led to some speculation of size (with some parties believing this is significant), CESR conducted a survey in  2009 of 11 investment firms from 4 
jurisdictions which found that actua l trading through these systems was 
"very low, 
ranging from an average of 0.7% [of total EEA trading]  in 2008 to an average of 
1.15% in 2009 (increasing to 1.4% in the last two quarters of 2009)"176.  
2. EU  DEBT MARKETS  
2.1. In terms of total debt outstanding, financ ial institutions and corporates raised a total 
of $8,604.8 billion on the domestic (Europ ean) debt Market, compared to $14,761.3 
billion raised on the in ternational debt market  as of December 2009177. A breakdown 
of outstanding domestic and in ternational debt securities (financial, corporates and 
governments) is shown below.  
  
05001,0001,5002,0002,5003,0003,500International debt securities by residency
As of Dec-09, in billions of US Dollars
Financial 
institutions
Corporate issuers
Governments
 
2.2. Unlike equities, corporate and financia l bonds are not as actively traded (fixed 
income markets seek more long term goals  and instruments are generally held to 
maturity); the trading landscape is therefore dominated by government bonds. 
Estimates show in  the region of 27% of daily traded debt re lates to non-government bonds 
compared to 73% for government bonds178. 
2.3. While trading is dominated by government debt, this is primarily traded OTC and is 
rarely listed on exchange . Rather, approximately 97% of EU bond listings relate to non-
                                                 
175 See Glossary in Annex 5 for details. 
176 CESR Technical Advice to the European Commission in the Context of the MiFID Review - Equity 
Markets. http://www.cesr-eu.org/data/document/10_394.pdf   
177 PWC estimates from their report prepared for Commission services. 
178 Celent, October 2009 “Electronic Trading of Bonds in Europe – Weathering the storm”  
 
EN 97   EN government debt (both on the domestic market and debt issued on the international bond 
market)179. The chart below shows the number of bonds listed on the most active markets.  
05,00010,00015,00020,00025,00030,00035,000
Luxembourg Stock Exchange Deutsche Börse Irish Stock Exchange London Stock ExchangeListings per Bond types for the most active markets
Listed 2008 Government Bonds Listed 2008 Corporate Bonds Listed 2009 Government Bonds Listed 2009 CorporateBonds 
2.4. Although non-government debt may be lis ted, trading does not necessarily occur on 
exchanges; rather, estimates based on UK FSA transaction reporti ng data show that 
approximately 89% of non governme nt debt trading occurs OTC180.  
 
3. E QUITY AND DEBT INSTRUMENTS ONLY TRADED ON MTF S 
3.1. A number of shares and bonds do not have exchange listings but are still traded on 
MTFs; at present the MAD does not fully apply to these instruments. Whilst these instruments do not represent a significant volume of total trading, they still represent 
a gap in regulation. The following table pr ovides an approximation of volumes in 
these instruments
181.  
Total MTF trading of instruments not admitted to trading 
on a regulated market - 2009 
 Total number of trades Total turnover of trades 
Shares 2,964,749 €8.3Billion 
Bonds 1,807 €103.4Million 
                                                 
179 PWC estimates based on FESE data, from their report prepared for Commission services. 
180 PWC estimates based on data from UK FSA, from their report prepared for Commission services. 
181 PWC estimates based on survey of European MTFs, a limited number of MTFs did not provide data, 
however these were considered statistically insign ificant. From their repo rt prepared for Commission 
services. 
 
EN 98   EN 4. EU  DERIVATIVES MARKETS  
4.1. There has been significant growth over a sustained period in th e derivatives market, 
checked by a marked downturn in 2008. Wh ilst traditional exchange trading has seen 
some growth, the most significant grow th has been in the OTC arena.  
4.2. Exchange traded derivatives are generall y confined to more standard products such 
as options and futures, whils t OTC derivatives are not a nd may include products such 
as swaps and forward rate agreements. Da ta on global OTC derivatives markets is 
mainly generated from statistics compiled by the Bank for International Settlements (BIS). The chart below shows the growth in  OTC derivative trad ing compared with 
that of exchange trading
182. 
International derivatives markets $bn, notional amounts 
outstanding 
0.00100.00200.00300.00400.00500.00600.00700.00800.00
1998
1999
2000
2001 2002 2003
2004
2005
2006
2007 2008 2009
Over the  counter Exchange- traded
 
4.3. A breakdown by risk instrument of the to tal OTC derivative mark et is shown below - 
over 73% of instruments traded are interest  rate products, with foreign exchange and 
CDS representing 8% and 5% respectively.  Equity linked derivatives account for 
1.0% ($6trillion) whil st commodity derivatives represen t 0.5% ($3trillion) - BIS data 
as of December 2009183. 
Risk instruments in global OTC markets Notional amounts outstanding 
 2002 2004 2006 2007 2008 2009 
$ trillion       
Interest rates 102 191 292 393 419 449 
Foreign exchange 18 29 40 56 50 49 
Credit default swaps --- 6 29 58 42 33 
Equity-linked 2 4 7 8 6 6 
                                                 
182 BIS, International derivatives markets $bn, notional amounts outstanding.  
183 BIS, Risk instruments in global OTC markets Notional amounts outstanding. 
 
EN 99   EN Commodity 1 1 7 8 4 3 
Unallocated 18 27 43 71 71 73 
Total contracts 142 259 418 595 592 613 
       
%        
Interest rates 71.8% 73.7% 69.7% 66.0% 70.7% 73.2% 
Foreign exchange 13.0% 11.3% 9.6% 9.4% 8.4% 8.0% 
Credit default swaps --- 2.5% 6.9% 9.7% 7.1% 5.4% 
Equity-linked 1.6% 1.7% 1.8% 1.4% 1.1% 1.0% 
Commodity 0.7% 0.6% 1.7% 1.4% 0.7% 0.5% 
Unallocated 12.9% 10.3% 10.3% 12.0% 12.0% 11.9% 
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 
4.4. The characteristics of the foreign excha nge and interest rate markets (such as high 
liquidity and their dependen ce on macro economic factors) mean there is generally 
less risk of market abuse in theses markets. 
4.5. The EU is a key location for OTC tr ading with the UK, France, and Germany 
accounting for almost half of the global daily turnover - a br eakdown by country is 
shown below184. 
  
Location of OTC derivatives tur nover by average daily turnover 
 2001 2004 2007 
 % 
share % 
share % 
share 
UK  33,7 38,0 40,9 
US 15,3 19,3 18,6 
France  5,7 6,6 5,4 
Japan  7,1 6,0 4,4 
Singapore  3,9 3,2 4,1 
Switzerland  3,4 2,4 4,0 
                                                 
184 BIS, Triennial Central Bank Survey of Foreign Ex change and Derivatives Market Activity in 2007 
http://www.bis.org/statistics/  
 
EN 100   EN Germany  8,5 4,1 3,2 
Hong Kong 
SAR 2,8 2,6 3,1 
Australia 2,7 2,7 3,0 
Others 16,8 15,0 13,3 
 
EN 101   EN ANNEX 5 – GLOSSARY OF KEY TERMS  
Section A provides a glossary of relevant key terms, whilst Section B provides information on 
common forms of market abuse. Both sections aim to provide high level information only, 
and therefore definitions and explanations may differ from those given in technical legislative documents. 
SECTION A – KEY TERMINOLOGY RELEVANT TO THE MAD 
Broker crossing network A number  of investment firms in the EU operate systems that 
match client order flow internally (for example Citigroup, Credit Suisse, Deutsche Bank, JP Morgan, Morgan Stanley and UBS). Generally, these firms receive orders electronically, 
utilise algorithms to determ ine how they should best be 
executed (given a client‘s objectives) and then pass the business through an internal system that will attempt to find matches. Normally, algorithms slice larger 'parent' orders into smaller 'child' orders before th ey are sent for matching. Some 
systems match only client orders , while others (depending on 
client instructions/ permi ssions) also provide matching 
between client orders and house orders. 
Broker crossing networks do not show an order book, and as 
noted above, simply aim to matc h orders; due this  nature they 
are sometimes compared to Dark Pools, which have similar characteristics.  
Central Counterparty 
(CCP) A Central Counterparty is an entity  that acts as an intermediary 
between trading counterpartie s and absorbs some of the 
settlement risk. In practice, the seller will sell the security to 
the central counterparty, which will simultaneously sell it on to the buyer (and vice versa). If one of the trading parties defaults, the central counterparty absorbs the loss. 
Direct market access 
(DMA) Participants require access to a market in order to trade on it. 
Direct market access refers to the practice of a firm who has access to the market allowing another 3
rd party firm electronic 
access to the market via their own systems.  
Lit and Dark orders A lit order is one which can be seen by other market 
counterparts. A dark order is one which can not be seen by 
other market counterparts. Matching dark orders are 
automatically executed by the trading venue without each counterpart knowing details of the other. 
Market Maker A market maker is a firm  that will buy and sell a particular 
security on a regular and c ontinuous basis by posting or 
executing orders at a publicly quoted  price. They ensure that an 
investor can always trade the particular security and in doing 
 
EN 102   EN so enhance liquidity in that security. 
Multilateral Trading 
Facility (MTF) MiFID introduced the concept of Multilateral Trading 
Facilities (MTFs) to repla ce Alternative Trading Systems 
(ATSs) (which had been establ ished prior to MiFID but were 
not subject to specific Europ ean legislation). An MTF is a 
system, or "venue", which brings  together multiple third-party 
buying and selling interests in fi nancial instruments in a way 
that results in a contract, MTFs  can be operated by investment 
firms or market operators and ar e subject to broadly the same 
overarching regulatory requirements as regulated markets (e.g. 
fair and orderly trading) and the same detailed transparency 
requirements as regulated markets;  in this sense they are more 
like a traditional regulated ma rket than a broker crossing 
network or a systematic internaliser. 
There are currently 139 MTFs authorised in Europe185 offering 
trading on a diverse range of products. The most prominent 
MTFs are eqity platforms, such as Chi-X and BATS Europe however there are a large number of smaller specialist MTFs 
providing trading in specific in struments examples include 
GFI's Creditmatch, Forexmatch, Marketwatch and Energywatch MTFs.  
Over the counter (OTC) Over the counter, or  OTC, refers to bilateral trading of 
instruments; for example one inve stment firm selling direct to 
another. As markets have evolved, the definition has broadened to trading not done on a designated trading venue – 
for example it may now include bi lateral trading of instruments 
which 
are exchange listed, and trad ing of instruments done via 
more organised arrangements (suc h as systematic internalisers 
and broker crossing networks). 
Primary Market 
Operations Primary Market Operations ar e transactions performed by 
dealers to provide liquidity to i ssuers of new securities such as 
sovereign debt and for the pur poses of stabilisation schemes 
(i.e. share issues intended to stabilise a share price). Stabilisation schemes are de fined under the Market Abuse 
Directive. 
Regulated Market (RM) A regulated market is a multilateral system which brings 
together or facilitates the bringing together of multiple third-party buying and selling interests in financial instruments in a 
way that results in a contract. Examples are traditional stock 
exchanges such as the Frankfurt and London Stock Exchanges. 
Systematic Internalisers Introduced by MiFI D in 2007 Systematic Internalisers (SIs) are 
institutions large enough to matc h client orders internally, or 
                                                
 
185 CESR MiFID database, http://mifiddatabase.cesr.eu/   
 
EN 103   EN (SI) against their own books (un like a broker crossing network, 
which may route orders between a number of institutions). They are defined in MiFID as an  investment firm which, "on 
an organised, frequent and sy stematic basis, deals on own 
account by executing client orders  outside a regulated market 
or an MTF". 
A firm does not need specific authorisation from its competent 
authority to carry out systematic internalisation; however similar to MTFs and RMs, they are required to conform to some transparency requirements, such as providing public quotes. Only a few (generally larg e) firms have set up SIs and 
currently there are 12 registered. 
Trading Venue A trading venue is an official venue where securities are 
exchanged; it includes MTFs and regulated markets. 
SECTION B – TYPES OF MARKET ABUSE  
Market abuse may take many forms, however  it may be grouped into the following seven 
categories186.  
Insider dealing Insider dealing is when an  insider deals, or tries to deal, on the 
basis of inside information. 
Improper disclosure Improper disclosure is  where an insider improperly discloses 
inside information to another person. 
Manipulating 
transactions Manipulating transactions is trading, or placing orders to trade, 
that gives a false or misleading impression of the supply of, or 
demand for, one or more investme nts, raising the price of the 
investment to an abnorma l or artificial level. 
Misuse of information Misuse of informati on is behaviour based on information that is 
not generally available but would affect an investor’s decision 
about the terms on which to deal. 
Manipulating devices Manipulating devices refe rs to trading, or placing orders to 
trade, which employs fictitious devices or any other form of deception or contrivance. 
Dissemination Dissemination refers to gi ving out informati on that conveys a 
false or misleading impression about an investment or the 
issuer of an investment wher e the person doing this knows the 
information to be false or misleading. 
Distortion and Distortion and misleading behaviour re fers to behaviour that 
                                                
 
186 UK FSA, http://www.fsa.gov.uk/pubs/public/market_abuse.pdf  
 
EN 104   EN misleading behaviour gives a false or misl eading impression of either the supply of, 
or demand for, an investment; or behaviour that otherwise 
distorts the market in an investment. 
The following specific terms are also commonl y referred to when describing abusive 
practices. 
Churning Churning is where a broker conducts excessive trading on a 
client's account in order to increase their commission.  
Pump And Dump Pump and dump is where persons who already hold a 
long position in an instrument aim to increase its value by spreading false, misleading or exaggerated information about it. The position is then sold at the higher price and a profit is made.  
Short And Distort Short and distort is the opposite of Pump and Dump 
and is where a person shor t-sells an instrument and 
then spreads negative rumour s in an attempt to drive 
down the instrument's price and realized a profit. 
Front Running Front running is wher e a broker intentionally trades 
because of and ahead of a client order. For example a 
broker who buys 100 Comp any A shares, before 
executing a client's order for 100,000 Company A shares (with the large client order possibly increasing the share price). 
Interpositioning Interpositioning is  where a broker adds another 
intermediary in a trade, even if not required. This increases commissions of the intermediary for which the original broker will gene rally also gain some form 
of benefit – e.g. through mu tual interpositioning or 
other benefits. The client ultimately loses out by not receiving best execution. 
Spoofing or Layering Spoofing and la yering are a form of order book 
manipulation and involve put ting apparent trades on 
order books to create a misleading impression of the stock price or liquidity. For example an abuser will: 
• submit multiple orders at different prices on one side 
of the order book slightly away from the touch; 
• then submit an order to th e other side of the order 
book (which reflected the true  intention to trade); and 
• following the execution of the latter order, rapidly 
removing the multiple initial orders from the book.  
By submitting the false orders the abuser gives the 
 
EN 105   EN market a misleading impre ssion which may encourage 
them to trade with the intended order. 
 
EN 106   EN ANNEX 6 – STAKEHOLDERS CONCERNED BY MARKET ABUSE  
• Investors are the most concerned by market a buse, as they are the main victims who suffer 
economic losses or lose confiden ce as a result of insider trad ing or market manipulation. 
Investors may also perpetrate mark et abuse (knowingly or otherwise); 
• Financial intermediari es, who may also suffer economic lo ss as a result of market abuse 
and who have to report to regulators suspicious transactions they execute on behalf of their 
clients. Intermediaries may also perpetra te market abuse (knowingly or otherwise); 
• Trading venues, including regulated markets, MT Fs and other types of trading facilities, 
who have to have in place surveillance tools to monitor their market s for possible insider 
dealing or market manipulation; 
• Issuers, whether companies or governments, wh o may see the prices of their shares/bonds 
affected by market abuse, who have to comp ly with obligations to disclose inside 
information and draw up insider lists and ensure that their staff are informed of and comply 
with rules on insider dealing; Persons discha rging managerial functi ons within an issuer 
and closely associated persons must notify the competent authority of transactions 
conducted in shares of the issuer.  
• Small and medium-sized enterprises (SMEs) w ho are already listed or may be considering 
seeking a listing in order to raise capital; 
• Regulators whose responsibility it is to detect , investigate and sanc tion cases of market 
abuse in cooperation with other stakeholders. 
• All natural and legal persons th at might find themselves subject  to investigations, measures 
and sanctions for market abuse practices. 
 
EN 107   EN ANNEX 7 – PROBLEM DEFINITION – BACKGROUND AND TECHNICAL DETAIL  
7.1 Problem 1: Gaps in regulation of new markets, platforms and OTC instruments  
7.1.1. The growth of MTFs not fully covered by the MAD 
The MAD is based on the concept of pr ohibiting insider dealing or market 
manipulation in financial instruments whic h are admitted to trading on a regulated 
market187. At the time when the MAD was adopted , regulated markets were used as a 
proxy for the most liquid and mature market s. Instruments traded on these markets 
were considered to be sufficiently standa rdised, to be the subject of enough public 
information and to have a broad range of investors (including re tail investors), to 
warrant the protections in MAD being applied to them. However, this focus on 
instruments traded on regulated markets has been overtaken by market developments. 
In recent years (especially since the adoption of MiFID), multilateral trading 
facilities (MTFs) have provided more comp etition to existing exchanges, gaining an 
increased share of liquidity and attracti ng a broader range of investors. If an 
instrument is admitted to trading on a regulated market then any trading in that instrument is covered by the MAD, whether the trading of that instrument occurs on 
a MTF, "crossing system"
188 or over-the-counter (OTC). Further, for insider dealing 
(although not for market manipulation), the prohibition extends al so to financial 
instruments not  admitted to trading on a regulated market, but whose value depends  
on such a financial instrument.  
While many of the larger MTFs only tr ade the most liquid EU shares which are 
admitted to trading on a regulated market (and therefore are covered by the MAD), 25 of the 41 MTFs in Europe admit to trading financial instruments which are not admitted to trading on a regulated market
189. Trading in these instruments therefore 
falls outside the scope of the MAD, and although some Member States have 
extended the MAD to such financial instrume nts only traded on MTFs  in whole or in 
part at national level, 8 Me mber States have not done so190. Examples of such 
instruments, that are only  traded on a MTF, include  SME shares, corporate bonds 
and specialist derivative instruments.  
In addition, some regulators and stock ex changes have expressed concern that the 
increasing fragmentation of trading acr oss different venues may make it more 
difficult for a single tradi ng venue or a single regulator to monitor for possible 
market abuse. For example, if a financial instrument is admitted to trading on a number of different trading venues and a user engages in abusive behaviour across 
                                                
 
187 Article 9 para. 1 of directive 2003/6/EC.  
188 A crossing system is an alternative trading system th at matches buy and sell orders electronically for execution 
without first routing the order to an exchange or other organised market whic h displays a public quote.  
189 Source: Unpublished PWC report commissioned by DG MARKT, Data gathering and analysis in the 
context of the MiFID review, p. 315 
190 BG, CY, CZ, EE, IE, LV, RO, SI. Source: CESR Review Panel report, MAD: Options, Discretions and 
Gold Plating , November 2009, Ref CESR/09-1120. 
 
EN 108   EN those venues, they argue this could make it more difficult for an individual trading 
venue or a single regulator to detect such behaviour. 191 
In addition, stock exchanges have argued that  there may be a lack of a level playing 
field between trading venues regarding su rveillance requirements because MTFs may 
either not be covered by the MAD or may be subject to differe nt obligations or 
standards for the monitoring of possible market abuse192.193 
Issues regarding improved cooperation a nd monitoring for market abuse across 
different trading venues and further aligning surveillance requirements for regulated 
markets and MTFs will be addressed in the MiFID Review. The Commission will seek stakeholders views on specific options to address these issues. 
7.1.2. New organised trading functionalitie s not fully covered by the MAD 
With an increase in the use of technol ogy there has been an emergence of new 
organised trading functionali ties that differ from the established trading venues 
(regulated markets and MTFs). Examples of such functionalit ies include broker 
crossing systems (where systems are used to cross client orders in more liquid 
financial instruments), swap execution f acilities and other inter-dealer broker 
systems bringing together th ird-party interests and orders by way of voice and/or 
hybrid voice/electronic execution systems.  
Some of these systems such as broker cro ssing systems relate to more liquid shares 
and financial instruments which are already admitted to trading on a regulated market.
194 In such a case, trading on the systems will automatically be covered by the 
MAD. But in cases where these systems tr ade other financial in struments that are 
only traded on these systems and not on a regulated market (or an MTF), the MAD 
will not apply to them. Some of these instruments may be extremely liquid and standardised (for example credit de fault swaps or sovereign debt).  
This raises the issue of whether certain instruments traded only on these organised 
trading functionalities should be subject to the same pr otections against insider 
trading and market manipulation ensured fo r regulated markets by the application of 
MAD, especially as those instruments become more standardised and there is a broader participation by inve stors in the trading of the instruments. This trend is 
likely to become more prominent in the future  as other EU legislative initiatives will 
                                                
 
191 See intervention by Fabrice Peresse of NYSE Euronext, summary of discussions of panel 2 at 2 July 
2010 public hearing in annex 3 . 
192 Source: Federation of European Stock Exchanges (FESE), Response to the Commission's call for 
evidence – Review of the Market Abuse Directive , p 2. 
193 The requirements for MTFs and regulated markets to monitor for disorderly conduct or conduct that 
may involve market abuse can be found in Articles 26 and 43 respectively of MiFID. Market operators of regulated markets are also subj ect to the requirement in Article 6.6 of MAD to adopt structural 
provisions aimed at preventing and detecting market manipulation practices. 
194 Typically such systems use algorith ms to slice larger parent orders into smaller 'child' orders before 
they are sent for matching. Some systems will try to match only client orders while others also provide 
matching between client orders and house orders (with the permission of clients). If client orders are not 
matched internally they are then routed on to a trading venue for execution. Data collected by CESR 
indicates that the use of such systems is still relativel y insignificant in terms of the overall percentage of 
trading but continues to grow. 
 
EN 109   EN require more standardised and liquid OTC instruments to be traded on organised 
trading facilities such as swap execution facilities.  
7.1.3. Use of related financial instru ments for market manipulation 
In addition to the growth of MTFs and othe r organised trading fac ilities, the focus of 
the MAD on instruments traded on regulated  markets has been overtaken by market 
developments in a second respect. Regulat ors have noted that manipulation of some 
instruments may involve conduct that takes place using financial instruments traded 
outside the relevant market but which ha s an effect on tradi ng of the financial 
instrument on the market. The conduct may occur using a related instrument traded 
OTC or a related instrument traded on a di fferent market (e.g. a derivative instrument 
traded on one market to manipulate an underlying financial in strument on another 
market).195 The potential impact of such cros s-market manipulation is illustrated by 
the recent Amaranth case as described by the Commission services in the impact 
assessment for the proposal for a regul ation on energy market integrity and 
transparency.196  
Currently the MAD does not explicitly proh ibit market manipulation by the use of 
financial instruments not admitted to tradi ng on a regulated market, but that can have 
an impact on such a market. Regulators ha ve expressed concer n that trading of 
instruments OTC (such as CDS)  or on other markets could be used to manipulate the 
value of the related instruments traded on regulated markets – and such market 
manipulation is not clearl y prohibited by the MAD197. This means that there are 
potential risks to investor protection and market integrity which may not be fully 
addressed by the current Directive. Alt hough in practice some Member States (e.g. 
the UK) have interpreted and implemented the MAD so that it prohibits the use of other instruments to manipulate a market, CESR has called for this to be clarified in the revision of the MAD
198. 
7.1.4. Potential use of high speed, high volume  automated trading for market abuse 
Another significant trend since the commen cement of the MAD is the increasing use 
of automated trading. Automated trading, al so known as algorithmic trading, can be 
defined as the use of computer program mes to enter trading orders where the 
computer algorithm decides on aspects of ex ecution of the order such as the timing, 
quantity and price of the order. This form of trading is used by an increasingly wide 
range of market users (including for exampl e funds and brokers). A specific type of 
automated or algorithmic trading is known as high frequency trading (HFT).199  
                                                 
195 Task Force on Commodity Futures Markets, Final Report, Technical Committee of the International 
Organization of Securities Commissions, March 2009 
196 REF: DG ENER IA. 
197 CESR’s response to the European Commission’s call for evidence on the review of Directive 
2003/6/EC (Market Abus e Directive), p.3. 
198 Ibid, p3. 
199 Although there is debate about how it should be defined, it is perhaps best defined as trading that uses 
sophisticated technology to try to interpret signals from the market and, in response, executes high volume, automated trading strategies, usually either quasi market making or arbitraging, within very 
short time horizons
199. It usually involves execution of trades as principal (rather than for a client) and 
involves positions being closed out at the end of the day.  
 
EN 110   EN A significant risk associated with the advent of automated trading is the threat it 
potentially can pose to the orderly functio ning of markets in certain circumstances200. 
In addition, specific strategi es that can potentially be applied by automated trading 
can also raise questions as regards market abuse and if regulatory changes are needed 
to address the potential abuse201. For scope and application of the Market Abuse 
Directive this raises two issues  that need to be addressed: 
whether the definition of mark et manipulation is adequate ly designed to capture new 
trading strategies associated with automated and HFT that may constitute manipulative behaviour; and 
whether regulators have sufficient tools available to keep up with technological and 
market structural developments so that th ey can effectively and swiftly detect and 
investigate cases of market manipulation.  
In respect of the former, the definition of  "market manipulation" in MAD is very 
broad and capable of applying to abusive behaviour no matter what medium is used 
for trading. Notably, the de finition of market manipulatio n expressly states that it 
should be adapted to ensure that new pa tterns of activity can be included. Some 
regulators have already published informa tion about specific automated trading 
practices that constitute ma nipulation of an order book and therefore are contrary to 
the MAD
202. However, there appears to be a case for better and uniformly defining 
abusive strategies in the area of automate d trading across the EU. That way a more 
consistent approach could be taken by competent authorities to monitoring and 
enforcing any such abusive behaviour and also  legal certainty for market participants 
could be enhanced.  
The latter point regarding the tools available to regulators will be addressed in the 
MiFID Review. There could be increased transparency  to regulators regarding 
algorithmic and HFT and there may be a need to strengthen organisational 
requirements risk controls for automate d trading. Therefore, in the upcoming 
consultation paper on the MiFID Review  the Commission is going to seek 
stakeholders views on pr oposals in this area. 
7.2. Problem 2: Gaps in regulation of commodity and commo dity derivatives 
markets 
Market abuse may take place across markets. Manipulative schemes can extend 
across different types of markets, and a pers on can benefit from inside information in 
one market by trading on another. This raises special concerns for commodities markets, where market integrity and tran sparency rules apply to the derivatives 
markets but not to the underlying markets.  It is beyond the scope of financial 
regulation to govern non-financial markets. This is because each underlying 
                                                
 
200 The so-called "flash crash" of 6 May 2010 is a possible case in point although the specific trigger of 
events appears not to relate directly to HFT, cf. http://www.sec.gov/news/studies/2010/marketevents-
report.pdf.  
201 Securities and Exchange Commission, "Concept Release of Equity Market Structure" , 14 January 2010, 
http://www.sec.gov/rules/concept/2010/34-61358.pdf, p. 54 
202 Notably, the UK FSA, cf. http://www.fsa.gov.uk/pubs/newsletters/mw_newsletter33.pdf.  
 
EN 111   EN commodity market has a different market structure and set of price drivers. The 
degree to which commodities are interchange able and portable may also vary greatly, 
and their production patterns are global.  
In contrast, financial instruments are fungibl e and tied to an issu er in a particular 
jurisdiction. Strong business secrecy and geopolitical is sues may also affect and 
abruptly alter information flows and there is less systematic disclosure of market 
relevant information than in the case of fi nancial instruments. Issues specific to each 
commodity market, as well as issues arising from their interconnectedness with financial markets, will be addressed in  the forthcoming Commission Communication 
on commodity and relate d derivative markets. 
General rules, such as the prohibition agai nst fraud, apply to physical markets, but 
there are no general provisions that ensu re transparency of trading activity and 
prices, and that govern how tr aders are required to behave . Such rules may in some 
cases be set by a market operator, at the market level by a self -regulatory body, at 
national level, or they may not exist at all. As a result, the level of regulation that applies to the underlying market ma y be different for each commodity. 
Typically, rules governing commodities markets do not require comprehensive 
disclosure of inside information, nor  record keeping of transactions, and 
manipulative behaviour in such markets is not generally prohibited. Further, 
underlying commodities markets are extremely diverse. Unlike trading in the financial instruments, trading in the underlying commodities may not be centralised and often may take place outside the EU (either partially or totally). 
7.2.1. Lack of transparency in commodities mark ets trading for market participants and 
supervisors 
Commodities markets are not subject to the same rules on trading activity as 
financial markets. Regulators  have noted that the requi red information that would 
enable them to detect market abuse in energy markets is not available and express 
concern about the potential for such abuses to take place.203 Under MiFID, only 
transactions in commodity derivatives that are admitted to trading on a regulated market are reported.
204 Transactions in commodities markets are not reportable, nor 
are OTC instruments the value of which depends on that of commodities. In particular, there is currently no complete picture of trading in the energy market. 
However, the Commission has adopted a proposal on Energy Market Integrity and 
Transparency, which introduces a new ener gy market regulator. The Commission has 
also adopted a Regulation on the timing,  administration and other aspects of 
auctioning of greenhouse gas emission allowances
205 which addresses market 
oversight issues, and the Commission' s recent Communication on carbon market 
oversight206 provides a preliminary, high-level as sessment of the current levels of 
                                                 
203 CESR and ERGEG advice to the European Commissi on in the context of the Third Energy Package, 
Response to Question F.20 - Market Abuse, October 2008, page 3 
204 Article 25(3) of Directive 2004/39/EC and Articles 10 to 14 of Regulation 1287/2006 
205 http://eur-lex.europa.eu/LexUriServ/LexUriSe rv.do?uri=OJ:L:2010:302:0001:0041:EN:PDF 
206 COM (2010) 796 final, 21.12.2010. 
 
EN 112   EN protection of this market from market misconduct. Currently, there are no similar 
proposals to cover other commodities markets. 
7.2.2. Lack of cooperation between supervisor s of physical and financial commodity 
markets 
In addition to the concern over market integrity and transparency rules, there is also 
the issue of market structure. Commodity derivatives markets are integrally linked 
with commodity markets through the actions of traders located around the world. For instance, many commodity trading firms are based in Switzerland, where they generate one third of world trade in crude oil even in the abse nce of a liquid spot 
market or centralised futures exchange.
207 These commodity traders act as 
intermediaries, selling commodities on a forward basis, and hedging themselves in both the commodity and derivatives market s. They will therefore also be the 
counterparty to many deriva tives trades. Both market s therefore need to be 
monitored in as comprehensive a way as possible for abuses . 
Commodity markets share the common feature of being global, but apart from that 
the structure of the market is different  for each commodity. While some commodities 
are to a large extent traded on central plat forms, such as the CME in Chicago and the 
LME in London, others may work on a pur ely bilateral basis. Trading may be 
relatively transparent in one market, but pric es and trades may be entirely opaque in 
another. The detection of ma rket abuse may be more diffi cult for commodities due to 
the global nature of these markets. When manipulative strategies extend across both 
the commodity and the commodity deriva tives market, detection and prosecution 
would require cooperation between aut horities overseeing these markets. 
Financial regulators have signalled the need to take a greater interest in the physical 
commodity markets and to cooperate more closely and share information
208. 
However, currently there is no obligation in the MAD for fi nancial regulators to take 
into account developments on physical commodity markets when monitoring 
financial markets for possi ble market abuse, or to cooperate and exchange 
information with regulators of physical mark ets. Since it is possi ble for transactions 
on physical markets to be used to manipulat e the prices of instruments on financial 
markets and vice-versa, as explained a bove, this lack of cooperation between 
physical and financial mark et regulators could underm ine the integrity of both 
physical and financial markets.209 
                                                 
207 http://www.gtsa.ch/geneva-global-trading-hub/key-figures 
208 Task Force on Commodity Futures Markets, Final Report, Technical Committee of the International 
Organization of Securities Commissions, March 2009 
209 The Commission has adopted a proposal on Energy Market Integrity and Transparency, which 
introduces a new energy market regulator, and a proposal on the timing, administration and other 
aspects of auctioning of greenhouse gas emission allowances establishing a scheme for greenhouse gas emission allowances trading. These proposals do not cover other commodities markets. 
 
EN 113   EN 7.2.3. Lack of information that affects commodity prices 
The definition of inside information a pplicable to derivatives on commodities210 lays 
down a specific standard, which differs fr om the general definition of inside 
information applicable to all other financial instruments.211 Essentially, for 
commodity derivative markets the determin ation of what should be regarded as 
inside information is largely determined by the transparency standards prevalent in 
both the spot and the derivative ma rket of the relevant commodity.212 Experts have 
noted that the definition of  inside information for commodity derivatives is not 
precise enough in certain key commodity ma rkets, which creates legal uncertainty 
for market participants.213 
In recent years, several studi es have drawn attention to a lack of transparency of 
fundamental commodity market information.214 Despite a certain amount of 
information being published - on generation, transmission, transportation, storage, 
capacity levels, etc - transp arency of fundamental data  has to be improved. In 
particular, rules and practices are not pr ecise enough and/or not legally binding, and 
are different from one commodity market to  the next. The level of regulation may be 
different for each market as well.  
The lack of a legally binding definition of  what is considered to be inside 
information in commodity derivatives markets means that investors on commodity 
derivatives markets are less protected from  information asymmetry in the underlying 
market than investors in de rivatives of financial market s. Energy market regulators 
cite concern among market participants that there are information asymmetries 
linked to a poor level of transparen cy which may lead to market abuse.215 
                                                 
210 Article 1.1 § 2 of Directive 2003/6/EC and impl emented in Article 4 of implementing Directive 
2004/72/EC. 
211 Article 1.1 § 1 of Directive 2003/6/EC 
212 This standard refers to informa tion which: (i) one would expect to receive routinely as a user of the 
relevant markets; and (ii) would be  disclosed in accordance with legal or regulatory provisions, market 
rules or other accepted market practice on the releva nt underlying commodity or commodity derivative 
market. 
213 ESME Report,  Market abuse EU legal framework and its implementation by Member States: a first 
evaluation, Brussels, July 6th, 2007, page 17. 
214 Task Force on Commodity Futures Markets, Final Report, Technical Committee of the International 
Organization of Securities Commissions, March 2009, page 11 
The Need for Transparency in Commod ity and Commodity Derivatives Market s, Piero Cinquegrana, European 
Capital Markets Institute (ECMI) (2008) 
IMF,  Word Economic Outlook,  October 2008 
215 CESR and ERGEG advice to the European Commissi on in the context of the Third Energy Package, 
Response to Question F.20 - Market Abuse, October 2008, page 3. The Commission has adopted a 
proposal on Energy Market Integrity and Transparency, which contains a definition of inside 
information based on the definition used in MAD and applies it to wholesale energy markets. It has also 
adopted a proposal on the timing, administration and other aspects of auctioning of greenhouse gas emission allowances establishing a scheme for greenhouse gas emission allowances trading, which lays 
down requirements for ensuring mark et transparency, integrity and investor protection. These proposals 
do not cover other commodities markets. 
 
EN 114   EN 7.2.4. Uncertainty on who is respons ible for disclosing inside information in relation to 
commodity derivatives 
Article 6 of the level 1 dire ctive suggests that, like all issuers of other financial 
instruments admitted to trading on regu lated markets, issuers of commodity 
derivatives admitted to trading on regulated markets are required to publicly disclose inside information. However, the "issuer" of a commodity derivative is usually the 
market operator or some other specific part icipant, who will only possess a small part 
of the information covered by the transparen cy standards prevalent in both the spot 
and the derivative market of  the relevant commodity. While the market operator or 
other participant who issued the instrume nt may have valuable information with 
regards to trading activity, he will not be privy to unpublished fundamental data of 
the underlying market (generation, transmission etc...). So in this re spect the issuer of 
a commodity derivative is in quite a differe nt position to an issuer of other types of 
securities such as shares or debt. This point has been recognized by many 
stakeholders, notably CESR/ERGEG in the energy field
216. Regulators have noted 
that it will typically be market particip ants in the product markets who possess such 
information, but it may not be appropri ate to consider them to be issuers.217 
As a result, there is no general legal obligation which ensures the disclosure of price 
sensitive information in the commodities ma rkets. This means that such information 
may not be published, or only publ ished in a fragmented way. 
Respondents218 to the public consultation have raised the point that commodity 
markets vary according to the type of comm odity and were of the opinion that tailor-
made, sector specific transparency regime s that would enhance transparency in the 
spot markets would be a good so lution. They have argued that a legal framework for 
transparency on fundamental data in the commodity spot markets should also allow 
for a better application of the MAD defin ition of inside information for commodity 
derivatives.219  
7.2.5. Concern that speculation in derivatives  markets affects commodity prices  
Concerns have been raised that invest ment in certain derivative markets (e.g. 
commodity derivatives linked to the 2008 food and oil crisis), initially intended for 
risk management purposes, has grown beyond desirable levels and contributed to 
dislocations in the underlying market. 
                                                 
216 http://www.cesr-eu.org/index.php?page=doc ument_details&from_title=Documents&id=5270 
217 European Commission Consultation Paper on a Revision of the MAD, Contribution des autorités 
françaises 
218 For example FOA, AIMA, AFG and ICAP. 
219 Level 2 implementing measure, namely of Article 4 of the Directive 2004/72/EC. The Commission has 
published a proposal on Energy Market Integrity  and Transparency, which will require all market 
participants in wholesale energy markets to disclose inside information. It has also published a proposal 
on the timing, administration and other aspects of auctioning of greenhouse gas emission allowances establishing a scheme for greenhouse gas emissi on allowances trading which lays down uniform 
requirements ensuring market transparency, integrity and investor protection. These proposals do not 
cover other commodities markets. 
 
EN 115   EN For instance, the price rises in respect of  certain staples may be attributed to a 
substantial extent to sp eculation by different actors  in the food commodity 
markets,220 high food prices are partly driven  by speculation from new financial 
players, mainly short run,221 and index traders may increa se futures prices, impede 
price convergence and contri bute to fluctuations.222 
Speculation, however, is a necessary feature of any liquid and efficient market. 
Drawing a line between speculative and hedging  activities is notoriously difficult, as 
is establishing correlations between its role in derivatives trading and effects in the underlying market. It is also  crucial to remember that  speculation is not market 
manipulation. The latter consists in distor ting or trying to di stort the price of a 
financial instrument, while speculation is taking a risk in the market in order to benefit from future price changes. 
Other studies have found that commodities futures signal the expectations about the 
future directions of the spot prices rather than determining these prices,
223 and 
produce findings consistent with the hypothe sis that speculators play a role in 
providing liquidity to the ma rkets and may benefit from price movements, but do not 
have a systematic causal influence on prices.224 
When speculation uses abusive methods to manipulate pri ces on a market it 
constitutes market manipula tion and is covered by MAD. Therefore the issue of 
speculation will be considered by the Commission in other initiatives. In particular, traders may take large positions which could harm market stability. This issue will be 
addressed in the review of the Market s in Financial Instruments Directive 
(2004/39/EC), which considers the option of giving regulators the power to set limits 
on derivative positions market particip ants can hold under certain conditions. 
7.2.6. No prohibition against market m anipulation in commodities markets 
Market manipulation in commodities markets is currently not prohibited. While 
MAD prohibits market manipulation in  commodity derivatives markets, 
manipulation of the underlying markets is currently not prohibited. Also, 
manipulating derivatives markets through commodities markets is not adequately covered under the current directive. 
Regulators have expressed concern that th e scope of MAD may not properly address 
market integrity issues in energy markets,  as physical products are not covered.
225 
                                                 
220 UNCTAD, Addressing the global food crisis. Key trade, investment and commodity policies in 
ensuring sustainable food security and alleviating poverty, 2008 
221 Timmer, C. Peter. Causes of High Food Prices . Asian Development Bank Working Paper Series No. 
128, October 2008 
222 U.S. permanent sub-committee on in vestigations, "excessive specula tion in the wheat market," June 
2009 
223 Commission Staff Working Document – Task force on the role of speculation in agricultural 
commodities price movements, SEC (2008) 2971 
224 IMF, Global Economic Outlook, September 2006. 
225 CESR and ERGEG advice to the European Commissi on in the context of the Third Energy Package, 
Response to Question F.20 - Market Abuse, October 2008, page 15 
 
EN 116   EN This is due to the fact that manipulativ e strategies may involve market conduct in 
several related markets.226 
7.2.7. Commodity derivatives may be used  to manipulate commodity prices 
Regulators have noted that manipulative schemes in commodities markets may 
involve conduct that take s place on commodity future s, OTC derivatives and 
physical commodity markets.227 The potential impact of such cross-market schemes 
is illustrated by the recent Amaranth case for energy markets.228 Public authorities 
have also signalled that the European le gal framework is not suited to address 
manipulative strategies that extend ac ross physical and derivatives markets.229 
For instance, a manipulative strategy may i nvolve taking a large derivatives position; 
stockpiling the underlying commodity, and th en requiring the counterparties on the 
derivatives deals to settle the derivatives  contracts by physical delivery of the 
underlying. 
Of notable concern are case s where derivatives are used  to manipulate the underlying 
commodities market. Derivatives contribute to price formation in the underlying and as such can impact its price. Distorted co mmodity prices will affect end users in the 
real economy. The MAD framework does not fully  capture this type of abuse, as the 
current definition of market manipulation is li mited to transactions or orders to trade 
which distort the prices of fina ncial instruments to an artificial level. Transactions in 
derivatives which distort the prices of other financial in struments are illegal, while 
transactions in derivatives which distor t the prices of physic al markets are not 
covered under the current defi nition of market manipulatio n. This means that market 
manipulation of prices on physical commod ities markets by the use of commodity 
derivatives is not currently prohibited by the MAD. 
7.3. Problem 3: Regulators cannot effectively enforce 
Part 1: Regulators lack ce rtain information or powers  
7.3.1. Insufficient information available to regulators to monitor market integrity 
Article 6(9) of the MAD requires persons professionally arrangi ng transactions in 
financial instruments to report suspicious transactions to the competent authority 
without delay. This measure aims to improve  transparency and is a primary source of 
information to ensure that market abuse can be detected by competent authorities. 
                                                 
226 The Commission has adopted a proposal on Energy Market Integrity and Transparency, which will 
establish rules prohibiting manipulative practices on wholesale energy markets. It has also adopted a 
proposal on the timing, administration and other aspects of auctioning of greenhouse gas emission 
allowances establishing a scheme for greenhouse gas emission allowances trading which lays down uniform requirements ensuring market transparency, integrity and investor protection. These proposals 
do not cover other commodities markets. 
227 Task Force on Commodity Futures Markets, Final Report, Technical Committee of the International 
Organization of Securities Commissions, March 2009, page 15 
228 Proposal for a regulation on Energy Market Integrity and Transparency, Impact Assessment, 
SEC(20101510), 08/12/2010  
229 European Commission Consultation Paper on a Revision of the MAD, Contribution des autorités 
françaises 
 
EN 117   EN However, as explained above in section 7.1. 1.1, 7.1.1.2 and 7.1.1.3, due to market 
developments, some increasingly important markets and instruments have remained outside the scope of the MAD. Consequent ly these markets and instruments remain 
in-transparent and outside the supervisory oversights of competen t authorities. As a 
result market abuse remains undetected. 
The reporting of OTC transactions on in struments not admitted to trading on a 
regulated market to the competent authori ties is not currently mandatory, and such 
reporting would make it easier for regulators to  address any issues of market integrity 
which might emerge
230. This issue falls outside the scope of the MAD review but 
will be addressed in the MiFID review, si nce that is where transaction reporting 
requirements are provided for. Options unde r consideration in the context of the 
MiFID review relating to th e widening of the current sc ope of reporting concern (i) 
transactions on instruments only traded on MTFs; and ( ii) transactio n or position 
reporting on OTC derivatives. 
An additional problem is that while Article 6(9) of the MAD requires persons 
professionally arranging transactions in fi nancial instruments to  report suspicious 
transactions to the competen t authority without delay, th is obligation doe s not extend 
to suspicious orders or to suspicious OTC transactions, including in derivatives. 
However, orders can be used for market  manipulation without being executed (for 
example by placing a large number of orders  to give a mislead ing signal of demand 
for an instrument, which affects the price of the instrument while the orders are withdrawn). In addition, CESR has called on the Commission to make the reporting 
of suspicious transaction reports on OT C derivatives mandatory as regulators are 
concerned about the potential for OTC deriva tives to be used fo r insider dealing and 
market manipulation
231. 
7.3.2. Insufficient investigation pow ers of competent authorities 
a) access to telephone and ex isting data traffic records 
Article 12 of the MAD stipulates that comp etent authorities must  have the right to 
“require existing telephone and existing data traffic records” . In accordance with 
article 12(1) of the MAD, this powers can  be exercised (a) directly; or (b) in 
collaboration with other aut horities or with the market; or (c) under its responsibility 
by delegation to such authori ties or to the market undertak ings; or (d) by application 
to the competent judicial authorities. In practice, two types of data constitute important evidence to detect and prove the ex istence of market a buse such as market 
manipulation and insider dealing: data records from investment firms executing 
transactions and telephone data records from telecom operators.  
                                                
 
230 Article 25(3) of Directive 2004/39/EC (MiFID) and Ar ticles 10 to 14 of Regul ation 1287/2006/EC implementing 
MiFID establish the current requirement s for transaction reporting. This applies to any financial instrument 
admitted to trading on a regulated market whether or not the transactions were carried out on a regulated market. 
Member States have the option, pursuant to Recital 45 of  Directive 2994/39/EC, to requ ire reports on transactions 
also in financial instruments that are not admitted to trading on a regulated market, such as various OTC 
derivatives. A number of Member States (e.g. UK, ES, AT) have exercised this option, and others have committed 
to following suit (CESR/09-1036).  
231 CESR’s response to the European Commission’s call for evidence on the review of Directive 
2003/6/EC (Market Abuse Directive), p. 6. 
 
EN 118   EN First of all, Member  States can require  access to telephone and data traffic records 
relating to trading kept by investment firms (e.g. to provide evidence of the 
conclusion of a contract) to en sure that competent authorit ies are able to investigate 
and detect suspected market abuse. Second,  in more specific cases, for example to 
establish whether inside information has b een transferred from a primary insider to 
someone trading with this inside informa tion, access to telephone data records held 
by telecom operators can be ve ry important evidence. For example, this data would 
represent important can be sometimes th e sole evidence in a case where a board 
member of an company in possession of inside information may have transferred 
inside information by phone to a friend, re lative or family memb er who afterwards 
executes a suspicious transaction based on the inside information received. The telephone traffic records from telecom operato rs could can be used  by the regulator 
to demonstrate that a call had been placed by the primary insider to their friend or 
relative shortly before that person then calle d their broker to instru ct them to make a 
suspicious transaction. The traffic reco rds from telecom opera tors would provide 
evidence of a link which could be used as evidence to sanction the case. 
Therefore, access to this data from tel ecom operators is considered among the most 
important issues for the accomplishment of the investigatory and enforcement tasks 
of CESR members.
232 Access to the data held by telecom operators by the competent 
authorities is covered by ar ticle 15 of Directive 2002/58/EC233 (e-Privacy Directive) 
which restricts access to these r ecords to cases where it is " a necessary, appropriate 
and proportionate measure within a democr atic society to safeguard national 
security (i.e. State security), defe nce, public security, and the prevention, 
investigation, detection and pros ecution of criminal offenc es or of unauthorised use 
of the electronic communication system, as re ferred to in Article 13(1) of Directive 
95/46 /EC." Some Member States234 have reported that this  provision has made it 
impossible for them to obtain access to ex isting telephone data r ecords from telecom 
operators to provide evidence for the investigation and sa nctioning of market abuse 
when the authority does not have the possibili ty to pursue criminal cases. As a result, 
specific market abuses subject to admini strative measures and/or administrative 
sanctions may remain undetected and uns anctioned regardless of the powers 
provided by article 12 of the MAD.  
It should be noted that any policy measur es with regard to access to telephone data 
records from telecom operators should be assessed on their necessity and 
proportionality, in compliance w ith article 8 of the EU ch arter of fundamental rights 
and article 16 of the TFEU.  
b) Power to ask permission  from a court to enter private premises and seize 
documents 
                                                 
232 CESR answer to the call for evidence on the review  of the MAD, of 20 April 2009, available at 
http://ec.europa.eu/internal_market/consultations/2009/market_abuse_en.htm. 
233 Directive 2002/58/EC of the European Parliament and of the Council of 12 July 2002 on processing of personal 
data and the protection of privacy in  the electronic communications sector.  
234 CY, ES, FI, LV, NL, CESR report, p.98, Ref. CESR/09-1120, available at www.cesr-eu.org ; CESR answer to 
the call of evidence on the review of the MAD, of 20 April 2009.  
 
EN 119   EN For the purpose of detecting market abuse, it is important for competent authorities 
to have the possibility to be granted acce ss to private premises and seize documents. 
This is particularly necessary where:  (i) the person to whom a demand for 
information has already been made fails (wholly  or in part) to comply with it; or; (ii) 
where there are reasonable grounds for believi ng that if a demand were to be made, it 
would not be complied with, or that the documents or information to which the 
information requirement relates, would be removed, tampered with or destroyed.  
While currently all jurisdictions provi de for access to any document, not all 
competent authorities have the power to en ter private premises and seize documents 
avoiding the risks described above. As a result, the risk exists that competent 
authorities in such cases are deprived fr om important and necessary evidence, and 
accordingly, market abuse remain s undetected and unsanctioned.  
In this context, is important to point out that such an access constitutes an 
interference with the funda mental right to private and family life, recognised by 
Article 7 of the EU Charter and could c onstitute a limitation to the freedom to 
conduct a business. Therefore, attention sh ould be paid to the decision of the 
EUCHR of 21.12.2010 (Primagaz v. France (no. 29613/08), Sociét é Canal Plus and 
Others v. France (no. 29408/08) concerning the searches of their premises by 
competition authorities, in which the app licants were suspected of anti-competitive 
practices, and where various documents and data media were seized. The Court has found that the conditions applicab le to this search were in breach of articles 6, of the 
European Convention of HR namely because  there was no effective judicial review 
of the lawfulness and well-foundedness of the search and seizure orders. The national 
legal measures must also provide for appropr iate redress in case of unlawful search 
and seizure. 
7.3.3. Attempts at market m anipulation not prohibited  
Another gap in the Directive is that currently it does not cover 'attempts' at market 
manipulation235, so proving a market manipulat ion requires a regulator to 
demonstrate the either an order was placed or a transaction was executed and that it 
had the effect of manipulating the market , and this is not al ways possible. For 
example, there may be situations where a person takes steps and there is clear 
evidence of an intention to manipulate the ma rket but for some reason either an order 
is not placed, or a transactio n is not executed, or it is not possible to prove that the 
action had the intended effect. Providing for an offence of 'attempted market 
manipulation' would provide re gulators with a tool to sanction attempts at market 
manipulation which do not succeed, or cases wh ere it is difficult to prove the effect 
of the attempt but there is clear evidence of an intention to manipulate the market. 
The United States has a provision prohibiti ng attempted market manipulation in its 
legislation and has prosec uted cases on this basis236. 
                                                 
235 Article 6 para. 9 of Directive 2003/6/EC. 
236 See intervention by Stephen Obie, Commodities and Futures Trading Commission (CFTC), summary of 
the MAD hearing of 17 July 2010 in annex 3. 
 
EN 120   EN 7.3.4. Absence of protections and incentives for whistle blowers 
When investigating market abuse, compet ent authorities have many investigatory 
tools at their disposal; however a useful  source of primary information is the 
financial industry itself, which may alert co mpetent authorities to cases of suspected 
market abuse. Such alerts, which may come from a diverse range of participants, are 
sometimes referred to as "whistle blowing"237. However, provisions for whistle 
blowing within Europe diffe r significantly and there ar e key areas where current 
provisions are considered insufficient; sp ecifically - the protection available to 
whistle blowers, the lack of appropriate processes in place by competent authorities 
for the reporting of whistle blowing and the lack of incentives for persons to "blow the whistle".  
Insufficient protecti on for whistle blowers   
Currently, the protection available to whistle blowers within the EU is generally 
limited to national horizontal employment laws and in some cases does not exist at all
238. Without sufficient protection, market pa rticipants who may be  aware of market 
abuse may not feel confident to report their suspicions fo r fear of reprisals (for 
example losing their job, not gaining pr omotion or other discrimination by their 
employer). As a consequence of this, there is a significant chance that these cases are 
not investigated. 
Lack of appropriate processes in place by competent authorities 
At present member states have no specific pr ovisions in place for whistle blowing for 
the purpose of market abuse to alert comp etent authorities to potential cases of 
market abuse and have issued little guidance on the subject239. Whilst firms generally 
have their own internal procedures, compet ent authorities play a vital, independent, 
3rd party role for whistle blowers who cannot raise an issue intern ally or who have 
tried to raise an issue internally without success. As a consequence, whistle blowers may be discouraged from contacting compet ent authorities and so potential cases of 
market abuse may go unreported. 
It is also important that competent author ities take appropriate steps to examine the 
information provided by whistle blowers. Whilst there have been no examples in 
Europe of competent authorities failing to review information appropriately, there is 
some evidence in the US. Most notable is the fraudulent hedge fund run by Bernard Madoff for which, between 1992 and 2008, the SEC received six substantial complaints all of which were dismissed
240. Therefore there is the potential problem, 
                                                 
237 Alerting authorities to possible issues, or "Whistle Blowing", is not limited to the financial sector. 
Indeed, it is an established tool which has benefited many industries and sectors – for example 
abnormalities in a firm's accounting, malpractice within a government department, potential issues 
affecting persons health and safety and environmental issues. 
238 Feedback received from CESR-Pol members, December 2010. 
239 Whilst some member states alread y have provisions in place (e.g. UK FSA has a public email address, 
telephone number and guidance on its website), the majority do not. 
240 SEC - Office of Inspector General, Investigation of Failure of the SEC To Uncover Bernard Madoff's 
Ponzi Scheme, Case No. OIG-509, August 2009  
 
EN 121   EN as seen in the US, that competent authori ties may not have the appropriate internal 
processes in place to adequate ly review information sour ced from whistle blowers. 
Insufficient incentives for whistle blowers   
In addition to the above two points, some participants with potentially valuable 
information to regulators do not always ha ve a regulatory obligation to report this 
(for example workers in a prospectus prin ting firm), whilst other participants may 
stand to lose personally if they do report th eir suspicions (for example they may find 
it hard to find employment after being name d as a "whistle blower"). Such persons 
may therefore lack the incentive to report suspected market abuse to the authorities. As a consequence there is a high possibility that cases of market abuse which may 
have been brought to the at tention of the competent au thority actually remain 
undetected. It is in order to  provide an incentive for su ch persons that the US is 
currently finalising specific provisions for financially re warding whistle blowers who 
report fraudulent or corrupt  trading activity – with those who provide such 
information potentially sharing between 10- 30% of any fine over $1million levied by 
the CFTC or SEC
241.  
Whistle blowing has proved to be a useful  tool across many sectors - according to a 
recent survey analysing 360 cases across Eu rope, Middle East and Africa, 25% of 
occurrences of fraud came to light as a result of whistle blowing – more than any 
other actor including regulator s, auditors and the media242. In the case of market 
abuse, whistle blowing can also be a pow erful tool, not only providing evidence in 
specific cases but also helping regulators  to enhance their market intelligence and 
maintain an overview of suspected abus es/abusers. In the UK, for example, 
approximately 30% of investigations are orig inated via a member of the public or an 
anonymous person contacting its telephone he lpline or email inbox (excluding those 
originated by suspicious transaction reports or stock exchange notifications)243.  
It should be noted that whistle blowing ra ises issues regarding the protection of 
personal data (Art 8 of the EU Charter and Art. 16 of the TFEU) and the presumption 
of innocence and right of defence (Art. 48)  of the EU Charter. Therefore, any 
implementation of whistle blowing sche mes should comply and integrate data 
protection principles and cr iteria indicated by EU data protection authorities244 and 
ensure safeguards in compliance with  the Charter of fundamental rights. 
                                                 
241 The Financial Regulation Bill (also known as the Do dd-Frank Act) includes the provision for a reward 
programme to compensate whistleblowers who report fr audulent or corrupt trading activity to the CFTC 
or SEC. Passed in July 2010, but with the detailed rules still to be fully implemented, a new fund would 
pay out between a minimum 10% and a maximum 30% of the recovered funds from a violation of more 
than $1 million. 
242 Alternative to Silence, Whistle blowing prot ection in 10 European Countries; Transparency 
International, 2010. Source – KPMG Forensic, profile of Fraudster, Survey 2007 
243 Figures provided by UK FSA for pe riod 01 December 2009 – 30 Novemb er 2010. This figure excludes 
the cases which are originated by Suspicious Transaction Reports or Notifications by Exchanges, 
including these, approximately 6% of all cases are originated by members of the public or anonymous persons. 
244 Article 29 Working Party in its Opinion 1/2006 on the application of EU data protection rules to 
internal whistle blowing schemes in the fields of acc ounting, internal  accounting controls, auditing 
 
EN 122   EN Part 2: Sanctions for market a buse are lacking or not dissuasive  
The report by the High-Level Group on Financial Supervision in the EU245 
recommended that "sound prudential and conduct of business framework for the 
financial sector must rest on strong supervisory and sa nctioning regimes". To this 
end, the group considers supervisory aut horities must be equipped with sufficient 
powers to act and should be able to rely  on "equal, strong and deterrent sanctions 
regimes against all financial crimes sanctions  which should be enforced effectively".  
Effective enforcements require that, in  accordance with article 14 of Directive 
2003/6/EC, measures are "effective, proportiona te and dissuasive". This implies that 
sanctions should be available to competent authorities and sufficiently dissuasive. In 
addition, effective enforcement also relates to the resources of competent authorities, 
their powers and their willingness to detect and investigate abuses.  
However, the High-Level Group considers that "none of these is currently in place" 
and Member States sanctioning regimes ar e regarded as in general weak and 
heterogeneous. To this end, the Commission has publis hed a Communication246 with 
regard to sanction regimes in the financial sector. 
7.3.5. Not all Member States have all types of sa nctions at their dispos al to exercise their 
powers to sanction  
A first precondition for of an effective sanctioning regime is the availability of a 
wide range of sanctions to th e competent authorities. This is necessary to ensure that 
competent authorities have sufficient tools available to respond with the appropriate 
sanction corresponding to the severity of the market abuse observed. Only when 
competent authorities have a wide range of sanctioning powers are they in a position 
to ensure that sanctions ar e optimal in terms of effec tiveness, proportionality and 
dissuasiveness247. Evidence shows that not all compet ent authorities have all types of 
sanctions available and as a result they do not  posses the tools to act appropriately in 
all circumstances. This is reinforced by the absence of a definition of what is meant 
by administrative measures and administ rative sanctions. For example, 4 Member 
States do not have administrative measure available for insider dealing and for market manipulation. In addi tion, as shown in table 1 respectively 4 and 8 Member 
States do not have pecuniary administrative sanctions av ailable for insider dealing 
and market manipulation. Further, in 8 Me mber States, competent authorities do not 
have the possibility to withdr aw the authorisation in case of  violations. As a result, in 
cases where it would be appropriate and pr oportionate to withdraw authorisation, 
competent authorities would not be allowed to do so. In addition, 18 Member States 
                                                                                                                                                        
 
matters, fight against bribery, banking and financial crime available at 
http://ec.europa.eu/justice/policies/privacy/docs/wpdocs/2006/wp117_en.pdf 
245 Report of the  High-Level Group on Financial Supervision in the EU , Brussels, 25.2.2009, p. 23. 
246 European Commission, Communication on Reinforcing sanctioning regimes in the financial sector , 
COM (2010) 716, 8 December 2010. 
247 European Commission, Communication on Reinforcing sanctioning regimes in the financial sector , 
COM (2010) 716, 8 D ecember 2010, p 4-6  
 
EN 123   EN do not provide for the disqualification/ dismissal of the management and/or 
supervisory body in cases invol ving market manipulation248.  
Table 1: overview of availabili ty of administrative sanctions249 
Administrative sanctions  Insider dealing  Market 
manipulation  
MS without administrative measures 4 4 
MS without administrative 
pecuniary sanctions  8 4 
Source: Executive summary to the repo rt on administrative measures and sanc tions as well as criminal sanctions 
available in Member States under the market a buse directive (MAD), CESR/08-099, available at www.cesr-
eu.org , and additional information received from Member States in 2010.  
7.3.6. Insufficient level of admi nistrative measures and sanctions  (Article 14 of Directive 
2003/6/EC) 
The High Level group on Financial Supervisio n underlined that "san ctions for insider 
trading range from a few thousands of eu ros in one Member State to millions of 
euros or jail in another"250, which could lead to regulat ory arbitrage in a single 
market.  
First of all, the level of administrative pecuniary sanctions va ries widely among 
Member States and in some cases the maximum fine can be considered low and insufficiently dissuasive. When the gains of  a market abuse offence are higher than 
the expected sanctions, the deterrent effect of the sanctions is undermined
251. This is 
reinforced by the fact that the offender mi ght consider that his offence could remain 
undetected. Therefore, to ensure that fines are sufficiently dissuasive, it is important 
that the possibility for an infringement to go undetected is offset by the possibility to 
impose fines which are higher than th e benefit gained from the offence252. As shown 
in table 2, respectively 4 and 9 Member Stat es have sanctions lower or equal to EUR 
200.000 while respectively 10 and 14 Member St ates have sanctions of more then 
EUR 1 Million for the same offences. Thes e sanctions can be considered weak as 
insider dealing and market manipulation offences covered by Directive 2003/6/EC 
                                                 
248 CESR, report on administrative measures and sanctions as well as criminal sanctions available in 
Member States under the Market Abuse Directiv e (MAD), ref CESR/07-693, available at www.cesr-
eu.org 
249 Executive summary to the CESR re port on administrative measures an d sanctions as well as criminal 
sanctions available in Member States under the Ma rket Abuse Directive (MAD), p 2, ref CESR/08-099 
available at www.cesr-eu.org  
250 Report of the  High-Level Group on Financial Supervision in the EU , Brussels, 25.2.2009, p. 23 
251 Wouter Wils, Optimal Antitrust fines – theory and practice, World Competition 2006, p. 190; FSA 
Market Watch newsletter, Our strategy and key objectives for tackling market abuse, issue 26, April 
2008, p.7, available at: www.fsa.gov.uk 
252 Wouter Wils, Optimal Antitrust fines – theory and practice, World Competition 2006, p. 190; FSA 
Market Watch newsletter, Our strategy and key objectives for tackling market abuse, issue 26, April 
2008, p.7, available at: www.fsa.gov.uk 
 
EN 124   EN can lead to gains of several million euros, in excess of the maximum levels of fines 
provided for in some Member States.253  
Table 2 Level of sanctions for insider de aling and Market Manipulation among Member 
States. 
 Insider 
dealing Market 
manipulation 
≤ 200. 000  4 9 Member States with maximum 
administrative sanctions  
> 1 Million  10 14 
Member States with administrative sanctions linked to the benefit 9 11 
No administrative pecuniary sanctions  8 4 
Source: Executive summary to the repo rt on administrative measures and sanc tions as well as criminal sanctions 
available in Member States under the market a buse directive (MAD), CESR/08-099, available at www.cesr-
eu.org , and additional information received from Member States in 2010.  
Second, the criteria to dete rmine the level of sanctions254 vary widely among 
Member States. As demonstrated in table 2, respectively 10 and 11 Member States 
take into account the be nefit obtained through the offence when defining the 
maximum sanction for insider dealing and market manipulation. As stated above, 
when a fine is not considerably higher th an the benefit that may be gained from a 
violation, its deterren t effect is flawed.  
Third, no clear definition exists on what  is meant by administrative measure or 
sanctions within the EU. 
7.3.7. Differences in terms of the nature of th e sanctions (administrative versus criminal 
sanctions ) 
MAD requires Member States to provide fo r administrative sanctions and measures. 
The Directive offers Member States the freed om to provide for criminal sanctions to 
address market abuse. However, there is a wide divergence in which market abuse 
offences are defined as criminal by Memb er States and are therefore subject to 
criminal sanctions, as shown in table 3 below.  
Table 3 – Offences of insider dealing and market manipulation subject to criminal 
sanctions in Member States 
Article of MAD and offence Number of EU countries with Countries without criminal 
                                                 
253 European Commission, Impact a ssessment on Sanctions in the financial Services Sector, p 12; FSA 
Market Watch newsletter, Our strategy and key objectives for tackling market abuse, issue 26, April 2008, p.7, available at: www.fsa.gov.uk  
254 For example: the profit derived from the offence, the financial capacity of the offender including its 
own funds, the loss incurred by third parties 
 
EN 125   EN criminal sanctions sanctions 
Article 2 (insider dealing by a 
primary insider) 26/27 BG (SI has criminal fines not 
imprisonment) 
Article 3a (disclosure of inside 
information by a primary insider)  22/27 BG; CZ; EE; FI; SI 
Article 3b ("tipping" by primary 
insiders) 25/27 
 BG;SI 
Article 4 (insider dealing by 
secondary insiders) 23/27 BG; IT; SI; ES 
Article 4 (disclosure of inside 
information by secondary insiders) 19/27 BG; CZ; ET; FI; DE; IT; SI; ES 
Article 4 ("tipping" by secondary 
insiders) 21/27 
 BG; CZ; DE; IT; SI; ES 
Article 5 (market manipulation) 23/27 
 AT; BG; SK; SI 
Source: Executive summary to the re port on administrative measures an d sanctions as well as criminal 
sanctions available in Member States under the market abuse direct ive (MAD), CESR/08-099, 
available at www.cesr-eu.org , and additional information receive d from Member States in 2010.  
The analysis in table 3 shows that none of the offences of insider dealing or market 
manipulation is subject to criminal sanctions  in all EU Member States. For example, 
for the offence of improper disclosure of inside information by secondary insiders, 8 
Member States lack criminal sanctions , while for the offence of "tipping" by 
secondary insiders, 6 Member States lack criminal sanctions. Since maket abuse can 
be carried out across borders, this divergence can be e xpected to have negative 
effects on the single market and could enc ourage potential offenders to carry out 
market abuse in Member States which ha ve the least strict sanctions. It also 
complicates cross-border cooperation by law enforcement authorities. Further, since 
criminal sanctions have a greater deterren t effect, potential offenders in Member 
States lacking criminal sanctions may be  less likely to abstain from carrying out 
market abuse due to fear of criminal  prosecution and possible imprisonment. 
Concerning the maximum levels of criminal  sanctions, 14 countries can impose up to 
5 years of imprisonment for insider dea ling and 15 countries can do the same for 
market manipulation. On the other ha nd, in respectively 11 and 8 countries, 
maximum criminal sanctions can go beyond 5 years of imprisonment with an 
absolute maximum of 15 years in 1 Member State.  
7.3.8. Level of application of sanctions differs  
The effectiveness, proportionality and di ssuasiveness of sanctioning regimes depend 
not only on the sanctions provided for by law but also on their application. In order 
to achieve their objectives, sanctions s hould be imposed and enforced by competent 
 
EN 126   EN authorities when infringements occur. The fact that few abuses are sanctioned has 
been underlined by some regulators and othe r stakeholders in th eir answers to the 
call for evidence255. It can also be deduced, for ex ample by comparing findings such 
as the FSA "measurement of market cleanliness"256, which shows, year after year, 
that a significant proportion of takeovers announcements appear to be preceded by 
abnormal volume, with the very limited insi der dealing sanctions decided each year. 
While it is acknowledged that  publication of sanctions is of high importance to 
enhance transparency and maintain  confidence in financial markets257, publication of 
sanctions imposed by competent authorities still diverges widely among Member States
258. 
7.4. Problem 4: Lack of cl arity and legal certainty 
7.4.1. Lack of a single rulebook due to options and discretions 
A number of provisions of the MAD incl ude options and discretions for Member 
States which have resulted in dive rgent implementation of the Directive259. A list of 
the options and discretions in the MAD is included in annex 11. The possibility for 
Member States to use these opt ions or discretions to impl ement specific provisions of 
the MAD in different ways means that differe nt Member States have different rules. 
According to the De Larosière report, the single market cannot function properly if 
national rules and regulations are significan tly different, such diversity can cause 
competitive distortions and encourage regulatory arbitrage and is inefficient for cross-border groups. De Larosière also argue s that the main cause of this situation 
stems from the options provided to Memb er States in the enforcement of EU 
directives
260.  
In light of the advice of the De Larosièr e report, the Commission has stressed in its 
Communication on Driving Europe an Recovery the need to identify and remove key 
differences in national legislation stemmi ng from exceptions, derogations, additions 
made at national level or ambiguities in current directives261. Some of the provisions 
which provide for options or discretions ha ve already been addressed in previous 
sections, and the remaining issues are addressed below. 
                                                 
255 Call for evidence on the review of Directive 2003/6/EC on insider dealing and market manipulation 
(Market Abuse Directive), april 2009 
256 FSA, Updated Measurement on market cleanliness, p 6-8 March 2007, 
http://www.fsa.gov.uk/pubs/occpapers/op25.pdf 
257 CESR, review panel report on MAD options and discretions, p 19, ref. CESR/09-1220, available at 
www.cesr-eu.org 
258  
259 The provisions of the Directive which provide for such flexibility and the resulting divergence have 
been mapped by CESR in their Review Panel report "MAD – Options, Discretions and Gold Plating, 
2009", CESR/09-1120, January 2010. 
260 Report of the High Level Group on Financial Supervision in the EU, Chaired by Jacques de Larosière 
261 Communication for the Spring European Council, Driving European Recovery, COM(2009) 114 final, 
4.3.2009, p. 6. 
 
EN 127   EN 7.4.2. Accepted market practices differ across EU  (Article 1.5 of Directive 2003/6/EC and 
Articles 2 and 3 of Directive 2004/72/EC) 
Accepted market practices (AMP s) are behaviours that can reasonably be expected in 
one or more national markets and are accepte d by the competent regulatory authority 
as not constituting market abuse. The con cept of AMPs was intended to reflect the 
fact that the characteristic s of each market may differ and as such, a particular 
practice may well be appropriate for one ma rket but inappropriate for another where 
the conditions differ. They can allow for a flexible and swift approach by regulators 
for setting the boundaries inside the financia l markets and provide legal certainty to 
market participants. 
Therefore, the MAD framework provides a defence for AMPs in the relevant 
Member State. There is  no manipulation if a  person who trades or issues orders to 
trade establishes that his reasons for so doing are legitimate and that these 
transactions or orders to trade  conform to accepted market practices on the regulated 
market concerned. The use of the concept of AMPs by national regulators has been 
limited in practice - currently, there are only eight AMPs listed on the CESR website
262.  
The difficulty in relation to AMPs is that they provide scope for divergent 
implementation by Member States. More prec isely, a practice could be considered 
market manipulation in one Member State but  be granted a safe harbour as an AMP 
in another. Such a situation, even if it ma y be justified by local specificities, may be 
problematic, does not contribute to an integr ated financial market where participants 
should be able to rely on the sa me framework applying across the EU263.  
While some stakeholders have argued that  it is necessary for such practices to 
continue to be agreed at national leve l to take account of market specificities264, 
others consider that more coordination betw een regulators, or even harmonisation, of 
AMPs at EU level would enhance the single market265. 
7.4.3. Disclosure of inside information by issuers  
Article 6.1 of Directive 2003/6/EC makes it compulsory for issuers of financial 
instruments to inform the public as soon as  possible of any inside information which 
directly concerns those issu ers. The purpose of this requirement is to ensure that 
inside information available to the issuer s is not unjustifiably withheld from the 
markets, but is disclosed and may be pri ced as soon as possible. However, this 
                                                 
262  
http://www.cesr-eu.org/index.php?page=contenu_groups&id=51&docmore=1#doc   
263 ESME report (2007), p. 16. 
264 See responses to the Public Consultation from Comision Nacional de Mercados de Valores (CNMV), 
European Banking Federation (EBF), Association of Corporate Treasurers, Association of British 
Insurers, Irish Stock Exchange, German Finance Ministry. 
265 See responses to the Public Consultation from NASDAQ OMX, Chi-X Europe, Federation of European 
Stock Exchanges (FESE), UEAPME, Dutch Finance Ministry and regulator, Czech Ministry of Finance 
 
EN 128   EN provision is complemented by the deferred disclosure mechanism set out in Article 
6.2 266, which allows issuers under specific condi tions to delay the public disclosure.  
The conditions for delaying disclosure are (i) the existence of a legitimate interest of 
the issuer, (ii) that such an omission would not be likely to mislead the public and 
(iii) that the issuer is able to ensure the confidentiality of the information. The 
disclosure duty and the possibi lity to delay this disclosure play a very important role 
in the day-to-day operation of the MAD and of the functioning of the financial 
markets as a whole, as they compleme nt and amend the periodic information 
disclosed by issuers.  
When considering whether or not to delay th e disclosure of inside information to the 
markets, issuers have to take legal a dvice to ensure that the above-mentioned 
conditions for delay are met, because they woul d be in breach of the Directive if they 
delayed disclosure and this was not the case.  
In this regard, some issuers have sign alled difficulties with interpreting and 
following the specific conditions under which the disclosure of inside information can be delayed
267. These concern in particular th e requirements that: (i) deferred 
disclosure should not mislead the public an d (ii) confidentiality of the inside 
information is preserved. Additionally, recent cases have highlighted that the 
provisions may be crucial for the handling of  emergency situations at banks or other 
financial institutions in distress, with clear implications for financial stability268. The 
ESCB has also asked the Commission whether so me clarification is needed so that it 
would be made 100% clear that emergency lending assistance (ELA) to a listed bank 
can remain undisclosed if it is the interests of financial stability. Therefore, it seems 
necessary to consider whether some sta ndard conditions for delayed disclosure 
should be clarified and/or amended, or spec ial conditions imposed relating to delayed 
disclosure of information of systemic importance (such as emergency lending 
assistance). 
7.4.4. Clarification of scope of manage rs' transaction reporting obligations  
As described in more detail in section 3. 3.2. below, managers' transaction reports 
serve important purposes by deterring mana gers from insider tr ading and providing 
useful information to the market about the views of managers about how share prices 
in the company may move in the future.  
However, regarding the scope of the re porting obligation there is a lack of 
consistency and clarity among Member States about whether transactions need to be 
                                                 
266 "An issuer may under his own responsibility delay the public di sclosure of inside information (…) such as not to 
prejudice his legitimate interests prov ided that such omission would not be likely to mislead the public and 
provided that the issuer is able to ensure  the confidentiality of that information".  
267 See e.g. ESME report. 
268 With regard to the Northern Rock, competent authorities  needed to establish whether delaying information in the 
situation of the bank was possible even though confidenti ality of inside information could not be ensured and 
whether any such delay would not mislead the public (S ee notably the House of Common's report of January 2008). 
In the case of Société Générale, competent authorities need ed to consider whether the delay in revealing the fraud 
and the implied increase in capital would not mislead the public.  
 
EN 129   EN reported in the case of managed portfolio s when the decision is not taken by the 
manager himself, or in situations where th e manager pledges or lends their shares.  
7.5. Problem 5: Disproportionate administra tive burdens on issuers, especially 
SMEs 
7.5.1. Insider lists  
The MAD introduced an obligation to draw up and update insider lists for issuers or 
persons acting on their behalf or for their account269. These lists must indicate the 
persons working for the issuer who have access to insider information. The aim of introducing the insider lists was twofold: to  assist competent authorities in their 
investigatory powers; and to  act as a deterrent agains t potential insider dealing 
practices.  
The insider lists have proved very useful for the competent authorities and are very 
much used in their investigations, accord ing to the feedback received from the 
members of the European Securities Co mmittee and members of the Committee of 
European Securities Regulators
270, as well as from the re sponses to the call for 
evidence271. Insider lists are used by the compet ent authorities to provide a ‘first 
instance’ tool in market abuse inquiries.  The Member State co mpetent authority can 
then request additional information from the issuer if necessary at a later stage.  
On the other hand, market participants272 in particular have b een critical about the 
requirement to draw up insider lists because of: considerable compliance and 
administrative costs; uncertainty about the du ties of insiders other than issuers (i.e. 
persons acting on their behalf or for th eir account) in respect of drawing up and 
maintaining insider lists; and divergent requirements introduced by Member States concerning the type of information to be provided when drawi ng up insider lists, 
which for multi-listed companies leads to  additional compliance and administrative 
costs
273.  
Some competent authorities, such as for example in the UK, only require financial 
institutions to include the first name a nd surname of each individual included on the 
insider's list, except when more than one individual on the same list has the exact same name. Further details of individuals on th e insider list can then  be gathered at a 
later stage, should a compet ent authority submit such a request. However, other 
competent authorities require that the data  to be entered for each individual insider 
must include first and family names, date  and place of birth, and both private and 
business addresses. For multi-listed companie s this leads in practice to drawing up 
and maintaining different insider's lists for each jurisdiction in which their financial 
instruments are traded. Alternatively, they  are likely to use a single, Europe-wide 
approach to producing their in sider lists; consequently th ey tend to produce their lists 
                                                
 
269 Article 6.3 of Directive 2003/6/EC and 5 of Directive 2004/72/EC. 
270 See the CESR’s Guidelines - MAD Level 3 – Third set of CESR guidance and information on the 
common operation of the Directive to the market of 15 May 2009, p. 4.  
271 See the responses to the Call for evidence of 20 April 2009 and the Consultation of 28 June 2010 at 
http://ec.europa.eu/internal_market/securities/abuse/index_en.htm.  
272 See ESME report pages 10-13.  
273 See response by Herbert Smith to the ca ll for evidence, 15 June 2009, p. 6. 
 
EN 130   EN in accordance with the most detailed requi rements imposed on them, even if such a 
solution is not required by the majority of regulators who supervise the company274.  
7.5.2. Disclosure of managers' transactions 
The obligation to report managers' tr ansactions has two major purposes:  
• to deter insider trading by managers;  
• to provide information to the public that  may be useful to indicate managers' 
views of the future development of shar e prices of companies they manage.  
However, according to some stakeholders, the administrative burden associated with 
this measure275 may have outweighed the overall benefits of reporting private 
transactions by the issuer's management. Currently the threshold for transactions 
reporting is set by Dire ctive 2004/72/EC at the level of 5 thousand euro276, which the 
majority of respondents to the public consul tation considered to be much too low. 
Some stakeholders such as the Associati on of Italian Issuers (Assonime) have argued 
that the low level of the threshold has resulted in markets being flooded with 
irrelevant information. In Italy, before the Market Abuse Directive was introduced, managers' transactions were regulated by the Italian Stock exchange. Immediate 
disclosure was required for significant transactions of a value of 250,000 euro, and 
every three months of tran sactions of 50,000 euro (cal culated on a yearly basis). 
Under those rules 1600 transact ions were notifie d within a year (from 1 April 2005 
till 31 March 2006). After the entry into fo rce of the MAD the number of notified 
managers' transactions jumped significantly  in Italy: to 3785 (from 1 April 2006 to 
31 March 2007) and to 4888 (from 1 April 2007 to 31 March 2008)
277.  
When we compare the level of the threshold which triggers the obligation to report transactions by managers with  the level of managers' remuneration, it may be said 
that the relation between the two has not  been taken into account. One study 
concerning the structure and level of execu tive remuneration in 2008, which has been 
conducted in 8 Member States  (UK, Germany, France, It aly, Spain, Netherlands, 
Belgium and Sweden), shows that total av erage remuneration for CEOs increased to 
226.400 euro monthly in 2008. The same study indicates that the level of executive 
remuneration has been increasing rapidly in  the last 4 years (an increase by 73% 
from 2004 to 2008). Even if this data is not representative for senior management at 
all EU issuers, it could be  taken as an indication that  the threshold for reporting 
                                                
 
274 See the response of the International Capital Market s Association to the call for evidence of 20 April 
2009, p.11.  
275 The measure imposes  an obligation on “persons discharging manageri al responsibilities within an issuer (…) and, where 
applicable, persons closely associated with them”  to “notify to the competent authority the existence of 
transactions conducted on their own account relating to shares  of the said issuer, or to derivatives (…). Member 
States shall ensure that public access to information con cerning such transactions (…) is  readily available as soon 
as possible”.  
276 The threshold set by the Directive is not obligatory and Member States may apply no minimum 
threshold or provide for one amounting up to 5000 euro, calculated on a yearly basis.  
277 Data provided to the Commission services by Assonime. 
 
EN 131   EN managers' transactions is currently set fa r too low when compared with managers' 
remuneration.278  
Respondents to the public consultation have al so raised concerns that there is no 
consistency or clarity about how to trea t a transaction in the case of managed 
portfolios when the decision is not taken by the manager himself or in situations 
where the manager pledges or arranges for th eir shares to be borrowed. They have 
also raised the problem that persons cl osely related to a ma nager are not bound to 
disclose relevant information to the mana ger himself in order for him to fulfil the 
transaction reporting obligation. 
Moreover, the provisions of the directiv e are not very clear on the relationship 
between the obligation to notify the regulat or about managers' transactions and the 
obligation to ensure public access to  information on such transactions279. 
7.5.3. The specific situation of SMEs 
Small and medium sized enterprises (SME s) significantly cont ribute to economic 
growth, employment, innovation and social  integration in th e European Union280. 
According to a survey by the European Ce ntral Bank in 2009, the main source of 
funding for such companies is private fina ncing by banks (32%); , in contrast, only 
0.9% of SMEs had issued debt s ecurities and 1.3% had issued equity281. Some 
stakeholders have argued that  this is in part because the initial and ongoing costs of 
listing outweigh the benefits for SMEs and th at EU legislation represents a barrier 
which is too high for SMEs282.  
Specialised SME markets283 aim at providing smaller, growing companies with a 
platform to raise capital both through initial offerings and ongoing fund raisings. 
Currently, these SME markets mostly fall  within the MTF regime under MiFID. 
Some stakeholders argue that by extendi ng the MAD to instruments only traded on 
MTFs all issuer specific obligations of MAD (as well as prohibitions) would also apply to SMEs, and without a simplification of the regime this would add additional costs to smaller companies to access the market
284. The obligations to disclose price 
sensitive information, draw up insider lists and disclose managers' transactions are those particularly identified by stake holders as problematic in this regard
285.  
The requirement for an issuer to inform the public as soon as possible of inside 
information which directly concerns the issuer, requires an issuer to constantly 
                                                 
278 For more details please see: Presentation “Key Statistics and shareholders scrutiny” by Mr Caprasse on level of EU 
remuneration (based on 9 largest market capitalisations) http://ec.europa.eu/internal_market/company/directors-
remun/index_en.htm  
279 This is confirmed by the CESR report on options and discretions (ibid). 
280 Of the 20 million active enterprises of the non-financial business economy, 99.8% are SMEs and more 
than two thirds (67.4%) of the EU-27’s non-financial business economy workforce are employed by 
SMEs, European Business – Facts and Figures , Eurostat (2009). 
281 Survey on the access to finance of small and medium -sized enterprises in th e euro area, European 
Central Bank, September 2009, p. 4. 
282 Fabrice Demarigny, An EU-listing Small Business Act,  March 2010, p. 13 
283 There are currently 14 specialist markets for SMEs th at operate across Europe, including AIM and AlterNext.  
284 See response by European Issuers to public consultation, 27 July 2010, p. 2. 
285 See response by European Issuers to ca ll for evidence, 15 June 2009, p. 1. 
 
EN 132   EN monitor information it has a nd to exercise judgment a nd seek advice about whether 
and when information needs to be disc losed to the public.  A study by external 
consultants for the Commission services es timates the cost for SMEs of identifying 
inside information to be disclosed at EUR 2,000 per SME per year286. In practice, 
some operators of SME markets therefore impose modified or simplified disclosure 
requirements for SME issuers but  recognise that disclosure  of such information is 
essential for SME investors. 
Stakeholders representing the interests of  SMEs also take the view that the 
requirement to draw up and update insi der lists creates si gnificant expense and 
management burdens for smaller quoted companies and that the MAD regime needs to be simplified
287. The yearly cost of implemen ting, maintaining and updating the 
list of insiders is estimated at EUR 1, 400 per SME per year, a cost which can be 
considered to represent 100% administrative burden288. Some stakeholders also 
consider that an adapted regime for SMEs is  necessary in relation to the disclosure of 
managers' transactions, on the grounds that they are burdensome and time-
consuming.289.  
                                                 
286 EIM, Effects of the changes in the Market Abuse Direc tive – Impact on Administ rative Burden of Firms 
in the EU , EIM, December 2010, p. 31. 
287 The Quoted Companies Alliance, response to the co nsultation, 28 July 2010, p.4; EuropeanIssuers, 
response to the consultation, 27 July 2010, p. 2; see also the report prepared by Fabrice Demarigny in 
March 2010 on "An EU-Listing Small Business Act" , available at: 
http://www.eurocapitalmarkets.org/node/446 . 
288 EIM (2010), p. 32. 
289 The Quoted Companies Alliance, response to  the consultation, 28 July 2010, p. 4. 
 
EN 133   EN ANNEX 8 – DETAILED ANALYSIS OF IMPACTS OF OPTIONS  
This section discusses the advantages a nd disadvantages of the different policy 
options against the criteria of their eff ectiveness in achieving the related objectives 
(to be specified for e ach basket of options),  and their efficiency in terms of achieving 
these options for a given level of  resources or at least cost. 
The options are measured against the a bove-mentioned pre-defined criteria in the 
tables below. Each scenario is rated be tween "---" (very negative), 0 (neutral) and 
"+++" (very positive). The assessment high lights the policy option which is best 
placed to reach the related objectives outlined  in section 5 and therefore the preferred 
one. 
8.1. Analysis of impact s of policy options 
8.1.1. Policy options to ensure organised mar kets, new platforms and OTC transactions 
are appropriately regulated 
These options will be  assessed against their effectiven ess in achieving the specific 
objective of ensuring regulation keeps pace with market developments. These policy 
options will also be assessed on their effi ciency in achieving these objectives for a 
given level of resources or at least cost while avoidi ng unduly negative effects on 
market efficiency. However, options will also be assessed against other objectives 
where appropriate.  
8.1.1.1. Option 5.1.1 – take no action at EU level 
If no action is taken, then the extent to wh ich the Directive applies to instruments not 
traded on a regulated market will remain to be determined under national law which 
could lead to varying levels of protection for investors trading such instruments in 
different markets. The objectives of in creasing investor pr otection and market 
integrity will therefore not be met, and ga ps in regulation of th ese instruments will 
continue to exist in Member States not c overing them in national law. The divergent 
approaches taken by Member States will continue and an unlevel playing field will remain. In the cases of derivatives (such as credit default swap s) uncertainty would 
remain in specific situations about whethe r abusive behaviour using such instruments 
is covered by the Directive.  
8.1.1.2. Option 5.1.2 – extend rules on market abuse to Credit Default Swaps (CDS) 
Under this option the definition of a fina ncial instrument in the MAD would be 
aligned with the definition in MiFID. Furthe r clarification would also be provided in 
Article 9 of the MAD that a credit default swap is an instrument covered under the 
second paragraph of that Article (i.e. an instrument whose value can depend on 
another financial instrument).  
This option would provide further clarity  to market partic ipants about which 
instruments, especially derivatives, are cove red by the Directive. While in substance 
the definitions are very simila r, the MiFID definition sets out in more detail than the 
MAD definition the instruments, especi ally financial, commodity and other 
 
EN 134   EN derivatives it applies to. It would also clarify that credit  default swaps cannot be used 
for market abuse. To the extent that it will more clearly prohi bit the use of such 
derivatives for market abuse purposes and enable enforcement action in relation to 
such behaviour it will promote greater mark et integrity and inve stor protection.  
The disadvantage to this op tion is that the MiFID defi nition includes some more 
exotic or unusual derivative instruments which would fall within the scope of MAD. 
However, this is mitigated by the fact th at the MAD applies to instruments when 
admitted to trading on a market so such  instruments would only be covered if a 
market in some form exists for the instrument. So this w ould reduce the possibility of 
MAD applying to instruments where it is inappropriate.  
8.1.1.3. Option 5.1.3 - extend rules on market manipulation to OTC instruments 
Under this option clarification would be provided in the definition of market 
manipulation and in Article 9 that the us e of related instruments, such as OTC 
derivatives or CDS, to manipulate th e underlying market is prohibited.  
This option would meet the general objective of increasing market integrity and the 
protection of investors as it would explicitly  prevent the use of related instruments to 
manipulate the underlying market. It would also meet the objective of achieving a 
level playing field as ma rket manipulation using su ch instruments would be 
prohibited in all Member States, whereas cu rrently only some Member States clearly 
prohibit such behaviour. 
Over three quarters of respondents to th e public consultation who expressed an 
opinion on this option expressed support for extending the scope in this way. There 
was limited opposition, although some respon dents felt that the current regime 
already covered these products  to a sufficient extent. 
8.1.1.4. Option 5.1.4 – extend market abuse rules to instruments only traded on MTFs 
Under this option the scope of the Direc tive would be extende d to apply to any 
financial instrument only admitted to trading on a MTF (irrespective of whether the transaction in that instrume nt takes place on that MTF).  
This option would meet the general objectives  of promoting greater market integrity 
and protecting the increasingly diverse range of investors who use MTFs. By 
definition if an instrument is traded on an MTF it will tend to be more liquid, standardised, have a broader range of investors (institutional and sometimes retail) 
and be the subject of a certain amount of public information, so the Directive can be 
easily applied to such instruments. This option will also meet the objectives of achieving a level playing field and eliminating op tions and discretions by 
harmonising an area which is currently s ubject to widely diverging approaches. 
The option has the disadvantage that MTFs  tend to trade many different types of 
instruments and so some obligations under the directive may not always be 
proportionate given the nature of the di fferent issuers. For example, issuer 
obligations under the Directive are arguably more costly for SME issuers relative to 
their size. But this issue could be addr essed by nuancing the application of those 
obligations to such issuers (see options in section 5.7). 
 
EN 135   EN Another disadvantage of this option is that, if adopted in  isolation, instruments only 
admitted to trading on other organised trad ing facilities would remain outside the 
scope of the MAD (see option 5.1.5 below) . This would mean unequal protection of 
investors and market integrit y on organised trading venues w ith many similarities to 
MTFs and could lead to possibili ties for regulatory arbitrage.  
There was strong support in the public consultation for the extension of MAD to 
instruments solely traded on MTFs. Res pondents acknowledged the growth of MTFs 
and their significance in current markets.  However, some respondents commented 
that some Member States had already modified local regimes to accommodate 
specialist MTFs; for example specialist SM E markets. These respondents felt that 
current bespoke regimes for these MTFs we re appropriate, that  harmonisation would 
need to encompass these different evolutions , and that this may be a difficult task.  
8.1.1.5. Option 5.1.5 – extend market abuse rules to instruments only traded on other trading 
facilities (other then MTFs) 
Under this option the scope of the Directive would be extended to instruments only 
traded on an organised trading facility. An organised trading facility would be 
defined in a very general manner, most pr obably by a reference to a definition to be 
introduced in the revision of the MiFID, to  cover any facility or system operated by 
an investment firm that brings  together client orders or interests relating to financial 
instruments and that is not classified as  a regulated market, MTF or systematic 
internaliser. This definition would be br oad and include a voice broking facility, a 
swap execution facility, a broker crossing sy stem and any other type of system or 
facility that is used by an investment firm. 
This option would have the advantage that  it would meet the specific objective of 
ensuring regulation keeps pace with market developments as well as the objective of 
increasing protection for inve stors who trade in instruments on such facilities that are 
not traded on a regulated market (and th erefore covered by the current MAD) or 
MTF (which would be covered by option 5.1. 4). It would also meet the objective of 
improving market integrity by applying the MAD to inst ruments not traded on 
regulated markets or MTFs but for which there is a market of some form. By 
introducing a harmonised approa ch at EU level across Memb er States it would also 
meet the objective of a level playing field. 
Increased market integrity a nd investor protection would be  especially relevant to 
facilities such as systems trading credit  default swaps where there is significant 
liquidity and diversity of investors. For facilities such as crossing networks the 
proposal is likely to be of limited relevance as the directive is al ready likely to apply 
as such facilities will typically trade li quid instruments already admitted to trading on 
a regulated market or MTF.  
The disadvantage of this option is that  this category covers  a broad range of 
instruments and a very diverse range of diff erent types of facilities. It may not be 
easy to apply the concepts in MAD to some instruments or facilities and this may create legal uncertainty and practical di fficulties for operators and users of the 
facility and issuers in unde rstanding and applying the M AD. However this risk could 
 
EN 136   EN be mitigated by calibrating the application of MAD, depending on the type of 
instrument, so that it applie s in a proportionate manner. 
8.1.1.6. Option 5.1.6 - extend market abuse rules to instruments only traded OTC bilaterally  
Under this option the scope of the Directiv e would apply to instruments only traded 
outside a regulated market, MTF or organised trading facility. 
This option would have the advantage that it would ensure complete coverage of 
trading in financial instruments by the M AD. But there are not likely to be any 
benefits in terms of increased investor pr otection and market integrity as these are 
essentially private transactions between two parties that are negotiated commercially. The parties are likely to be able to protec t their own interests in any bargaining and 
there is no market as such for the instrument that is being affected  by the transaction.  
Further, this option would cr eate significant legal uncertainty in determining how the 
MAD rules apply to essentially private and individual commer cial transactions. 
Many such transactions  would not ordinarily be consid ered to be financial market 
transactions (for example, purchases of bus inesses or transfers of shares in private 
companies). The concepts in MAD are ai med at applying to transactions in 
standardised instruments that are relatively liquid, traded by a variety of investors 
and for which there is a sufficient level of  public information about the instrument 
concerned. Private transactions do not m eet these requirements and the MAD could 
not be applied sensibly to such transactions . Accordingly parties to such transactions 
could be subjected to onerous and costly  obligations that are not appropriate. 
8.1.1.7. Option 5.1.7 – improve supervision of HFT 
Under this option, specific strategies by way of automated trading that may be 
contrary to the proh ibition on market manipulation w ould be prescribed in level 2 
measures. 
This option would meet the objective of en suring regulation keep s pace with market 
developments. This option would also have the advantage that it would create greater 
legal certainty by specifying the current de finition of market manipulation, which 
while broad enough to capture di fferent strategies and forms of trading that may be 
manipulative would benefit from  clarification. It would provide greate r clarity to 
market participants and help supervisors to enforce breaches of the existing provisions involving automate d trading. This option ha s the potential disadvantage 
that there could be other automated tradi ng practices that do not constitute market 
abuse, but could nevertheless have other a dverse consequences for the efficiency of 
the market (e.g. flash orders), which would not be covered.  
Most respondents to the public  consultation did not address this option specifically in 
their responses, although ther e was specific support for it  from some stakeholders.
290 
                                                 
290 The Association of British Insurers, Autorité des marchés financiers and Ministère de l'économie, de 
l'industrie et de l'emploi. 
 
EN 137   EN 8.1.1.8. Option 5.1.8 – Improve supervision of inve stment firms operating trading facilities 
such as MTFs 
According to the MiFID rules MTFs can be  operated either by market operators or 
by investment firms291. As a consequence the monitori ng obligations in Article 26 of 
MiFID apply to market operators and i nvestment firms alike. However, the 
obligation to adopt structural  provisions aimed at prev enting and detecting market 
manipulation practices in Article 6 pa ragraph 6 MAD only applies to market 
operators. This option would close that ga p in the existing regul atory framework and 
the obligation would be extended to invest ment firms operating an MTF and to all 
entities operating an organi sed trading facility as described under Option 5.  
Implementing the option would have the a dvantages of ensuring regulation keeps 
pace with market developments, contributi ng to levelling the playing field between 
entities operating trading venue s, providing legal certainty as to the obligations 
applying under European law and enhanci ng investor protection by emphasising that 
structural provisions against market manipul ation have to be adopted by all trading 
venues.  
A disadvantage could be that the regulat ory costs imposed by the market abuse 
framework on firms operating MTFs or organised trading facilities would increase. 
However, this would be mitigated by the fact that trading venues will already have 
certain arrangements in place to comply with  their MiFID obligations and also due to 
demand from investors and i ssuers who want to trade an d have their instruments 
traded in a properly protected environment.  
Respondents to the public consultation ge nerally supported this option, although 
some noted the difficulties that a trading venue may have in monitoring its market – 
such as market fragmentation and multiple listings, sharing of data, and understanding the reasoning of transactions.  
8.1.1.9. The preferred options 
 Impact on stakeholders Effectiveness Efficiency 
Option 5.1.1 
(baseline) n.a. n.a. n.a. 
Option 5.1.2 
(align the definition of 
financial instrument 
with the MiFID definition and clarify 
application of MAD to 
CDS) (+) regulators have increased clarity 
about instruments covered by the MAD 
and their ability to enforce is assisted 
(++) investors receive greater 
protection  
(+) market integrity is increased for 
investors 
 (++) achieves specific 
objective  
(++) increases investor 
protection and 
(++) market integrity by 
ensuring market abuse 
through CDS is clearly prohibited 
 
 (0)  
 
                                                 
291 Cf. Articles Para 1 No 15 MiFID. 
 
EN 138   EN Option 5.1.3 
(extend scope to cover 
market manipulation 
by use of related 
instruments) (++) regulators have clearer mandate 
to take action against manipulative behaviour using other instruments  
(++) investors in a market are better 
protected from use of other related instruments to manipulate the 
underlying market  
 (++) achieves specific 
objective for instruments traded OTC (such as 
derivatives) which impact on 
prices of related instruments traded on trading venues or 
facilities 
(++) increases investor 
protection as manipulation of 
financial instruments traded 
on trading venues or facilities through related instruments 
(such as derivatives) will be 
prohibited and 
(++) increases market 
integrity by ensuring market 
manipulation through related OTC instruments is 
prohibited 
 (0) 
Option 5.1.4 
(extend the MAD to 
financial instruments traded only on a MTF) (++) investors trading instruments 
only traded on a MTF receive greater 
protection 
(+) there is improved market integrity 
for instruments only traded on MTFs (++) achieves specific 
objective for MTFs 
(++) increases investor 
protection on MTFs 
(++) increases market 
integrity of MTFs 
 (0) SME issuers listed 
only on MTFs could 
face increased costs to disclose inside 
information and keep 
insider lists in accordance with MAD but these would be 
mitigated by SME 
specific options below 
(-) some MTF 
operators could face 
some increased costs of monitoring for MAD 
compliance by issuers 
and investors 
Option 5.1.5 
(extend the MAD to 
instruments only traded on other trading 
facilities (other than 
MTFs) ) (++) increased protection and market 
integrity for investors on such facilities 
(-) possible legal uncertainty for 
operators, investors and issuers in 
applying the MAD to differing 
instruments and facilities – could be mitigated by calibration of measures 
 (++) achieves specific 
objective for organised 
trading facilities  
(++) increases investor 
protection on OTFs 
(++) increases market 
integrity of OTFs 
 (-) issuers could face 
increased costs to 
disclose inside information and keep 
insider lists in 
accordance with MAD, but these costs could be 
mitigated by 
calibration of measures
(-) some operators of 
facilities could face 
some increased costs of monitoring for MAD 
compliance by issuers 
and investors 
 
Option 5.1.6 
(extend market abuse 
rules to instruments traded purely OTC ) (0) negligible effect on investor 
protection since instruments are traded 
privately 
(--) un certainty for users and issuers 
about when and how the MAD applies 
to instruments (+) partially achieves specific 
objective,  
(0) negligible effect on 
investor protection as there is 
no market to protect from 
abuse in the case of purely (--) increased 
compliance costs for 
parties to private transactions to 
determine if and how 
Directive applies to them. 
 
EN 139   EN bilateral OTC transactions 
and 
(0) negligible effect on market 
integrity for the same reasons 
as above  
Option 5.1.7 
(provide examples of 
specific algorithmic or HFT strategies that 
constitute market 
manipulation) 
 
 (++)greater clarity will help 
regulators to take enforcement action 
against automated trading strategies that are manipulative 
(++) greater clarity will help prevent 
and provide increased protection for other investors against manipulative 
strategiess 
 (++)achieves specific 
objective without 
compromising broad scope of existing definition of market 
manipulation 
(++) increases investor 
protection and 
(++) market integrity by 
making it easier for regulators to sanction market 
abuse through automated 
trading strategies 
 (0)  
Option 5.1.8 
(Improve monitoring 
for market abuse of 
investment firms 
operating trading facilities such as 
MTFs and OTFs) (++) regulators can benefit from 
structural provisions implemented by venues against market abuse in 
carrying out their role of preserving 
market integrity 
(++) investors are better protected 
against market abuse on MTFs and 
OTFs 
(+) issuers would have more certainty 
that their instruments are traded in a 
properly protected environment (++) achieves specific 
objective  
(++) also achieves objectives 
of increasing investor 
protection and  
(++) market integrity (0) firms operating 
platforms could face increased costs, 
however, these will in 
most cases be mitigated due to arrangements 
already in place 
Over three quarters of respondents to th e public consultation who expressed an 
opinion on option 5.1.3 expresse d support for extending the sc ope in this way. There 
was limited opposition, although some respon dents felt that the current regime 
already covered these products to a suffici ent extent. There was strong support in the 
public consultation for the extension of M AD to instruments solely traded on MTFs. 
Respondents acknowledged the growth of MT Fs and their significance in current 
markets. However, some respondents comm ented that some Member States had 
already modified local regimes to acco mmodate specialist MTFs; for example 
specialist SME markets. These respondents felt that current bespoke regimes for 
these MTFs were appropriate, that harm onisation would need to encompass these 
different evolutions, and that this may be a difficult task.  
Most respondents to the pub lic consultation did not addr ess option 5.1.7 specifically 
in their responses, although there was sp ecific support for it from some 
stakeholders.292 Respondents to the public cons ultation generally supported option 
5.1.8, although some noted the difficultie s that a trading venue may have in 
monitoring its market – such as market fr agmentation and multiple listings, sharing 
of data, and understanding the reasoning of transactions.  
                                                 
292 The Association of British Insurers, Autorité des marchés financiers and Ministère de l'économie, de 
l'industrie et de l'emploi. 
 
EN 140   EN The highest scoring policy options are options  5.1.2, 5.1.3, 5.1.4, 5.1.5, 5.1.7 and 
5.1.8. These options are not mutually exclusive and in several respects reinforce each other. MTFs and OTFs can share certain characteristics, for example they are 
electronic, they can be operated by invest ment firms, they can admit to trading 
financial instruments not admitted to trading on a regulated market. Therefore including OTFs within the sc ope of market abuse rules ( option 5.1.5) in addition to 
MTFs (option 5.1.4) would ensure that trad ing facilities with similar characteristics 
are subject to the same rules and investors on  both types of platform benefit from the 
same protection. If adopted in isolation,  either option 5.1.4 or option 5.1.5 could 
leave scope for those wishing to commit market abuse to migrate to the other 
electronic platform. So the combination of  the two options ensures greater market 
integrity and better protection of i nvestors than either option alone.  
Similarly, if option 5.1.3 (extending scope  to OTC instruments) were not combined 
with options 5.1.4 and 5.1.5,  this would leave scope for market manipulation by OTC 
instruments to impact financial instrument s traded on regulated markets, MTFs or 
OTFs. Combining the three options gives a more optimal result in terms of the 
objective of market integrity  and investor protection. Combining option 5.1.2 with 
the above options would ensure that it is beyond doubt that CDS are within the scope 
of market abuse legislation, which is impor tant also as these instruments are often 
traded on OTFs as well as OTC.  
Option 5.1.7 adds to the combined effect  of the above-mentioned options by further 
ensuring that they keep pace with market  developments, as it will enable the 
Commission to clarify if specific new st rategies employed by algorithmic or high 
frequency trading fall within the defini tion of market manipulation. Finally, 
combining option 5.1.8 with the above optio ns ensures that the different types of 
trading venues and facilities which are with in the scope of mark et abuse legislation 
are subject to similar requirements to monito r transactions to detect possible market 
abuse. Option 5.1.8 therefore also reinforces  the options in section 6.1.3.1 seeking to 
strengthen the powers of competent authoriti es to detect and sanction market abuse. 
In light of the above, the preferred option is  a combination of options 5.1.2, 5.1.3, 
5.1.4, 5.1.5, 5.1.7 and 5.1.8. 
8.1.2. Policy options to ensure commodities and related derivatives are appropriately 
regulated  
These options will be assessed primarily against their effectiveness in achieving the 
specific objective of ensuring regulation keeps pace with market developments. 
These policy options will al so be assessed on their efficiency in achieving these 
objectives for a given level of resources  or at least cost while avoiding unduly 
negative effects on market efficiency. Howeve r, options will also be assessed against 
other objectives where appropriate. 
8.1.2.1. Option 5.2.1 – Take no action at EU level. 
This option entails that MAD provisions with regards to inside information in 
relation to commodity derivatives remain unclear. As a result, investors in commodity derivatives markets and produ cers who use these markets for hedging 
 
EN 141   EN purposes continue to face uncertainty as to the information that they can expect to 
receive in relation to the underlying commo dity markets. Further, regulators will 
continue to face gaps with regards to the relevant info rmation from both physical and 
financial markets needed to monitor abuse effectively. 
With regards to all financial instruments,  MAD requires price sensitive information 
to be made available to the public by the issuer. However, inside information typically concerns the underlying comm odity and not information about the 
derivative itself. It is therefore not the i ssuer of a derivative w ho is in possession of 
information that affects the price of the de rivative. Such information typically lies 
with producers, transporters, and others  involved in the primary market. For 
commodity derivatives, MAD onl y clarifies that investors may expect to receive 
information that is required to be disclosed by rule or custom.  
8.1.2.2. Option 5.2.2 – Apply financial rules to commodity spot markets 
Under this option, the definition of inside  information would be extended to include 
information which a reasonable investor would take into account when deciding 
whether or not to buy or sell a commodity. In order to ensure that all such 
information is made available, the oblig ation to inform the public of inside 
information would be extended to all market  participants. The de finition of market 
manipulation would be extended to transact ions or orders to trade which distort 
commodity prices. 
The advantage of this option is that it addresses the key problem of a lack of 
transparency of fundamental commodity ma rket information. It also introduces a 
prohibition on market manipulation for market s where this currently does not apply. 
Also, it introduces a comprehensive set of  rules which apply to both spot and 
derivatives markets. Ensuring that all ma rket participants, including public bodies, 
publish inside information, will improve price formation in commodities markets. It will also create a level playing field for all investors, who will have all relevant information needed to make their investme nt decisions. Furthermore, it will create a 
level playing field for all commodity market s, as the same rules will apply across all 
markets. The comprehensive set of rules al lows for holistic oversight, and will ensure 
adequate oversight in co mmodity markets where this is currently lacking. 
The main disadvantage of this approach is that financial market rules are 
inappropriate for most commodity mark ets. Unlike physical commodities whose 
production varies across the world depending on, for exampl e, weather patterns or 
geopolitical and trade developments, financ ial instruments are often electronic and 
dematerialised documents or book-entries tied to a specific issuer or jurisdiction for 
purposes of capital-raising or financial risk management. Their fungibility and 
portability characteristics are often entirely different. Financial regulators are also not 
best placed to assess commodity  market specificities or th e impact of the forces of 
nature (e.g. on harvests) on markets ranging from agricultural products, metals and 
oil to electricity, and gas.  
In addition to being heterogeneous, commodity  markets also vary in their degree of 
sophistication and liquidity. The produc ts traded may not be sufficiently 
 
EN 142   EN standardised, and there may be strong bus iness secrecy issues about disclosing a 
company's production, stocks, or supply chain issues. Extending financial rules 
would thereby not only impose compliance cost s on all market participants, but also 
limit their opportunity to hedge their busin ess risk, and may even impact their 
business directly. 
Further, a general approach to commodity markets will require competent authorities 
to extend their activities to a wide set of large and different markets. They may not 
have the necessary manpower, tools, and e xpertise to monitor these markets, and 
clearly discerning what practices in the physical market would be considered as 
abusive would present innumerable legal a nd practical problems. For example, to 
determine whether an attack by a rebel gr oup on a pipeline in the EU (or indeed 
outside it) would be market abuse rather than another kind of criminal activity.  
An additional disadvantage is that trading in the underlying commodities often may 
take place outside the EU (either partially or totally) so that EU rules would not be effective to address concerns for the mark et as a whole. This would also invite 
regulatory arbitrage. 
8.1.2.3. Option 5.2.3 – define inside information for commodity derivatives 
Under this option, the definition would be cl arified so that in relation to commodity 
derivatives, inside information would mean  information of a precise nature which 
has not been made public, relating directly  o r  i n d i r e c t l y  t o  o n e  o r  m o r e  s u c h  
derivatives or the underlying commodities and which if it were made public would 
be likely to have a significant effect on the prices of such derivatives or the 
underlying commodities, notably information which is required to be disclosed in 
accordance with legal or regulat ory provisions at EU or national level, market rules, 
contracts or customs on the relevant unde rlying commodity ma rket or commodity 
derivatives market. This should not be ta ken to imply that EU rules could be 
supplemented by national rules, but as a non- exhaustive list of the types of legal or 
regulatory provisions that might apply to a market. 
The main advantage of this option is that  it would meet the objective of ensuring 
regulation keeps pace with market developments, by closing the regulatory gap left by the current MAD definition, which does not capture all relevant information relating to commodity derivatives. This w ould ensure more legal certainty, by 
bringing the definition of inside informati on for commodity derivatives closer to the 
general definition of inside information. Th is legal certainty is good for investors, 
because it allows them to form clear expect ations of the information they can expect 
to receive. It is also good for producers who use these markets for hedging purposes. For them, the unclear prohibitions with regards to insider dealing and market 
manipulation introduce uncertainty as to when they are required to disclose or when 
they are allowed to trade. This clarification would introduce a norm that is directly applicable, and is well unders tood by financial market pa rticipants. While rules and 
customs may vary from market to market, th e clarification that inside information is 
price sensitive information would impose a uniform norm that applies to all 
derivatives markets. 
 
EN 143   EN A second advantage is that this opti on may promote publication of inside 
information, because it means that primar y market participants cannot hedge their 
exposure in the derivatives ma rket without having disclo sed it first. Wanting access 
to the derivatives market would in such cases  be an incentive to disclose information 
in the underlying market. 
This also brings situations such as st ockpiling of a commodity and benefiting from 
this in the derivatives market, as well as  squeezes through stockpiling into scope of 
the MAD. In certain cases, stockpiling ma y be deemed to be inside information. 
Disclosing this, would make it difficult to  squeeze one's counterpa rts or benefit from 
knowing that you hold a signifi cant share of the market. 
Another advantage of this approach is that investors will not enter into transactions 
with parties who have an information a dvantage over them. This means that the 
existing financial market norm will apply not  only to derivatives markets where the 
underlying market is a financial market , but to all derivatives markets. 
In addition, this option does not affect the underlying market  itself. It clarifies what 
is considered to be inside information in commodities derivatives markets, but it does not say what is considered to be inside info rmation in the underlying market, nor 
does it impose any disclosure obligation on market participants in the underlying 
market. It thereby leaves room for sectoral rules to address market integrity issues in 
the underlying market. While the financial nor m would apply to derivatives markets, 
sectoral rules (where they  exist) would continue to govern underlying markets. 
A second problem is that producers or other primary market participants will not be 
able to hedge their position in the derivativ es market before having disclosed their 
price sensitive information. Such behaviour  may be considered to be legitimate 
behaviour in the underlying market and in troducing this opti on would thus make 
hedging more expensive. This increased co st is tied to the benefit of market 
participants not trading against inside information. 
The increased costs of hedging are expected to balance out against the benefits of 
improved price formation. When a market pa rticipant hedges his future needs before 
disclosing them, he will do so at the curre nt market price. This means that his 
counterparts get a lower price than they  would have had the information been 
disclosed. When a market participant hedge s his future needs after disclosing them, 
he will do so at a higher mark et price. This will be at  the expense of the market 
participant who is hedging, but it will be a benefit for the rest of the market. 
The disadvantage of this approach is that  it still does not create an obligation on 
market participants in the underlying market  to disclose inside information. As a 
result, the circumstances under which inve stors would expect to receive inside 
information will continue to be governed by di verging rules. It also means that not all 
inside information will be published. Al so, this approach does not address the 
question of insider dealing in the underlyi ng market. Only market participants who 
are active in both markets will need to disc lose their price sensitive information, 
 
EN 144   EN while those only active in the underlying ma rket do not and will  continue to be 
allowed to trade on this information.293  
However, it is not the purpose of fina ncial regulation to govern non-financial 
markets. Would not be effective as market s are international, fragmented, different 
rules apply to different commodities, different market structures. Price transparency of heterogeneous products is misleadi ng. This disadvantage would be better 
addressed by sectoral legislation, such as the recently adopted Commission proposal 
for a regulation on energy market integrity  and transparency, and for emission 
allowance markets by an upcoming Comm ission initiative in this area.  
This option was raised in the public consultation and generated diverse opinions. 
Approximately one third of re spondents to the p ublic consultation were in favour of 
this option. This included strong s upport from regulators. There was strong 
opposition from energy companies and associated bodies, who supported coordination with the proposal for a regu lation on energy market integrity and 
transparency, while approximately one thir d of respondents had no strong opinion.  
8.1.2.4. Option 5.2.4 – obligation for spot market tr aders to respond to information requests 
from competent authorities  
Competent authorities have the power to  demand information from any person. 
However, there is an information gap for markets where there are no market 
transparency rules in spot markets, or where there is no reporting obligation to sectoral regulators. In those markets, comp etent authorities will not be able to access 
spot market data on a regular basis. 
The power to request inform ation from any person will typically allow competent 
authorities access to all information needed  to investigate suspicions of possible 
market abuse. However, such information may not be sufficient to allow competent 
authorities to detect possible market abus e in markets where there is no sectoral 
authority for oversight. Notably, non-financial firms will not have the same obligations towards the competent aut hority that investment firms have. 
The advantage of this option is that it will allow competent authorities access to 
continuous data. By requiring such data to  be submitted in a specified format, they 
will not have to expend resources to collat e information from different data sources. 
By gaining access to spot market traders' sy stems, they will also be able to monitor 
real-time dataflows where needed. 
Spot market traders have no obligation to report suspicious trading by themselves or 
their clients to competent authorities. In line with the existing requirement on 
financial firms to report such incidents on an ongoing basis, competent authorities 
would be able to require spot  traders to submit reports of suspicious trades within 
their firm. This would not impose on them the obligation to monitor for suspicious 
reports on an ongoing basis. 
                                                
 
293 This will be addressed for energy and CO2 ma rkets by the above-mentioned Commission initiatives. 
 
EN 145   EN The disadvantage of this approach is that  it does not allow competent authorities 
access to spot market activity being carried out by firms outside the EU. Also, it would impose costs on spot mark et traders within the EU in order to comply with the 
requests. 
8.1.2.5. Option 5.2.5 – promote cooperation among regulators of financial and physical 
markets 
As underlying and derivatives markets are strongly interlinked, abusive behaviour 
(both insider dealing and market manipul ation) is likely to extend across both 
markets. This means that supervisors w ould need to have an overview of both 
markets in order to be able to detect and sanction such behaviour. At the moment, 
derivative market supervisors may not have all the necessary information relevant to 
monitor price formation, nor all trading da ta needed to monitor trading behaviour. 
This option would induce financial market  regulators to coope rate with existing 
physical market regulators in order to obtain all the availa ble information they should 
need. The advantage of this option is that exchange of information between the respective regulators gives them both a cons olidated overview of the market, thereby 
contributing to reducing the risks of mark et abuse on commodity derivative markets. 
Exchange of information allows regulator s to assess behaviour in their respective 
markets against the behaviour and impact in the overall market. 
In addition to this consolidated view, inte nsifying cooperation a llows both regulators 
to benefit from each others' knowledge of thei r respective markets, thereby helping to 
meet the objective of enhancing the powers and information of regulators. 
Cooperation with authorities around the wo rld, possibly through ESMA, will require 
establishing new memoranda of understa nding and cooperation agreements. In 
addition, there will also be ongoing info rmation sharing, assistance in sending 
information requests, and cooperation in cross-border investigations. The 
disadvantage of this approach is that supervisors will incur costs for transmitting and processing data. These costs may increase as  the data received from both markets 
may not be compatible. However, as thes e costs fall only on supervisors and do not 
extend to a broader range of market particip ants, they are likely to be very limited 
compared to the potential gains in terms of market oversight. 
In the public consultation th is option was not specifically raised. However, the 
majority of all respondents ag reed, to differing extents, th at there are key differences 
between commodity markets a nd financial markets. In pa rticular it was noted by one 
respondent that for regulation to be eff ective there needs to be strengthened co-
operation between physical market re gulators and fina ncial regulators
294. 
8.1.2.6. Option 5.2.6 – require issuers of commodity  derivatives to publ ish price sensitive 
information 
The advantage of this appro ach is that the issuer of a derivative would serve as a 
central place to make price sensitive information available. Issuers of such derivatives are usually market operators or  financial firms, and may be better placed 
than other users to serve as a central point of information. The i ssuer would need to 
                                                
 
294 Ministère de l'économie, de l'industrie et de l'emploi 
 
EN 146   EN make arrangements with key market partic ipants, and monitor newsfeeds that contain 
information relative to their market. Investors would be able to find this information on the issuer's website. The advantage for i nvestors is that they wouldn't need to go 
through several feeds to find the information themselves. In addition, the issuer may 
also have access to information about tradi ng, which is relevant to the market as a 
whole. 
The disadvantage of this appr oach is that, while an issuer may have better access to 
information than other users, they still ma y not have access to all the information that 
is inside information for the derivative. Th e issuer may also not be in a position to 
verify the accuracy of the information. Therefore, what is published could be 
incomplete, inconsistent and even misleading. Further, information may become available with a time lag compared to news f eeds, because it will take the issuer time 
to gather the information. This would li mit the use of this obligation notably for 
investors who have access to newsfeeds themselves. 
Second, this option will impose costs on i ssuers, who will need to make resources 
available to gather information on a be st efforts basis. These costs may deter 
issuance of such instruments. 
8.1.2.7. Option 5.2.7 – clarify market manipu lation for commodity derivatives 
The prohibition against market manipulation is currently limited to false or 
misleading signals as to the supply of, dema nd for or price of financial instruments. 
This means that certain forms of manipulati on are currently not illegal. This includes 
both behaviour whereby transactions in the derivatives market are used to manipulate 
the price of the underlying market, as well as  behaviour whereby tr ansactions in the 
underlying market are used to manipulate th e price of the derivatives market. This 
option contributes to the goal of closing regulatory gaps, by clarifying that the 
prohibition against market manipulation captures also  the latter transactions. 
The advantage of this approach is that it allows competent authorities to sanction 
manipulative behaviour which affects unde rlying markets without also having to 
demonstrate a manipulative effect in the derivatives market itself. They would 
thereby be able to sanction the intended offence, instead of having to focus on its 
side-effects in order to be able to take legal action. Another a dvantage is that it 
allows them to consider other forms of be haviour which affect price formation in the 
derivatives market. 
The drawback of extending the definiti on to include the im pact on underlying 
markets, is that financial competent authorities would also need to monitor price movements in non-financial markets. S upervisors may not have the market 
experience, systems and data to do so. Supe rvisors would not, how ever, be required 
to take on market supervisio n responsibility in  the underlying market. Data from the 
underlying market would aid them in monitori ng derivatives markets. In addition, the 
problem of gaining a consolidated view of commodity and commodity derivatives 
markets could be solved by option 5.2.3. 
 Impact on 
stakeholders  Effectiveness Efficiency  
 
EN 147   EN Option 5.2.1 
(baseline) n.a. n.a. n.a. 
Option 5.2.2 
(extend MAD to 
commodity spot 
markets) (+) insures market 
transparency and integrity 
rules apply to all commodity 
markets 
(+) gives competent 
authorities a consolidated 
view over commodity (spot and derivatives) markets 
(-) financial market rules may 
not be appropriate for market participants in certain 
markets  (-) financial market rules 
may overlap and conflict 
with existing sectoral 
legislation 
(-) commodity markets 
are global and EU rules 
will not apply to all relevant firms 
(-) difficult to apply 
general rules to heterogeneous markets (-) will increase 
compliance costs 
for market 
participants not currently obliged 
to disclose price 
sensitive information 
(-) competent 
authorities may not have the expertise 
and manpower to 
monitor spot markets effectively 
Option 5.2.3 
(define inside 
information for 
commodity derivatives)  (+) improves legal certainty 
for producers as to when they 
need to disclose and are 
allowed to trade 
(++) clarifies which 
information investors can 
expect to receive 
(+) gives supervisors clear 
benchmark to assess insider 
dealing (+) captures all 
information relevant for 
derivatives prices 
(++) creates information 
symmetry between 
investors 
(+) creates incentives for 
disclosure of inside 
information 
(--) does not ensure that 
all inside information will 
be published- 
(-) those only active in the 
underlying market will 
continue to be allowed to 
trade on inside information (+) does not affect 
the underlying 
market itself 
(-) may make 
hedging more 
expensive for 
producers 
 
Option 5.2.4 (clarify 
the power to request information from 
spot market traders) (+) improves competent 
authorities' ability to monitor spot and derivative markets in 
a comprehensive way (++) allows competent 
authorities easier access to spot market data 
 (+) less 
complicated data handling for 
competent 
authorities 
(-) imposes 
additional costs on 
non-financial 
market participants to 
submit information 
in a specific format, allow 
access to their 
systems, and to report suspicious 
transactions. 
Option 5.2.5 
(promote 
international 
cooperation among regulators of 
financial and 
physical markets) (+) gives supervisors a 
consolidated overview of the 
market 
(+) allows supervisors to 
combine their market 
experience (++) increases market 
integrity by reducing risk 
of cross-market 
manipulation 
 (+) no additional 
obligations on 
market 
participants 
(-) supervisors will 
incur costs for 
transmitting and 
 
EN 148   EN processing data 
Option 5.2.6 
(require issuers of 
commodity 
derivatives to publish price 
sensitive 
information) (+) provides investors with a 
single feed to all relevant 
information (--) published 
information can be 
inaccurate or incomplete 
(-) time lag compared to 
news feeds (+) lowers investor 
costs of gathering 
information 
(--) issuer costs 
may deter issuance 
of such instruments 
Option 5.2.7 
(clarify market 
manipulation for 
commodity derivatives) (+) allows supervisors to 
sanction the offence of 
manipulating commodity 
markets through derivatives 
(+) allows supervisors to 
sanction the offence of 
manipulating derivatives 
markets through commodity markets 
(+) promotes investor 
confidence in derivatives markets 
(++) promotes stable prices 
for producers and users of commodity markets (++) closes the 
regulatory gap for forms 
of market abuse that 
affect commodity markets 
(++) increases protection 
of investors and 
(++) market integrity (-) financial 
competent 
authorities will 
need to incur costs to gain access to necessary data 
and extend 
monitoring capability 
 
Option 5.2.3 was raised in the public c onsultation and generate d diverse opinions. 
Approximately one third of re spondents to the p ublic consultation were in favour of 
this option. This included strong s upport from regulators. There was strong 
opposition from energy companies and associated bodies, who supported coordination with the proposal for a regu lation on energy market integrity and 
transparency, while approximately one thir d of respondents had no strong opinion.  
In the public consultation option 5.2.5 was not specifically raised. However, the 
majority of all respondents ag reed, to differing extents, th at there are key differences 
between commodity markets a nd financial markets. In pa rticular it was noted by one 
respondent that for regulation to be eff ective there needs to be strengthened co-
operation between physical market re gulators and fina ncial regulators
295. 
The highest scoring policy opti ons are options 5.2.3, 5.2.4,  5.2.5, and 5.2.7. These 
options are not mutually exclusive and so me reinforce each other. The package of 
preferred options will clarify existing de finitions and prohibi tions. All preferred 
options serve to address shortcomings of  the existing legal framework, and are 
therefore expected to yield greater benef its than the baseline scenario of doing 
nothing. 
Commodity derivatives markets are much like other derivatives mark ets, but they are 
crucially built on commodity markets rather than on other financial markets. The differences in the underlying commodity markets lead to differences in the 
                                                
 
295 Ministère de l'économie, de l'industrie et de l'emploi 
 
EN 149   EN derivatives markets that are built on th em. Currently, insider dealing and market 
manipulation rules draw on the rules that  govern the underlying commodity markets. 
The preferred options ensure that the sa me disclosure sta ndards apply to all 
commodity derivatives markets and that all cross-instrument manipulative strategies 
are fully in scope, and thereby offer a level playing field to investors. In terms of 
costs, hedging may become more expensive for producers, and supervisors will need 
to invest in additional data processing and monitoring tools. 
Option 5.2.4, the power to request informa tion from spot market participants, is 
notably important for markets where such requests cannot be done through a sectoral 
supervisor. 5.2.4 is thereby compleme ntary to option 5.2.5 (strengthening 
international cooperation between spot and derivative market supervisors). Even in 
markets where a sectoral supervisor is ac tive, the power to re quest the necessary 
information directly may be more efficient in certain cases. 
The extension of the prohibition against ma rket manipulation laid down in 5.2.7 
would not be effective without 5.2.4 and 5.2. 5. The latter are nece ssary tools in order 
for competent authorities to be able to de tect and sanction the offences defined under 
5.2.7. 
Option 5.2.3 requires disclosure from thos e active in the derivatives market. Other 
market participants will not be covered by this obligation. In terms of benefits, it will 
be clear to investors which information they  may expect to receive, and how they are 
to conduct themselves in the derivatives ma rkets. This package achieves this without 
extending financial regulati on to underlying commodity ma rkets, the costs of which 
would clearly outweigh the benefits. 
In light of the above, the preferred option is  a combination of options 5.2.3, 5.2.4, 
5.2.5, and 5.2.7. 
8.1.3. Policy options to clarif y and enhance regulatory powers 
8.1.3.1. Option 5.3.1 - No EU action 
Under this option, the existing regimes on market  abuse will continue to exist. This is 
expected to result in the continuation of divergent pow ers of competent authorities 
across Member States. As a result, potential  market abuse will remain undetected as 
suspicious OTC transactions will not be reported and some competent authorities 
will continue to lack powers to access telephone data records of telecom operators necessary to provide evidence when they suspect specific market abuse. 
Furthermore, some competent authorities will  not have the possibil ity to enter private 
premises and will be deprived from providing important evidence when they suspect market abuse. In addition, competent aut horities will have di fficulties to prove 
market abuse when they discover attempts  of market manipulation which did not 
lead to benefits for the offender.  
8.1.3.2. Option 5.3.2 – Introduce reporting of su spicious orders and suspicious OTC 
transactions 
Under this option banks and investment firm s would be required to report suspicious 
orders and suspicious OTC transactions. Fo r orders this would impact all market 
 
EN 150   EN participants and for OTC transactions this would affect market participants in 11 
Member states who currently do not require to report these transactions.  This option is expected to c ontribute to the objective of in crease market integrity by 
further facilitating the dete ction of market abuse thr ough reporting of suspicious 
orders and suspicious OTC transactions to the competent authorities. As this will 
improve the possibility to investigate a nd detect potential market abuse and where 
necessary impose sanctions, th is policy option is highly e ffective in contributing to 
the objective of dete rrent sanctions.  
This option is considered efficient as to a large extent, market participants already 
today monitor both orders and OTC transa ctions for their own purposes and this 
would require limited modification of internal  systems in place. Therefore, the cost 
of reporting these transactions is consid ered proportionate; ensuring that market 
abuse can be detected and sanctioned. 
Generally, respondents to the public cons ultation supported an extension of the 
suspicious transaction reporting regime to include orders and OTC transactions (over 
three quarters of respondents who expre ssed an opinion suppor ted the extension). 
Regulators and member states were strongly in favour of an extension, and while 
most other respondents also s upported the extension, a numbe r raised pote ntial issues 
as to the increased cost s and its practical implem entation (although no specific 
details of costs were presented). 
Assessment of fundamental rights
 
This option entails an interference with the ri ght to private life (Art.7); protection of 
personal data (Art 8); and freedom to conduc t a business (Art.16) of the Charter of 
Fundamental Rights. 
This option provides for the limitation on th ese rights to be provided for by law, 
respects the essence of thos e rights, and is necessary to  meet objectives of general 
interest recognised by  the Union and the need to pr otect the rights and freedoms of 
others, in accordance with article 52 of the Charter of Fundamental Rights. Limiting 
these rights is necessary to meet the ge neral interest objective of ensuring market 
integrity and to protect the fundamental right to property (ar ticle 17 of CFR). 
Reporting of suspicious orders and OTC tran sactions is necessary to ensure that 
competent authorities can detect and sanction market abuse effectively, and this will 
contribute to the general interest objectiv e of market integrity. This option is 
necessary to protect th e right to property, as currentl y investors can suffer losses to 
their investments due to market manipula tion which goes undetected in the absence 
of reporting of suspicious orders or susp icious OTC transactions. This option is 
proportionate as the use of this  data should be limited to the sole purpose of market 
abuse investigations by competent author ities and data  access should be limited to 
the time necessary to conduct ma rket abuse investigations.  
The Data Protection Direct ive 95/46/EC requires that  personal data which is 
processed must be accurate, adequate and not  excessive in relation to the legitimate 
purposes for which it is processed. In add ition personal data must only be processed 
for no longer than necessary. A system of reporting suspicious tr ansactions requires 
 
EN 151   EN the processing of personal da ta by sellers and to carry on  an assessment of customers 
for the disclosure of data to third parties who will also process. This processing of personal data will have to comply with national data protection laws implementing Directive 95/46/EC.  
8.1.3.3. Option 5.3.3 - prohibit attempts at market manipulations  
Under this option, regulato rs would gain the power to  sanction as market abuse 
attempts to manipulate the market. In essen ce, even a "failed" attempt to manipulate 
the market would be subject to sancti ons where there is evidence of intent. 
This policy option would act as a strong deterrent against engaging in market 
manipulation. Therefore, ensuring that  attempts at market manipulation are 
prohibited, contributes gr eatly to achieving the objec tive of ensuring deterrent 
sanctions. In addition, this  increased power would help  regulators in sanctioning 
attempted market abuse and therefore c ontributes further to the objective of 
enhancing market integrity. 
The public consultation highlighted that ther e is broad support from stakeholders for 
this policy option. Overall, three quarte rs of those responde nts who expressed an 
opinion on this issue were in  favour of the proposed extension of the MAD regime. 
However, respondents were generally also concerned about the n eed to improve the 
clarity of the proposed definition as they fe lt this needs to be very clear about the 
elements of the offence and what must be proved. Some respondents questioned how 
intent would be proven on a practical level. This last point would be an issue notably 
for criminal sanctions against market abuse.  
Therefore, the impact on market participan ts and investors is expected to be positive 
as market abuse would be further avoided. This option is also considered beneficial 
for regulators as it would facilitate the detection of market abuse.  
Assessment of fundamental rights  
This option interferes with right of free dom of expression and information (Art.8), 
and the right of freedom to conduct business (Art. 16) of the charter of fundamental 
rights. More particularly, the risk exists that legitimate market behaviour could be 
curbed, out of fear of facing investigation/prosecution.  
This option provides for the limitation on th ese rights to be provided for by law, 
respects the essence of thos e rights, and is necessary to  meet objectives of general 
interest recognised by  the Union and the need to pr otect the rights and freedoms of 
others, in accordance with article 52 of the Charter of Fundamental Rights. Limiting 
these rights is necessary to meet the ge neral interest objective of ensuring market 
integrity and to protect the fundamental right to property (ar ticle 17 of CFR). 
Prohibiting attempts at market manipulation is necessary to ensu re that competent 
authorities will be able to sanction atte mpted market manipulation where they have 
evidence of intent to commit market ma nipulation, even in the absence of an 
identifiable effect on market prices; this  will contribute to the general interest 
objective of market integrity. This option is necessary to protect the right to property, as currently investors can suffer losses due to  attempts at market manipulation, where 
 
EN 152   EN the intent to manipulate is clear even if the effects on prices of that attempt at 
manipulation cannot be proven, and theref ore the offence cannot be sanctioned.  
8.1.3.4. Option 5.3.4 - ensure access to data and telephone records from telecom operators 
for market abuse investigations  
This option would clarify that competent authorities who pursue market abuse are 
authorised to obtain telephone and data traffic records from  telecommunications 
providers when they have a reasonable suspicion of insider dealing or market 
manipulation. The procedures to be follo wed and the conditions to be fulfilled in 
order to gain access to retained data fr om telecom operators in accordance with 
necessity and proportionality requirements would be defined by each Member State 
in its national law, subject to the releva nt provisions of European Union law or 
public international law, and in particular the ECHR as interpreted by the European Court of Human Rights.  
This option is expected to c ontribute to the objective of market integrity by ensuring 
that market abuse can be detected, by en abling competent author ities to access data 
and telephone records from telecom operators when they suspect market abuse. Access to telephone and data traffic reco rds held by telecom operators can be 
sometimes the sole piece of evidence to establish whether inside information has 
been transferred from a pr imary insider to someone trading with this inside 
information. For example, this data would represent the only pi ece of evidence in a 
case where a board member of a company in possession of inside information 
transfers inside information by phone to a friend, relative or family member who 
afterwards executes a suspicious transa ction based on the inside information 
received. The telephone traffic records from  telecom operators could be used by the 
regulator to demonstrate that  a call had been placed by the primary insider to their 
friend or relative shortly befo re that person then called th eir broker to instruct them 
to make a suspicious transaction. The tr affic records from telecom operators would 
provide evidence of a link wh ich could be used as ev idence to sanction the case 
which otherwise would never be detected. As a result, this policy option improves 
the detection of market abuse which is a pre-condi tion to impose sanctions. 
Therefore this option is equally effective in  contributing to the objective of deterrent 
sanctions.  
Responses to the public consultation from  regulators and member  states generally 
differed from those of industry participants . Several public authorities welcomed this 
option in their responses to the consultatio n or noted that they already used this 
power and welcomed this clarification on the grounds that the data was vital for 
identifying and confirming market abuse cases
296. Industry respondents mainly 
responded that competent authorities should make better use of existing information 
they receive and apply fu lly their current powers. 
Assessment of fundamental rights  
                                                 
296 Joint FSA/HM Treasury Response (UK), Ministry of Finance of th e Czech Republic, CNMV (Spain), 
Ministère de l'économie, de l'industrie et de l'emploi 
 
EN 153   EN This option entails an interference with funda mental rights, more particularly: respect 
for private and family life (Art. 7) and prot ection of personal data (Art. 8) of the 
Charter of fundamental rights.  
This option provides for the limitation on th ese rights to be provided for by law, 
respects the essence of thos e rights, and is necessary to  meet objectives of general 
interest recognised by  the Union and the need to pr otect the rights and freedoms of 
others, in accordance with article 52 of the Charter of Fundamental Rights. Limiting 
these rights is necessary to meet the ge neral interest objective of ensuring market 
integrity and to protect the fundamental right to property (article 17 of CFR).  
This option is necessary to provide evidence and inves tigative leads on the possible 
possession of insider information or ma rket manipulation, and will therefore 
facilitate the detection a nd sanctioning of market abus es. As a result, currently 
undetected abuses will be detected and sanctioned, ensuring market integrity and 
more equal treatment of authors of violati ons. This option is nece ssary to protect the 
right to property, as market abuses that go unsanctioned because competent 
authorities cannot access this data to obt ain evidence lead to investor losses.  
It is proportionate as data  from telecom operators shoul d be only provided based on 
the safeguard of the existence of a reasona ble suspicon of insider dealing or market 
manipulation. This ensures that data reta ined are provided only to the competent 
national authorities responsible for market  abuse investigations , in specific cases 
when there are reasonable grounds for susp ecting market abuse and in accordance 
with national law. In addition,  the data should be limited to what is strictly necessary 
to perform the investigation and only use for the purpose of market abuse 
investigation. When the inves tigation is closed without fu rther action, the data from 
telecom operators should be deleted. Furthermore, the procedures to be followed and the conditions to be fulfilled in order to ga in access to retained data in accordance 
with necessity and proportio nality requirements would be  defined by each Member 
State in its national law, subject to the re levant provisions of European Union law or 
public international law, and in particular the ECHR as interpreted by the European Court of Human Rights. 
8.1.3.5. Option 5.3.5 - ensure access to private prem ises to seize documents for market abuse 
investigations  
Under this option, competent authorities w ho suspect market abus e would be able to 
enter private premises and seize documents where the person to whom a demand for information has already been made fails (wholly  or in part) to comply with it; or; (ii) 
where there are reasonable grounds for believi ng that if a demand were to be made, it 
would not be complied with, or that the documents or information to which the 
information requirement relates, would be removed, tampered w ith or destroyed. 
This would be subject to permission from a judge. 
The possibility to detect market abuse is an important factor in th e deterrent effect of 
sanctions. Therefore, as this option will ensure that competent authorities are in a position to gather evidence necessary to de tect market abuse which otherwise would 
remain undetected and unsanctioned, it c ontributes significantly to meeting the 
objective of increasing the dete rrent effect of sanctions.  
 
EN 154   EN It should be noted also that this option ensures a balance betw een the protection of 
fundamental freedoms and the detection and sanctioning of market abuse by 
introducing safeguards: by enabling authorities to gain access to premises or documents when it is necessary under the above-mentioned conditions, and subject to approval by an independent party (a j udge). The competent authority would then 
need to demonstrate to a judge that the conditions for the request were met and would need to obtain a warrant from a j udge to enter private premises and seize 
documents.  
As stated above, responses to the public consultation from regulators and member 
states generally differed from those of  industry participan ts. Few respondents 
addressed this issue specifical ly but some respondents stated  that public authorities in 
their Member State already had such a power  and supported clarifyi ng that all should 
have it
297. Industry respondents mainly responde d that competent authorities should 
make better use of existing information th ey receive and apply fully their current 
powers. 
Assessment of fundamental rights  
The following fundamental ri ghts of the Charter of Fundamental Rights are of 
particular relevance: resp ect for private and family life (Art. 7), protection of 
personal data (Art. 8); freedom to conduct busine ss (Art. 16).  
This option provides for the limitation on th ese rights to be provided for by law, 
respects the essence of thos e rights, and is necessary to  meet objectives of general 
interest recognised by  the Union and the need to pr otect the rights and freedoms of 
others, in accordance with article 52 of the Charter of Fundamental Rights. Limiting 
these rights is necessary to meet the ge neral interest objective of ensuring market 
integrity and to protect the fundamental right to property (article 17 of CFR).  
More specifically, access to premises is n ecessary to ensure better detection of 
market abuse and ensure the general interest objective of ensuring market integrity is 
met. This option is necessary to protect the ri ght to property, as market abuses that go 
unsanctioned because competen t authorities cannot access private premises to obtain 
evidence of market abuse l ead to investor losses.  
In addition the option includes safeguards that ensure proportionality, as this power 
will be exercised by competent authorities on ly when it is necessary and in relation 
to the breach, with the pe rmission of a judge, thereby ensuring that fundamental 
rights remain protected. Safeguards should en sure that access to premises to seize 
documents is only granted in cases wher e there are reasonabl e grounds to suspect 
that market abuse has occurred and there are reasonable grounds for believing that if 
a demand for access were to be made, it would not be complied with, or that the documents or information to which the reque st relates, would be removed, tampered 
with or destroyed. If the data obtained of  such an investigati on would lead to no 
further action, these data should be de leted by the competent authorities.  
                                                
 
297 Joint FSA/HM Treasury response (UK), Central Chamber of Commerce of Finland, Athens Exchange 
 
EN 155   EN In this context, attention should be paid  to the decision of the EUCHR of 21.12.2010 
(Primagaz v. France (no. 29613/08), Société Canal Plus and Others v. France (no. 
29408/08) concerning the searches of their premises by competition authorities, in 
which the applicants were suspected of an ti-competitive practices, and where various 
documents and data media were seized. The Court has found that the conditions 
applicable to this sear ch were in breach of articles 6, of the European Convention of 
Human Rights namely because there was no effective judicial review of the 
lawfulness and well-foundedness of the search  and seizure orders. The national legal 
measures must also provide for appropriate  redress in case of unlawful search and 
seizure. 
8.1.3.6. Option 5.3.6 - grant protection and incentives to whistleblowers 
This policy option would seek to enhan ce the market abuse framework and could 
include the following specific whistle blow ing requirements: ap propriate protection 
for whistleblowers reporting suspected market abuse; a provision for providing 
financial incentives for persons who provi de a competent authority with salient 
information (that leads to a monetary sanc tion); and enhancements of Member States' 
provisions for receiving and review ing whistle blowing notifications. 
Although some Member States have in pl ace specific systems to protect whistle 
blowers against reprisals298 such systems are usually horiz ontal rules (relating to, for 
example, labour law), and therefore are not specific to the financial services area, 
whilst some member states have no specific provision at all. This option would entail 
that appropriate employment protection w ould be provided for within the market 
abuse framework and would seek to ensu re whistle blowers not discriminated 
against. Persons who report violations to  the competent authorities could receive 
financial incentives which would be determin ed as a percentage of the fine issued by 
the competent authority, and would be gran ted for information which was genuinely 
new and resulted in a sanction. The fr amework would include a provision for 
competent authorities to in clude clear reporting mechan isms (for example telephone 
numbers or email boxes) as well as pub lished guidance (for example a web page 
outlining the protection available to whistle blowers, and the competent authorities' procedures for handling the information).  
This option has several advantages: it will encourage employees and market 
participants to alert competent authoritie s to suspected cases of market abuse, 
provide very strong incentives for thos e who would not norma lly report cases of 
suspected market abuse to do so, and increase the ease with which cases can be reported. All of these factors will increas e the market intelligence available to 
competent authorities and assist in th e investigation of market abuse cases. 
Increasing the number of cases reported to  regulators means that this proposal 
significantly contributes to meeting both the specific objective of increasing the 
availability of information available to regulators and to the general objective of 
increased market integrity. By protecting those who attemp t to help the authorities 
                                                
 
298 For example see the Public Interest Disclosure Act 1998 (PIDA) in the UK which protects employment 
rights for individuals who "blow the whistle", e.g. from and employer not offering a promotion or other 
opportunities they would have otherwise offered. 
 
EN 156   EN financially rewarding those who may struggle to find empl oyment after blowing the 
whistle, this option will provide appropriat e social protection to  such individuals. 
This option could have the disadvantage  of leading to an increase in false 
submissions by persons seeking financial a dvantage. However this risk could be 
mitigated and the quality of submissions en sured by appropriate procedures to ensure 
competent authorities are able to verify the status/identity of the whistle blower. 
Further, it may be appropriate to set a mini mum level of monetary sanction for which 
a whistle blower would receive financial incentives. This would ensure competent 
authorities were able to appropriately fo cus resources on the most significant cases. 
There is also a risk that such a provision could discourag e individuals from reporting 
concerns internally, and so reduce the effectiveness of a company’s existing 
compliance, legal, and audit functions. This risk can be mitigated by requiring individuals to report any concern internally  first (where appropriate and available), 
whilst still providing for financial rewards. 
This option was not included in the public consultation, but one respondent stated 
that a systematic approach to protected wh istle-blowing could play  an important role 
in ensuring stable and well-functioni ng financial markets in general
299.  
Assessment of fundamental rights  
The following fundamental ri ghts of the Charter of Fundamental Rights are of 
particular relevance: resp ect for private and family life (Art. 7), protection of 
personal data (Art. 8) and presumption of innocence and right of defence (Art 48).  
The option provides for limitation of these ri ghts in law while respecting the essence 
of these rights. Limiting these rights is necessary to meet the general interest objective of ensuring market integrity (by improving detection of market abuse) and 
to protect the fundamental right to propert y (article 17 of CFR). The option meets 
these objectives by facilitating the detection of market abuses wh ich would otherwise 
not be reported to the authorities, resulting in abuses going undetected and 
unsanctioned, to the detrimen t of market integrity and leading to investor losses. 
The proposed measure is proportionate as  it will ensure protection of whistle 
blowers, including the protection of priv ate and personal data. In addition, the 
personal and private data of suspects under i nvestigation of market abuse as a result 
of whistle blowing should be  protected by the competent authorities. If the 
investigation fails to detect market abuse,  the data provided by the whistle blower 
should be deleted by the competent authoritie s. To this end, co mpetent authorities 
should assess if there are reasonable grounds to suspect market abuse.  
In addition, whistle blowing activity should preserve particularly  article 48 of the 
charter of fundamental rights regarding th e "presumption of innocence and right of 
defence". While the whistle blowing activ ity will contribute to the detection of 
market abuse, competent authorities should assess if there are reasonable grounds to 
                                                
 
299 Response by UNI-Europa Finance 
 
EN 157   EN suspect market abuse, based on the pres umption of innocence and right of defence 
when they pursue their investigations.  
Incentives for whistle blowers should be proportionate and only be granted in case 
where the investigation has lead to the eff ective detection and sa nctioning of market 
abuse.  
In this context it is impo rtant that the implementation of whistle blowing schemes, 
comply with data protection principles a nd criteria indicated by the data protection 
authorities300.  
8.1.3.7. The preferred options 
 Impact on stakeholders Effectiveness Efficiency 
Option 5.3.1 
(baseline) n.a. n.a. n.a. 
(++) investors: benefit from 
increased market integrity due 
to further reduction of market abuse 
(++) regulators: improved 
possibility to detect market abuse by availability of 
suspicious orders and OTC 
transactions  (++)contributes to the 
objective of dissuasive 
sanctions by improving detection of market 
abuse based on orders 
and suspicious OTC transactions  Option 5.3.2 
(introduce reporting 
of suspicious orders and suspicious OTC 
transactions) 
Impact on fundamental rights 
Option interferes with rights in Articles 7, 8, 16 of Charter 
of Fundamental Rights (CFR). Option provides for 
limitation of these rights in law while respecting essence of 
these rights. 
Limiting these rights is necessary to meet general interest 
objective of ensuring market integrity (by facilitating 
detection of market abuse) and to protect fundamental right to property (article 17 of Charter). It is proportionate 
as it limits access to tran saction data to competent 
authorities for a time-limited period for the sole purpose of market abuse investigations to ensure market integrity. 
Access would have to be in compliance with data 
protection law. (+) adaptation of 
internal monitoring 
systems are proportionate and 
therefore reporting 
is an efficient tool to detect market 
abuse . 
Option 5.3.3 
(prohibit attempts at market 
manipulations) (++) investors: benefit from 
increased market integrity due to further reduction of market 
abuse 
(++) regulators: gain wider 
scope to sanction abuses by 
new offence of attempted 
market manipulation  (++) contributes to the 
objective of dissuasive sanctions by extending 
powers to sanctions 
attempts to market manipulation 
(++) overall 
contribution to the general objective of market integrity  (++) facilitates 
sanctioning of market abuse by 
competent 
authorities, who can sanction 
attempts  
                                                 
300 Article 29 working party Opinion 1/2006 on the application of EU data protection rules to internal 
whistle blowing schemes in the fields of accounting,  internal controls, aud iting matters, fight against 
bribery, banking and financial crime, available at: 
http://ec.europa.eu/justice/policies/privacy/docs/wpdocs/2006/wp117_en.pdf 
 
EN 158   EN Impact on fundamental rights: 
Option interferes with Articles 8 and 16 of CFR. Option 
provides for limitation of these rights in law while 
respecting essence of these rights. 
Limiting these rights is necessary to meet general interest 
objective of ensuring market integrity (by permitting 
sanctioning of attempted market manipulation where 
proven) and to protect fundamental right to property (article 17 of CFR). It is proportionate as it would be 
limited to cases where intent to manipulate can be proven 
even in the absence of an effect on market prices.  
(++) regulators are enabled to more easily establish and sanction market abuse by 
access to telephone and data 
traffic records in cases of a reasonable  suspicion of 
insider dealing or market  
manipulation 
(++) investors: indirect 
benefit from increased market 
integrity 
(++) market participants: 
benefit from increase market 
integrity due to more easy detection of market abuse.  (++) contribution to the 
objective of dissuasive sanctions by increasing 
possibility to detect 
market abuse 
(++) contribution to the 
general objective of 
market integrity Option 5.3.4 (ensure access to telephone and data traffic 
records from 
telecom operators for market abuse 
investigations)  
Impact on fundamental rights: 
Option interferes with Articles 7 and 8 of CFR. Option 
provides for limitation of these rights in law while 
respecting essence of these rights. 
Limiting these rights is necessary to meet general interest 
objective of ensuring market integrity (by improving 
detection of market abuse) and to protect fundamental 
right to property (article 17 of CFR). It is proportionate as it is based on the safeguard of data only being provided to 
competent authorities in spec ific cases where a reasonable 
suspicion of insider dealing or  market manipulation exists. 
Further, data should be limited to  what is strictly necessary 
for the investigation, should only used for that purpose and 
should be deleted when the investigation is closed without further action. (+) facilitates the 
detection of market abuse by enabling 
collection of 
evidence. 
Option 5.3.5 ensure access to private premises to seize 
documents for MA 
investigations (++) regulators are enabled 
to more easily detect market abuse by enabling access in 
specific cases when suspecting 
market abuse 
(++) investors: indirect 
benefit from increased market 
integrity 
(++) market participants: 
benefit from increase market 
integrity due to improved detection of market abuse. (+) contribution to the 
objective of dissuasive sanctions by increasing 
possibility to detect 
market abuse 
(+) contribution to the 
general objective of 
market integrity (+) facilitates 
detection of market abuse by enabling 
collection " on-site" 
of evidence.  
 
EN 159   EN Impact on fundamental rights: 
Option interferes with Articles 7, 8 and 16 of CFR. Option 
provides for limitation of these rights in law while 
respecting essence of these rights. 
Limiting these rights is necessary to meet general interest 
objective of ensuring market integrity (by improving 
detection of market abuse) and to protect fundamental 
right to property (article 17 of CFR).  
It is proportionate as it is based on the safeguards of 
permission from a judge a nd access being granted to 
competent authorities only when there are reasonable grounds for suspecting market abuse, and that without 
such access a strong risk exists that evidence would be 
removed, tampered w ith or destroyed. 
(++) increases protection 
available to individuals 
reporting market abuse. 
(+) provides regulators with 
primary information and 
assistance in market abuse 
cases. 
(+) increases the accessibility 
of regulators. (++) enhances the 
information available to 
regulators. 
(+) acts as a deterrent 
against potential market 
abuse. 
(+) ensures legal clarity 
for the protection of 
whistle blowers. Option 5.3.6 (grant 
protection and 
incentives to 
whistleblowers) 
Impact on fundamental rights: 
Option interferes with Articles 7, 8 and 48 of CFR. Option 
provides for limitation of these rights in law while 
respecting essence of these rights. Limiting these rights is necessary to meet general interest objective of ensuring 
market integrity (by improving detection of market abuse) 
and to protect fundamental right to property (article 17 of CFR).  
It is proportionate as it will ensure the protection of whistle 
blowers, including of their personal data, and in considering information from whistle blowers competent 
authorities should assess if there are reasonable grounds 
to suspect market abuse, based on the presumption of innocence and right of defence. (+) highly efficient 
due to limited 
associated costs 
Generally, respondents to the public cons ultation supported an extension of the 
suspicious transaction reporting regime to include orders and OTC transactions (over 
three quarters of respondents who expre ssed an opinion suppor ted the extension). 
Regulators and member states were strongly in favour of an extension, and while 
most other respondents also s upported the extension, a numbe r raised pote ntial issues 
as to the increased cost s and its practical implem entation (although no specific 
details of costs were presented). 
The public consultation highlighted that ther e is broad support from stakeholders for 
the option of prohibiting attempts at market  manipulation. Overall, three quarters of 
those respondents who expressed an opini on on this issue were in favour of the 
proposed extension of the MAD regime. Howe ver, respondents were generally also 
concerned about the need to improve the cl arity of the proposed definition as they 
 
EN 160   EN felt this needs to be very clear about the elements of the offence and what must be 
proved. Some respondents questioned how intent would be proven on a practical 
level. 
On option 5.3.4, responses to the public  consultation from re gulators and member 
states generally differed from those of  industry participants. Several public 
authorities welcomed this option in their re sponses to the consultation or noted that 
they already used this power and welcomed this clarification on the grounds that the 
data was vital for identifying an d confirming market abuse cases301. Industry 
respondents mainly responded that competent authorities should make better use of 
existing information they receive a nd apply fully their current powers. 
Few respondents addressed option 5.3.5 specifi cally but some respondents stated that 
public authorities in  their Member State already had such a power and supported 
clarifying that all should have it302. Industry respondents ma inly responded that 
competent authorities should make better use of existing information they receive 
and apply fully their current powers. Opti on 5.3.6 was not included in the public 
consultation, but one respondent stated th at a systematic approach to protected 
whistle-blowing could play an important role  in ensuring stable and well-functioning 
financial markets in general303.  
Based on the analysis in the table above, options 5.3.2, 5.3.3, 5.3.4, 5.3.5 and 5.3.6 
receive the highest score. These options ar e compatible with each other and could be 
combined.  
Options 5.3.2 and 5.3.6 usefully complement each other in providing additional 
sources of information for regulators about possible market abuse; currently 
regulators do not receive information a bout suspicious unexecuted orders and 
suspicious OTC transactions, nor do they all receive information from whistle blowers. Combining these options will ther efore make it easier than at present for 
regulators to detect possible market abuse with a view to sanctioning it. Options 
5.3.4 and 5.3.5 will ensure that when they have reasonable grounds to suspect market abuse, competent authorities have access to telephone data records from telecom 
operators and can enter private premises in order to obtain evidence to sanction 
market abuse. Finally, by including th e prohibition of attempts at market 
manipulation (option 5.3.3) in the package of preferred options, regulators will be 
able to sanction such attempts when they ha ve evidence of intent, even in the absence 
of a clear effect on prices. This will reduce further the scope for manipulative behaviour to remain unsanctioned and will  thereby promote market integrity and 
investor protection.  
The powers outlined in the above-mentioned options are necessary to meet the 
general interest objective of ensuring greater  market integrity, by making it easier for 
regulators to prove and sanc tion market abuse, but are proportionate as they are 
subject to appropriate safeguards (notably the existence of a reasonable suspicion of 
                                                
 
301 Joint FSA/HM Treasury Response (UK), Ministry of Finance of th e Czech Republic, CNMV (Spain), 
Ministère de l'économie, de l'industrie et de l'emploi 
302 Joint FSA/HM Treasury response (UK), Central Chamber of Commerce of Finland, Athens Exchange 
303 Response by UNI-Europa Finance 
 
EN 161   EN insider dealing or market manipulation fo r options 5.3.4 and 5.3.5 and permission 
from a judge for option 5.3.5). A detailed analysis of their impact on fundamental 
rights can be found in annex 8.  
There are synergies between these options and those outlined in section 6.1.1. As 
already mentioned, option 5.1.8 will strengthe n further the capacity of regulators to 
detect market abuse by ensuri ng that operators of MTFs and OTFs adopt structural 
provisions to detect market abuse on thei r facilities, enabling them to report any 
suspected breaches to the regulator. Opti on 5.1.7 will ease enforcement by ensuring 
regulators have clarit y on which specific strategies re lating to automated or high 
frequency trading are in breach of the prohi bition of market abuse. Option 5.2.5 will 
also facilitate the enforcement task of  financial regulato rs by promoting good 
international cooperation w ith physical commodity market regulators, thereby 
making the detection of cross-border and cr oss-market abuse easier. There is also a 
natural complementarity with the options assessed in the ensuing section (6.1.2.2), because the market abuse powers of a regulat or can only be effec tive if abuses are 
not only detected, but can also be sancti oned in an effective, consistent and 
dissuasive manner. 
In light of this analysis, the preferred opti on is a combination of options 5.3.2, 5.3.3, 
5.3.4, 5.3.5 and 5.3.6. 
8.1.4. Policy options to introduce co mmon principles for sanctions 
8.1.4.1. Option 5.4.1 - No EU Action 
Under this option, the existing regimes on market  abuse will continue to exist. This is 
expected to result in the continuing diverg ent application of sanctions across Member 
States. Therefore, similar market abuses will  not be sanctioned to the same extent. As 
a result, in some specific cases of market abuse, sanctions might  not be sufficiently 
dissuasive which could provide an incitement  to commit market abuse. This situation 
could also lead to regulatory arbitrage as offenders can increasingly act cross-border 
due to the further integration of financia l markets. When the European supervisory 
framework takes effect in 2011, ESMA is exp ected to conduct a peer review analysis 
of the sanctioning process and Member Stat es will start to disclose their published 
sanctions to ESMA.  
8.1.4.2. Option 5.4.2 - minimum rules for admi nistrative measures and sanctions 
This option is aims to reinforce an eff ective sanctioning regime in line with the 
Commission Communication reinforcing sanctions in the financial sector.304 To this 
end, this option determines common rule s on the types of administrative sanctions 
and measures available to competent authorities. In addition, common minimum rules could be introduced to ensure that administrative fines are effective, proportionate and dissuasive, ensuring disgorgement of pr ofits. This could include 
the formulation of minimum a nd maximum levels of administ rative fines that can be 
imposed for the most important market abuses (insider dealing and market 
                                                
 
304 COM (716) 2010 "Reinforcing sanctioning regimes in  the financial services sector", available at: 
http://ec.europa.eu/internal_market/consultations/docs/2010/sanctions/COM_2010_0716_en.pdf 
 
EN 162   EN manipulation). However, these amendments  should not prevent individual Member 
States from fixing even highe r levels than the common sta ndards. In addition, when 
actual fines are determined, competent authorities could take into account 
aggravating or mitigating factors, such as the benefits or incurred losses of an offence and good cooperation with the regulator or financial hardship. 
This option would contribute to the objectiv e of improving the deterrent effect of 
administrative sanctions. Minimum rules woul d ensure that administrative sanctions 
are higher than the potential profits from market abuse and would ensure 
disgorgement of profits. In addition, they would contribute to the objective of 
improving legal certainty, as the types and levels of administra tive sanctions would 
be based on common minimum rules. As a result, similar o ffences would be 
sanctioned based on the same  common minimum rules, wh ich would reduce the risks 
of regulatory arbitrage and c ontribute to the creation of a level playing field for all 
market participants.  
As pointed out in the public consultation, all industry participants will be treated 
more equally as similar market abuses will be sanctioned in a more consistent way across Member States reducing risks of regulatory arbitrage
305. This will contribute 
to investor protection as more coherent administrative sanctions will ensure 
improved deterrence, thereby avoidi ng potential market abuse.  
Respondents to the consultation generally s upported harmonisation of sanctions at 
the EU level as a means to increase thei r deterrent effect. There was support for 
harmonisation of administrative sanctions at  the EU level, with  respondents noting 
that at present sanctions di ffered greatly between Member  States and that Member 
States should enforce and apply MAD in a more consistent and harmonised way, 
with a view to reducing regul atory arbitrage. However th ere was also some potential 
uncertainty as to the practi cality of complete harmonisation, especially due to the 
differences in markets between Member States. 
In relation to the setting of minimum leve ls for financial penalties, there was a 
general consensus supporting minimum levels  but some concerns about the practical 
implications were raised by some respondents.  
Assessment of fundamental rights  
For this policy option the following fundamental rights306 are of particular relevance: 
Title VI Justice, particularly the right to an effective remedy and fair trial (Art. 47), 
presumption of innocence and right of defence (Art 48).  
This option provides for limitation of these rights in law while respecting the essence 
of these rights. Limiting these rights is necessary to meet the general interest objective of ensuring market integrity and to protect fundamental right to property 
(article 17 of CFR). In particular , introducing common minimum rules for 
administrative measures and sanctions w ill improve the coherent application of 
sanctions within the EU which is necessary to ensure that comparable offences of 
                                                
 
305 Responses to the public consultation on the MAD from June 2010. 
306 EU Charter of fundamental rights,  
 
EN 163   EN market abuse are sanctioned with comparable administrative sanctions and measures. 
An increased deterrent effect of sanctions  could be expected to result in greater 
market integrity and a reduction in the lo sses suffered by investors due to market 
abuse. 
This option is proportionate as it will ensure that the administrative measures and 
sanctions which are imposed are proportionate to the breach of the legislation. As the 
rules under this option will introduce minimu m rules for administrative measures and 
sanctions, they will contribute to the "right to  an effective remedy and to a fair trial" 
(Article 47 of the charter of fundamenta l rights). In addition,  the principle of 
innocence and right of defence (Article 48) will be pr eserved. In view of the above, 
this policy option is consider ed in compliance with the ch arter of fundamental rights. 
8.1.4.3. Option 5.4.3 - uniform administ rative measures and sanctions 
Under this option both the types of administ rative sanctions available to competent 
authorities as well as the minimum a nd maximum levels for each type of 
administrative sanction would be determined , and Member States would not be able 
to exceed the maximum levels foreseen. In  addition, mandatory criteria would be 
determined to take into account aggravati ng or mitigating actors when establishing 
actual administrative fines and Member States would not be able to take into account 
additional criteria. Overall, this option would imply that admi nistrative sanction 
regimes are fully harmonised and that any in fringement would be subject to the same 
type and level of sanction  across all Member States. 
This option is expected to be effectiv e in achieving the obj ective of dissuasive 
administrative sanctions as the minimum a nd maximum level of sanctions will be 
equal across all Member States. However, in some Member States307 which currently 
have a very high level of sanctions or an  unlimited maximum level for administrative 
sanctions, this might lead to a reducti on in the maximum leve l of administrative 
sanctions and reduce deterrence if the actua l level established would be lower then 
what is currently in place. In addition, this option will contribute to achieving a level playing field between all actors as mark et abuse is expected to be sanctioned 
administratively in a consistent way acro ss the EU based on the same maximum and 
minimum levels and same criteria, reducing risks of regulatory arbitrage. As a result 
the objective of legal certainty would also be achieved. Furthermore, fully 
harmonised sanctions would contribute to the same level of investor protection 
across all Member States.  
While this option is highly effective in ach ieving the policy object ives of deterrence, 
it is not sure that this option is efficien t as market situations, legal systems and 
traditions differ among Member States. This has been pointed out by multiple stakeholders in the public consultation on th e market abuse directive as described in 
Annex 3 who consider that sanctions should allow for sufficient flexibility as market 
situations differ considerably among Member  States. Therefore, to have exactly the 
same types and levels of sanctions might  not be reasonable an d proportionate to 
ensure deterrent sanctions. However as financial markets are increasingly integrating, 
                                                
 
307 UK, IT 
 
EN 164   EN having more convergent sanctioning regimes en sure a future-proof legal framework. 
Therefore this option is considered less e fficient then introducing minimum rules for 
administrative sanctions. 
Respondents to the consultation generally s upported harmonisation of sanctions at 
the EU level as a means to increase thei r deterrent effect. There was support for 
harmonisation of administrative sanctions at  the EU level, with  respondents noting 
that at present sanctions di ffered greatly between Member  States and that Member 
States should enforce and apply MAD in a more consistent and harmonised way, 
with a view to reducing regul atory arbitrage. However th ere was also some potential 
uncertainty as to the practi cality of complete harmonisation, especially due to the 
differences in markets between Member States. 
In relation to the setting of minimum leve ls for financial penalties, there was a 
general consensus supporting minimum levels  but some concerns about the practical 
implications were raised by some respondents.  
Assessment of fundamental rights  
For this policy option the following fundamental rights308 are of particular relevance: 
Title VI Justice, particularly the right to an effective remedy and fair trial (Art. 47), 
presumption of innocence and right of defence (Art 48).  
This option provides for limitation of these rights in law while respecting the essence 
of these rights. Limiting these rights is necessary to meet the general interest objective of ensuring market integrity (by ensuring effective sanctioning of market 
abuse) and to protect the f undamental right to property (article 17 of CFR). In 
particular, introducing uniform rules for admi nistrative measures and sanctions will 
ensure the coherent application of sanctions within the EU, which is necessary to ensure that comparable offences of mark et abuse are sanctioned with comparable 
administrative sanctions and measures. An increased deterrent effect of sanctions 
could be expected to result in greater mark et integrity and a reduction in the losses 
suffered by investors due to market abuse. 
It is proportionate it would ensure that th e same offence of market abuse would be 
subject to the same type and level of administrative sanction across the EU. These uniform rules will particularly ensure that the administrative measures and sanctions which are imposed are proportionate to the breach of the offen ce across all Member 
States. This option will contribute to "right to  an effective remedy and to a fair trial" 
(Article 47 of the charter of fundamental rights) as rules will be uniform across all 
Member States and the principle of innocen ce and right of defen ce (Article 48) will 
be preserved. In light of the above, this  policy option is cons idered in compliance 
with the charter of fundamental rights. 
8.1.4.4. Option 5.4.4 - requirement fo r criminal sanctions  
Under this option, which builds on the Co mmunication Reinforci ng sanction regimes 
in the financial sectors309, Member States will be require d to provide for effective, 
                                                 
308 EU Charter of fundamental rights,  
 
EN 165   EN proportionate and dissuasive criminal sancti ons for the most serious insider dealing 
and market manipulation offences as defined at EU level. As poi nted out in table 1 
above, only a limited number of Member Stat es would need to amend their national 
legislation. For example, 2 Member St ates would need to introduce criminal 
sanctions for market manipulation and 1 Member State for insider dealing310 .  
In the case of market abuse, criminal sanc tions are particularly applied in the more 
important market abuse cases.311 For such cases, criminal sanctions and in particular 
custodial sentences are considered by some  national regulators  to have a strong 
deterrent effect on potentia l abuse, greater than that of administrative sanctions312. 
There are three main reasons for this. First, making the most serious market abuse offences criminal offences sets clear bounda ries in law that ce rtain behaviours are 
regarded as unacceptable and sends a message to the public that these are taken very 
seriously by society; this could be exp ected to lead to changes in behaviour
313. 
Second, successfully prosecuting market abuse offences under criminal law often results in extensive media coverage which helps to deter potential defenders and has 
an important demonstration effect, as it shows that the competent authorities are serious about tackling market abuse
314. Third, there is evidence from published 
studies that criminal sanctions contribute strongly to the objective of increasing 
deterrence due to the stigma attached to criminal conduct315, and evidence from one 
survey of companies suggests that criminalisation and in particular incarceration are considered to be the strongest possible deterrent
316. 
                                                                                                                                                         
309 COM (716) 2010 "Reinforcing sanctioning regimes in  the financial services sector", available at: 
http://ec.europa.eu/internal_market/consultations/docs/2010/sanctions/COM_2010_0716_en.pdf 
310 Executive summary to the report on administ rative measures and sanctions as well as criminal sanctions available in Member 
States under the market abuse directive (MAD), CESR/08-099, available at www.cesr-eu.org ,  
311 Executive summary to the CESR re port on administrative measures an d sanctions as well as criminal 
sanctions available in Member States under the Ma rket Abuse Directive (MAD), p 2, ref CESR/08-099 
available at www.cesr-eu.org  
312 For example, in a speech to the FSA's Enforcement Conference on 18 June 2008, the UK FSA Director 
of Enforcement Margaret Cole said: "We feel that the threat of civil fines hasn’t worked as well as we 
would have liked. We’re convinced th at the threat of a custodial sent ence is a much more significant 
deterrent. The good news is that in this area stakehol ders and commentators all seem to agree with us." 
 http://www.fsa.gov.uk/pages/Library/Co mmunication/Speeches/2008/0618_mc.shtml 
313 See speech by Margaret Cole, FSA Director of En forcement, on 18 June 2008 referenced above. 
314 Margaret Cole, speaking at th e FSA Annual Financial Crime C onference on 27 April 2009, said 
referring to a specific criminal conviction secured by the FSA that year: "The McQuoid/ Melbourne 
conviction resulted in considerable publicity, including a front page spread in the Independent under the 
headline 'Net tightens on insider trading'. By raising the profile of insider dealing, by making it known that cheats will be punished, we are able to send a strong message." 
 http://www.fsa.gov.uk/pages/Library/Co mmunication/Speeches/2009/0427_mc.shtml 
315 Michael Levi, Suite justice or sweet charity? Some explorations of shaming and incapacitating business 
fraudsters,  Vol. 4 No. 2, Sage Publications, 2001, pp. 147-162. Levi argues that criminal law is 
effective as it embodies a comprehensive enforcement mechanism and has a deterrent effect due to the 
stigma that is attached to criminal conduct. 
316 Report for the Office of Fair Trading (UK) , An assessment of discretionary penalties regimes , London 
Economics, October 2009. In a survey by the OF T, companies ranked criminal penalties first in 
motivating compliance with the law (p. 24). The report argues that "criminalisation and other forms of 
personal sanctions are important added elements to the deterrent power of corporate fines and 
(particularly incarceration) are arguably the strongest possible deterrent for a potential infringer" (p. 9). 
 
EN 166   EN The introduction of common de finitions of the most seri ous market abuse offences 
and a requirement for Member States to put in place criminal sanctions is expected to 
contribute to a more effective investiga tion and prosecution of such crimes by 
offering a new tool to address market abus e. This would comple ment administrative 
measures and sanctions. The EU wide avai lability of criminal sanctions improves 
deterrence and provides for a level playing fi eld, and therefore, will lead to improved 
financial market integrityFinally, there is  evidence that effective enforcement of 
market abuse legislation, and in particul ar enforcement through criminal sanctions, 
reduces the cost of equity317 (to the benefit of investors)  and contributes to improved 
market integrity318.  
There was limited specific discussion of harm onisation of criminal sanctions in the 
responses to the public consultation. Tw o respondents felt that penal measures 
should be left to member States319, while others noted the difficulties of 
implementing regimes in criminal law. One respondent commented that harmonisation was needed to prevent th e same wrongdoing being a crime in one 
member state and an administrative offence in another
320.  
There was a mixed response to the option of harmonising criminal sanctions in 
financial services legislation in gene ral outlined in the responses to the 
Communication on reinforcing sa nctioning regimes in the fi nancial services sector. 
On the one hand some public authorities321 and industry or union groups322, as well 
as some individual and in stitutional investor groups323, were favourable to, or not 
against, harmonisation of crim inal sanctions in the financ ial services sector. On the 
other hand, other p ublic authorities324, industry and institutional investor 
representatives325 or others326 were opposed to, or scep tical of, harmonisation of 
                                                 
317 Utpal Bhattacharya and Hazem Daouk, The World Price of Insider Trading , Journal of Finance, 
February 2002, p. 25, concludes that although the in troduction of insider trading laws in itself is not 
associated with a reduction in the cost of equity "the  difficult part - the enforcement of insider trading 
laws - is associated with a reduction in the cost of equity in a country". 
318 See section 3.1.3. Evidence from  one Member State (UK), where they  have recently reinforced their 
approach regarding criminal sanctions, shows that th is had a positive impact on "market cleanliness".  
319 Finnish Ministry of Finance and Central Chamber of Commerce of Finland 
320 German Insurance Association (GDV) 
321 Central Bank of Ireland (offences to be clearly defined), Danish FSA (but subsidiarity to be addressed) 
Ministry of Finance Finland (compliance with fundamental rights to be ensured), Estonian Ministry of 
Finance (but not a priority - EU inte rference with criminal law in genera l to be avoided, offences to be 
clearly defined), Spanish CNMV (o ffences to be clearly defined). 
322 Association Française des marches financiers (offences  to be clearly defined in cooperation with ESAs), 
Nordic Financial Union, British Bankers association (but limited consistency can be achieved due to 
different approaches in sentencing and standards of proof).  
323 Financial Services User Group, Private Client Investment Managers and Stockbrokers (but to be 
properly targeted an d applied carefully). 
324 Czech National Bank, Swedish Minist ry of Finance, Austrian FSA, Ministry of Finance and National 
Bank of Slovakia, Ministry of Finance of Czech Republic, ESMA; German Federal Government – not 
proved that conditions of Article 83(2) TFEU are met.  
325 ING Group (to be left to MS, could be only defined violations eligible for criminal sanction); Austrian 
Federal Economic Chamber (impact on constitutional law); German Insurance association, Legal and 
General Group; European Association of Public Banks; European federation of Insurance Intermediaries; London Stock Exchange Group (f urther consultation needed); Unicredit; EUMEDION 
(institutional investor group), UBS AG (procedural fairness and ne bis in idem to be complied with); 
Bundesverband Deutscher Banken – not necessary. 
 
EN 167   EN criminal sanctions. At the same time, many respondents from public authorities, 
industry and one invest or/user group took the view that  criminal sanctions for the 
most serious offences were appropriate327, and several banking and institutional 
investor representatives specifically cite d market abuse as being an appropriate 
sector for criminal sanctions328. A smaller number of respondents from public 
authorities, industry and one consumer or ganisation argued that administrative 
sanctions were equally or more effective329.  
Assessment of fundamental  rights and compliance w ith article 83 (2) (TFEU)  
For this policy option the following fundamental rights330 are of relevance: Title VI 
Justice, the right to an effective remedy and fair trial (Art. 47), presumption of innocence and right of defen ce (Art 48), the principle of legality and proportionality 
of criminal offences and penalties (Art 49) is important and right not to be tried or 
punished twice in criminal proceedings fo r the same criminal offence (Art 50). 
Particularly Art. 49 is important.  
This option provides for limitation of these rights in law while respecting the essence 
of these rights. Limiting these rights is necessary to meet the general interest objective of ensuring market integrity (by ensuring effective sanctioning of market 
abuse) and to protect the fundamental right  to property (article  17 of CFR). It is 
proportionate as most Member States alrea dy consider that criminal sanctions are 
necessary and proportionate, and the option is limited to the most serious offences. 
In accordance with article 83 (2) of the Tr eaty (TFEU), the requirement of criminal 
sanctions for commonly defined serious forms of market abuse of the Member States 
is considered essential to ensure the effective implementation of the Union policy on ensuring the intergrity of the financial ma rket. In this context, the majority of 
Member States have introduced criminal sanctions in national law to address market abuse. Common minimum rules on definiti ons for the most serious market abuse 
                                                                                                                                                        
 
326 Linklaters (may be an obstacle to consistent app lication of EU law) IMF (may create problems in 
cooperation between authorities). 
327 Central Bank of Ireland, Danish FSA (for both lega l and natural persons), Romanian National Securities 
Commission, Association for Financial Markets in Europe (AFME – to be avoided application of both 
criminal and administrative); Swedish Ministry of Finance (only as a last resort + relationship with administrative sanctions and cooper ation issues to be reflected); Association Française des marches 
financiers; FSUG (but right to claim damages to be dissociated from  the result of crim inal proceedings), 
UBS AG (useful only against individuals); Nordic Financial Union (but financial institution to be punished instead of individuals if it benefits from the violation); Centre d'étude et de perspective 
stratégique (against management, more efficient than fines imposed to financial institutions); 
Association of Private Client Investment Managers and Stockbrokers; IMF; Estonian Ministry of Finance; CNMV (but some disadvantages: longer procedures, role of supervisors limited).  
328 Association of banking insurers (e.g. for market abuses); Deutsche Bank (only in some areas e.g. 
market abuse); AXA Investment managers (but only where some degree of fraud is involved, e.g. market abuses, misuse of client assets).  
329 ING Group, Austrian FSA, CFA In stitute (civil proceeding to be preferred because faster and reduce 
burden of proof), European Association of Public Banks, law professor, Unicredit, Federation of 
German consumer organisation - VzBv (potential problems of criminal sanctions linked to lack of 
expertise of prosecutors, long proceedings and low priority given by Courts), ESMA (disadvantages of criminal sanctions: longer, resource consuming proceedings, lack of harmonised rules on cooperation, 
possible increased divergence in enforcement), Italian Banking Association.  
330 EU Charter of fundamental rights,  
 
EN 168   EN offences would facilitate the cooperation of  law enforcement authorities in the EU. 
Criminal sanctions show a particularly st rong disapproval of society for certain forms 
of behaviour331. The entering of convictions in crimin al records can have a particular 
deterrent character . Successfully prosecuting market  abuse offences under criminal 
law often results in extensive media coverage, which helps to deter potential defenders and has an important demonstrati on effect, as it shows that the competent 
authorities are serious about tackling market abus e. The increased deterrent effect of 
criminal sanctions for the most serious offen ces could be expected to result in greater 
market integrity and a reduction in the lo sses suffered by investors due to market 
abuse. 
The absence of criminal sanctions in some Me mber States entails th e risk that serious 
market abuses such as market manipulati on and insider dealing remain unsanctioned, 
or insufficiently sanctioned, within the EU. 
8.1.4.5. Option 5.4.5 - minimum rules for criminal sanctions  
Under this option, Member States would be required to introduce criminal sanctions 
for market abuse offence and also minimum rules for the types and levels for related 
criminal sanctions would be established.  These minimum rules could also include 
minimum and maximum levels for imprisonm ent and fines for the most important 
market abuses, e.g. insider dea ling and market manipulation.  
In those countries which do not yet have criminal sanctions in place, the introduction 
of criminal sanctions is expected to c ontribute to more effective prosecution of 
market abuse offences by offering a new tool to address market abuse. In addition, in 
those Member States who have already criminal sanctions in place, minimum and maximum rules will further approximate the level of sanctions available for market 
abuse. It is of importance, as financial markets become increasingly integrated. Such 
EU wide minimum harmonisatio n contributes to a level playing field between all 
actors and improving le gal certainty.  
However, as the legal frameworks and syst ems for market abuse criminal offences 
differ widely among Member  States at present and the effects of minimum 
harmonisation concerning the offence defini tions and the requirement for criminal 
sanctions have not been explored yet,, in li ght of the spirit of Article 83 (2), it seems 
to be premature to foresee already minimu m rules on types and levels of criminal 
sanctions at this stage. It is preferred to follow a gra dual approach, i.e. introduction 
of a general obligation on MS to provide cr iminal sanctions for certain well-defined 
most serious offences and to evaluate the effectiveness of its implementation before 
going further. 
There was limited specific discussion of harm onisation of criminal sanctions in the 
responses to the public consultation. Tw o respondents felt that penal measures 
                                                
 
331 For example, in a speech to the FSA's Enforcement Conference on 18 June 2008, the UK FSA Director 
of Enforcement Margaret Cole said: "We feel that the threat of civil fines hasn’t worked as well as we 
would have liked. We’re convinced th at the threat of a custodial sent ence is a much more significant 
deterrent. The good news is that in this area stakehol ders and commentators all seem to agree with us." 
 http://www.fsa.gov.uk/pages/Library/Co mmunication/Speeches/2008/0618_mc.shtml 
 
EN 169   EN should be left to member States332, while others noted the difficulties of 
implementing regimes in criminal law. One respondent commented that harmonisation was needed to prevent th e same wrongdoing being a crime in one 
member state and an administrative offence in another
333. 
Assessment of fundamental rights  
This option would ensure that  the same offence of market  abuse would be subject to 
the same type and level of criminal sanctions across the EU. 
For this policy option the following fundamental rights334 are of relevance: Title VI 
Justice, the right to an effective remedy a nd fair trial (Art. 47), the presumption of 
innocence and right of defen ce (Art 48), the principle of legality and proportionality 
of criminal offences and penalties (Art 49) ; and the right not to be tried or punished 
twice in criminal proceedings for the same  criminal offence (Art 50). Particularly 
Art. 49 is important. 
Limiting these rights is necessary to meet the general interest objective of ensuring 
market integrity (by ensuring effective sanc tioning of market abuse) and to protect 
the fundamental right to pr operty (article 17 of CFR). 
In accordance with article 83 (2) of the Tr eaty (TFEU), the level of harmonisation of 
criminal sanctions for market abuses of th e Member States needs to be essential to 
ensure the effective implementation of the Union policy on the integrity of the 
financial markets. At this stage, the intr oduction of common def itnitions of certain 
offences and the general obligation of intr oducing cirminal sanctions attached to 
them seem to be the right level of harmonisiation of criminal law at EU wide level. 
8.1.4.6. Option 5.4.6 - improve enforcement of sanctions 
Under this option enforcement of sanc tions would be improved by introducing a 
requirement to publish imposed sanctions and improve cooperation on investigations 
among Member States, where a ppropriate in collaboration with ESMA. Disclosure to 
the public of imposed sanctions would become mandatory, except in certain 
narrowly defined cases such as where such disclosure would seriously jeopardize the 
financial market or cause disproportiona te damage to the parties involved.  
The publication of imposed sanc tions is considered by regu lators as being of high 
importance to enhance transparency and ma intain confidence in financial markets335. 
Therefore publication of imposed sanctions will contribute to the objective of deterrence and improves market integrity a nd investor protection.  This option will 
also contribute to the objective of elimin ating options and discretions where possible 
by removing the current discretion Memb er States have not to require such 
                                                
 
332 Finnish Ministry of Finance and Central Chamber of Commerce of Finland 
333 German Insurance Association (GDV) 
334 EU Charter of fundamental rights,  
335 CESR, review panel report MAD, Options and Discretions, 2009, p. 19, reference: CESR/09-1120 
available at ww w.cesr-eu.org 
 
EN 170   EN publication. However, alr eady today 19 Member States336 provide for publication of 
sanctions and this measure will only have an effect in those Member States with 
currently no rules in place. In addition,  improved cooperation of Member States 
through ESMA will ensure exchange of best  practices in addressing market abuse. 
This is likely to contribute to the detection and sanctioning of market abuse and is expected to contribute to market integrity. 
In relation to public disclosure of sanc tions, one respondent felt that this could 
disproportionately affect trus t in capital markets and gi ve misleading signals (and 
also contravene da ta protection rules)
337, whilst other respondents supported the 
measure but noted that there may be occasions when public disclosure may be inappropriate.  
Respondents to the consultation were s upportive of ESMA having a co-ordination 
role for enforcement purposes; however there was limited support for any further 
powers or involvement in specific cases.
  
8.1.4.7. The preferred options 
_ Impact on stakeholders Effectiveness Efficiency 
Option 5.4.1 
(baseline) n.a. n.a. n.a. 
(++) all market actors will be assessed 
based on same standards for sanctions 
and similar offences will be sanctioned 
based on same standards 
(++) investors will be better protected 
against market abuse due to more 
effective, proportionate and deterrent sanctioning regimes across EU (++) minimum rules of 
sanctions contribute to 
deterrence 
(++)level playing field: 
similar market abuse 
sanctioned based on the same 
common standards  
(++) minimum rules reduce 
regulatory arbitrage 
 Option 5.4.2 
Introduction of 
minimum rules on 
administrative measures and 
sanctions  
Impact on fundamental rights: 
Option interferes with Articles 47 and 48 of CFR. Option provides for 
limitation of these rights in law while respecting essence of these rights. Limiting these rights is necessary to meet general interest objective of 
ensuring market integrity (by ensuri ng effective sanctioning of market 
abuse) and to protect fundamental right to property (article 17 of CFR).  
It is proportionate as it will ensure that the administrative measures and 
sanctions which are imposed are proportionate to the breach of the 
offence and respect the presumption of innocence and right of defence. (+/0) compliance costs 
for competent 
authorities for those 
Member States which lower level of sanctions 
in place  
 
                                                 
336 CESR, review panel report MAD, Options and Discretions, 2009, p. 19, reference: CESR/09-1120 
available at ww w.cesr-eu.org 
337 European Savings Banks Group 
 
EN 171   EN (++) all market actors will be assessed 
based on same types of sanctions and market abuse will be sanctioned the 
same way across the EU.  
(++) investors will be better protected 
against market abuse due to more 
effective, proportionate and deterrent 
sanctioning regimes across EU (++) minimum rules of 
sanctions contribute to deterrence 
(++)level playing field: 
similar market abuse sanctioned based on the same 
common standards  
(++) uniform rules reduce 
regulatory arbitrage  
 Option 5.4.3 – 
uniform administrative 
measures and 
sanctions  
Impact on fundamental rights: 
Option interferes with Articles 47 and 48 of CFR. Option provides for 
limitation of these rights in law while respecting essence of these rights. 
Limiting these rights is necessary to meet general interest objective of ensuring market integrity (by ensuri ng effective sanctioning of market 
abuse) and to protect fundamental right to property (article 17 of CFR).  
It is proportionate as these uniform rules will particularly ensure that 
the administrative measures and sanctions which are imposed are 
proportionate to the breach of the offence across all Member States. 
Therefore, they contribute to "right to an effective remedy and to a fair trial" and the right of innocence and right of defence (Article 48) will be 
preserved.  (-) distinct market 
situations and legal traditions 
(+) regulators gain a tool to sanction 
market abuse in those MS where this is 
not yet available 
(+) all market participants will be 
subject to criminal sanctions for 
market abuse improving level playing 
field 
(+)Investors will benefit from greater 
market integrity due to the additional 
deterrent effect of criminal sanctions (++) availability of criminal 
sanctions contribute strong to 
the objective of deterrence of market abuse 
(+) criminal sanctions 
contribute to improved 
investor protection 
(+) improves level playing 
field by ensuring that in all 
Member States criminal sanctions will be available Option 5.4.4 –
requirement for 
criminal sanctions for market abuse  
 
 
Impact on fundamental rights: 
Option interferes with Articles 47, 48, 49 and 50 of CFR. Option 
provides for limitation of these rights in law while respecting essence of 
these rights. Limiting these rights is necessary to meet general interest 
objective of ensuring market integrity (by ensuring effective sanctioning of market abuse) and to protect fundamental right to property (article 17 
of CFR). It is proportionate as most Me mber States already consider that 
criminal sanctions are necessary and proportionate, and the option is limited to the most serious offences. 
In accordance with article 83 (2) of the Treaty (TFEU), the 
requirement of criminal sanctions for commonly defined serious forms of market abuse of the Member States  is considered essential to ensure 
the effective implementation of the Union policy on ensuring the 
intergrity of the financial market. In this context, the majority of 
Member States have introduced crimin al sanctions in national law to 
address market abuse. Nevertheless, the present divergent systems 
undermine the level playing field in the internal market and may 
provide an incentive for offenders to carry out market abuse in 
jurisdictions which do not provide for criminal sanctions for these 
offences. In addition, there is no  EU-wide understanding on which 
conduct is considered to be such  a serious breach. Common minimum 
rules on definitions for the most se rious market abuse offences would 
facilitate the cooperation of law enforcement authoritiess in the EU. (+/0) a limited number 
of Member States 
without criminal sanctions will need to introduce new rules on 
criminal sanctions and 
ensure enforcement 
 
EN 172   EN Successfully prosecuting market abuse offences under criminal law 
often results in extensive media coverage, which helps to deter potential defenders and has an important demonstration effect, as it 
shows that the competent authorities are serious about tackling market 
abuse.The introduction of criminal sanctions for the most serious and commonly defined market abuse offences by all Member States is 
therefore essential to ensure the effective implementation of Union 
policy on fighting market abuse
. 
 
(+) regulators gain a tool to sanction 
market abuse in those MS where this is not yet available 
(++) all market participants will be 
subject to criminal sanctions based the same minimum principles for market 
abuse improving level playing field 
(+)Investors will be subject to more 
integer market due to the additional 
deterrent effect of criminal sanctions (++) availability of criminal 
sanctions contribute strong to the objective of deterrence of 
market abuse 
(+) criminal sanctions 
contribute to improved 
investor protection.  
(+) contributes strongly to 
creation of a level playing 
field as similar market abuse 
can be addressed by criminal sanctions Option 5.4.5 – minimum rules for criminal sanctions  
Impact on fundamental rights: 
Option interferes with Articles 47, 48, 49 and 50 of CFR. Option 
provides for limitation of these rights in law while respecting essence of 
these rights. Limiting these rights is necessary to meet general interest 
objective of ensuring market integrity (by ensuring effective sanctioning 
of market abuse) and to protect fundamental right to property (article 17 of CFR). It is proportionate as most Me mber States already consider that 
criminal sanctions are necessary and proportionate, and the option is 
limited to the most serious offences. 
In the spirit of Article 83 (2) certain caution is required when 
introducing EU criminal law for the enforcement of a policy area. 
Currently, not even the definition of  the most serious offences are 
harmonised between Member States nor  is there a general requirement 
for criminal sanctions. It would be premature to already foresee common 
minimum rules on types and levels of cr iminal sanctions without specific 
evidence that a basic approximation would not be sufficient. In due 
coure, once there is enough evidence on the level of effectiveness of the 
policy option 5.4.4. it can be reconsid ered whether any further EU level 
harmonisation is required in this area.  
 (--)the majority of 
Member State will need to introduce new rules 
to ensure compliance 
Option 5.4.6 –improve enforcement by 
providing for publication of 
sanctions and 
cooperation on investigation of market abuse  (+) improved detection of sanctions by 
improved cooperation on market abuse 
by regulators. 
(+) improved detection of sanctions 
and publication ensure that issuers are 
treated equally 
(+)Investors will be subject to more 
integer market due to the additional 
deterrent effect of publication of 
sanctions (++) publication of sanctions 
contribute to the objective of 
deterrence of market abuse (name and shame) 
(+) improved detection of 
sanctions and publication contributes to investor protection.  
(+) improved level playing 
field by better detection of market abuse and improved 
enforcement by publication of 
sanctions in all Member (0/-) limited additional 
effort generated by 
publication of sanctions and 
improved cooperation 
among regulators . 
 
EN 173   EN States  
 
Respondents to the MAD public consultati on generally supported harmonisation of 
sanctions at the EU level as a means to increase their deterrent effect. There was 
support for harmonisation of administrativ e sanctions at the EU level, with 
respondents noting that at present sanctions  differed greatly between Member States 
and that Member States should enforce a nd apply MAD in a more consistent and 
harmonised way, with a view to reducing regulatory arbitrage.  However there was 
also some potential uncertainty as to th e practicality of complete harmonisation, 
especially due to the differences in markets between Member States. 
In relation to the setting of minimum leve ls for financial penalties, there was a 
general consensus supporting minimum levels  but some concerns about the practical 
implications were raised by some respondents.  
There was limited specific discussion of harm onisation of criminal sanctions in the 
responses to the public consultation on th e MAD review. Two respondents felt that 
penal measures should be left to member States338, while others noted the difficulties 
of implementing regimes in criminal law. One respondent commented that 
harmonisation was needed to prevent th e same wrongdoing being a crime in one 
member state and an administrative offence in another339.  
There was a mixed response to the option of harmonising criminal sanctions in 
financial services legislation in gene ral outlined in the responses to the 
Communication on reinforcing sa nctioning regimes in the fi nancial services sector. 
On the one hand some public authorities340 and industry or union groups341, as well 
as some individual and in stitutional investor groups342, were favourable to, or not 
against, harmonisation of crim inal sanctions in the financ ial services sector. On the 
other hand, other p ublic authorities343, industry and institutional investor 
representatives344 or others345 were opposed to, or scep tical of, harmonisation of 
                                                 
338 Finnish Ministry of Finance and Central Chamber of Commerce of Finland 
339 German Insurance Association (GDV) 
340 Central Bank of Ireland (offences to be clearly defined), Danish FSA (but subsidiarity to be addressed) 
Ministry of Finance Finland (compliance with fundamental rights to be ensured), Estonian Ministry of 
Finance (but not a priority - EU inte rference with criminal law in genera l to be avoided, offences to be 
clearly defined), Spanish CNMV (o ffences to be clearly defined). 
341 Association Française des marches financiers (offences  to be clearly defined in cooperation with ESAs), 
Nordic Financial Union, British Bankers association (but limited consistency can be achieved due to 
different approaches in sentencing and standards of proof).  
342 Financial Services User Group, Private Client Investment Managers and Stockbrokers (but to be 
properly targeted an d applied carefully). 
343 Czech National Bank, Swedish Minist ry of Finance, Austrian FSA, Ministry of Finance and National 
Bank of Slovakia, Ministry of Finance of Czech Republic, ESMA; German Federal Government – not 
proved that conditions of Article 83(2) TFEU are met.  
344 ING Group (to be left to MS, could be only defined violations eligible for criminal sanction); Austrian 
Federal Economic Chamber (impact on constitutional law); German Insurance association, Legal and 
General Group; European Association of Public Banks; European federation of Insurance Intermediaries; London Stock Exchange Group (f urther consultation needed); Unicredit; EUMEDION 
(institutional investor group), UBS AG (procedural fairness and ne bis in idem to be complied with); 
Bundesverband Deutscher Banken – not necessary. 
 
EN 174   EN criminal sanctions. At the same time, many respondents from public authorities, 
industry and one invest or/user group took the view that  criminal sanctions for the 
most serious offences were appropriate346, and several banking and institutional 
investor representatives specifically cite d market abuse as being an appropriate 
sector for criminal sanctions347. A smaller number of respondents from public 
authorities, industry and one consumer or ganisation argued that administrative 
sanctions were equally or more effective348.  
Based on the analysis above, options 5.4.2, 5.4.4 and 5.4.6 receive the highest score. 
These three options are compatible with each other and could be combined. Options 
5.4.2 and 5.4.4 reinforce each other as toge ther they more effectively strengthen the 
consistency, effectiveness and dissuasive effect of administrative and criminal 
sanctions than either option would alone. These options would provide also for an 
EU-wide understanding on which conduct is c onsidered to be a serious breach of 
market abuse rules. The combination of th ese options will ensure that sanctions for 
similar market abuse offences across the EU are more comparable and are stricter, 
which will reduce the scope for regulatory arbitrage in the case of administrative sanctions and provide room for more eff ective law enforcement cooperation. Option 
5.4.6 will reinforce options 5.4.2 by making it the rule (with limited exceptions) that 
sanctions should be published, and by st rengthening cooperation between regulators 
in investigating market abuse.  
These three options will also benefit from  synergies with the preferred options 
relating to powers of regulator s (section 6.1.2.1), as regu lators will be able to 
sanction market abuse offences which currently may go undetected, which will 
further strengthen the dissuasive effect of sanctions. There are also synergies with the 
options to prevent market abuse on organi sed markets and platforms and in relation 
to commodity and related derivative market s. Clarifying and extending the scope of 
application of market abuse legislation as  outlined in section 6.1 will ensure that 
market abuse on markets which currently  may escape sanction altogether is 
                                                                                                                                                        
 
345 Linklaters (may be an obstacle to consistent app lication of EU law) IMF (may create problems in 
cooperation between authorities). 
346 Central Bank of Ireland, Danish FSA (for both lega l and natural persons), Romanian National Securities 
Commission, Association for Financial Markets in Europe (AFME – to be avoided application of both criminal and administrative); Swedish Ministry of Finance (only as a last resort + relationship with 
administrative sanctions and cooper ation issues to be reflected); Association Française des marches 
financiers; FSUG (but right to claim damages to be dissociated from  the result of crim inal proceedings), 
UBS AG (useful only against individuals); Nordic Financial Union (but financial institution to be 
punished instead of individuals if it benefits from the violation); Centre d'étude et de perspective 
stratégique (against management, more efficient than fines imposed to financial institutions); Association of Private Client Investment Managers and Stockbrokers; IMF; Estonian Ministry of 
Finance; CNMV (but some disadvantages: longer procedures, role of supervisors limited).  
347 Association of banking insurers (e.g. for market abuses); Deutsche Bank (only in some areas e.g. 
market abuse); AXA Investment managers (but only where some degree of fraud is involved, e.g. 
market abuses, misuse of client assets).  
348 ING Group, Austrian FSA, CFA In stitute (civil proceeding to be preferred because faster and reduce 
burden of proof), European Association of Public Banks, law professor, Unicredit, Federation of 
German consumer organisation - VzBv (potential problems of criminal sanctions linked to lack of expertise of prosecutors, long proceedings and low priority given by Courts), ESMA (disadvantages of 
criminal sanctions: longer, resource consuming proceedings, lack of harmonised rules on cooperation, 
possible increased divergence in enforcement), Italian Banking Association.  
 
EN 175   EN sanctioned in a consistent, comparable  and dissuasive way across the EU. As 
mentioned, there is a natural synergy with the options relating to powers of 
regulators, as the options on sanctions will ensure that where regulators detect more abuses thanks to the additional informati on and powers they receive, they will be 
able to ensure that these breach es are appropriately sanctioned. 
Options 5.4.2, 5.4.4 and 5.4.6 are all in  line with appro ach outlined in the 
Communication reinforc ing sanctions in the financial sector
349. They are in 
conformity with the Charter of Fundamental Rights as the limitations they impose on fundamental rights are necessary and propor tionate to meet the general interest 
objective of ensuring market integrity and to protect the fundamental right to 
property. In accordance with article 83 (2) of the Treaty (TFEU), the introduction of 
a requirement for criminal sanctions to ad dress market abuse is likely to lead to 
increased succesful prosecution of market abus e offences and contribute to ensuring 
the effective functioning of the internal market (for a more detailed evaluation of the impacts on fundamental rights and compatibil ity with artic le 83 (2), see annex 8).  
In light of the above analysis , the preferred option is a co mbination of options 5.4.2, 
5.4.4 and 5.4.6. 
8.1.5. Policy options to reduce or e liminate options and discretions 
These options will be  assessed against their effectiven ess in achieving the specific 
objective of ensuring clarity and legal cert ainty in the market abuse framework, as 
well as the objective of ensuring a single ru lebook and level playing field while not 
jeopardising investor protec tion and market integrity. Furthermore, these policy 
options will be assessed on their efficiency  in achieving these objectives for a given 
level of resources or at least cost while  avoiding unduly negative effects on market 
efficiency. However, options will also be assessed against other objectives where 
appropriate.  
8.1.5.1. Option 5.5.1 – no action at EU level  
As explained in the problem definition, th e available material suggests that options 
and discretions have caused divergent implementation of the market abuse 
framework in the various Member States, despite the existence of coordination by 
CESR prior to the adoption of accepted market practic es. If no action at EU level 
was taken these divergences would contin ue to exist perpetuating a lack of 
integration of the European market and the potential for a practice to be sanctioned in one Member State which is grante d a safe harbour in another.  
8.1.5.2. Option 5.5.2 - harmonise accepted market practices 
With this option the concept of AMPs w ould be extended by granting a "European 
passport" to an AMP, i.e. on the basis of  one regulator accepting a market practice in 
one Member State the AMP would be recogni sed as not constituting market abuse in 
all Member States. ESMA would need to pl ay a coordinating role in such a process 
                                                 
349 COM (716) 2010 "Reinforcing sanctioning regimes in  the financial services sector", available at: 
http://ec.europa.eu/internal_market/consultations/docs/2010/sanctions/COM_2010_0716_en.pdf 
 
EN 176   EN by initiating a consultation process with all national regulators before the AMP is 
endorsed.  
Advantages of this approach would be an  increase in legal certainty for market 
participants as well as a further leve lling of the European-playing field by 
ascertaining that the same rules apply across markets. 
However, implementing this option does ha ve significant disadva ntages. Despite an 
extensive set of harmonisation measures, mark et structures and market models used 
in the EU do still differ; there is good reason for this as differences demonstrate a diversity of markets which promotes innovation, competition and a substantial degree of choice for investors. AMPs consti tute a safe harbour because the practice 
applied is always on the edge of constituting market abuse and there can be good reasons why a regulator in another Member  State based on the market structure he 
supervises considers an AMP as not being le gal. Therefore, this option would cause a 
decrease in market integrity and the le vel of investor prot ection in the EU.  
The majority of respondents to the public consultation, including financial companies 
and bodies, supported enhanci ng harmonisation of AMPs, although they also noted 
the difficulties of completing this. Thes e responses generally  felt harmonisation 
would help move towards a single market for financial instruments and would reduce 
legal uncertainty for market  participants. However res pondents also commented that 
significant differences in markets curr ently exist, which justify divergent 
implementations of accepted market practices.  
While some public authoritie s felt involvement by ESMA in a co-ordination role 
would help, most felt that the current pro cedures were sufficient, and that further 
harmonisation would offer little benefit. 
8.1.5.3. Option 5.5.3 - remove accepted market practices and phase-out already existing 
practices 
With this option the concept of AMPs w ould be removed from the market abuse 
framework, with existing pr actices gradually being phase d out and no new practices 
being created.  
An advantage of this option would be that one level of regulatory complexity would 
be removed from the market abuse framework entirely, that has not in fact played a 
great role since its inception as can be seen by the small number of AMPs actually existing. The level-playing field would be  strengthened as the application of the 
market abuse rules would not be explicitly limited anymore based on certain customs and practices.  
The disadvantage of removing this concept would be that those market participants 
using AMPs would lose the benefit of operating in a safe harbour. Established 
practices would need to be scrutinised wh ich could create legal uncertainty in the 
markets concerned. However, this disadvantage would be mitigated by the gradual phasing out of the existing AMPs . In practical terms this would mean that the AMPs 
would not be removed immediately upon the revised MAD framework becoming 
effective. Instead an appropriate grace period for the existing AMPs would be 
 
EN 177   EN devised during which ESMA would pe riodically review their continued 
appropriateness on a case-by-case basis.  
8.1.5.4. The preferred options 
 Impact on stakeholders Effectiveness Efficiency 
Option 5.5.1  
(baseline) n.a. n.a. n.a. 
Option 5.5.2 
(harmonise accepted 
market practices) (0) investment firms and investors 
would have the certainty of safe 
harbours applying EU-wide but investors' trust would be affected as 
practices potentially on the fringe of 
market abuse would be explicitly allowed in the entire EU 
(0) regulators would need to assess 
and consult on AMPs as they do now, 
but the effects of their action would have a further reach 
 (+) contribution to objective 
of creating a single rulebook 
and 
(+) enhancing clarity and 
legal certainty 
(-)small negative impact on 
investor protection and 
(-) on market integrity 
 (0) no discernible 
impact on resources of 
or compliance costs for market participants 
 
Option 5.5.3 (remove accepted 
market practices and phase-out existing 
practices) (+) investment firms and investors 
would benefit from greater legal 
certainty and a gradual move towards a single rulebook 
(0) regulators would not need to assess 
new AMPs anymore but periodically review the existing ones 
 (+) contribution to objective 
of creating a single rulebook 
(+) enhancing clarity and 
legal certainty 
(0) no discernible impact on 
investor protection and market integrity 
 (0) no discernible 
impact on resources of 
or compliance costs for market participants 
 
 
Based on the analysis above, the highest sc oring option is option 5.5.3. Implementing 
this option would reduce a s ource of legal uncertainty, clarify the legal framework 
applicable and would be a step towards the creation of a single rulebook in the EU. 
Other options assessed elsewhere will also contribute to the objective of reducing or 
eliminating options and discretions and reinforce the effect of this option. In particular, options 5.1.4 and 5.1.6 will ensure that all Member States have the same approach to the regulation of MTFs and suspicious transaction reports, whereas 
currently Member States have the discre tion not to apply the MAD to MTFs. Also 
option 5.4.6 will remove the discretion Member States currently have not to require the publication of sanctions for market a buse. From the ensuing sections, option 
5.6.3 to require issuers to inform the re gulator after the event of a delay to the 
disclosure of inside info rmation, option 5.7.4 to harmonise the items which 
regulators can request in li sts of insiders and opti on 5.7.7 to harmonise the 
requirements for managers' transaction reports will also eliminate options and discretions in the current le gislation. Taken together, a ll these options will go a long 
way towards the objective of creating a si ngle rulebook and a level playing field. 
 
EN 178   EN In light of the above analysis, opt ion 5.5.3 is a preferred option. 
8.1.6. Policy options to clarify certain key concepts  
8.1.6.1. Option 5.6.1 – no EU action 
If no EU action is taken, issuers will con tinue to face legal uncertainty about the 
circumstances in which they can legitimately delay the disclosure of inside information. In addition, Member States wi ll continue to take divergent approaches 
to the option of requiring issuers to inform the competent authority when delaying disclosure, resulting in a continued lack of  a single rulebook and an unlevel playing 
field.  
8.1.6.2. Option 5.6.2 - clarify conditions of delayed disclosure of inside information 
Under this option, one  of the criteria for judging whether or not  the disclosure of 
inside information can be delayed, namely that delay should not be likely to mislead 
the public, would either be clarified or deleted altogether. Currently an attempt has been made to clarify the circumstances where delay would not be misleading through 
the Commission Directive 2003/124/EC
350. This could be further developed, for 
example by clarifying that a delay is like ly to mislead the public only when the 
relevant information could run counter to a market consensus, i.e., only when the 
investment community clearly shows (through  market prices, analysts coverage or 
others) expectations that are contradicted  by the information directly regarding the 
issuer351. Alternatively, the criterion could be deleted altogether on the grounds that 
it is too narrow352. 
The advantage of this option is that it would provide greater legal certainty for 
issuers as to the circumstances in whic h they can delay disclosure of inside 
information, thereby meeting the objective of increasing legal certainty. This option would also be efficient for issuers as it is likely to reduce their legal costs to 
determine whether the conditions for dela y are met. By harm onising the conditions 
for delayed disclosure across the EU, this option would also create a level playing 
field in this area which woul d be particularly beneficial  for cross-border issuers. 
However this option has the significant di sadvantage that it would reduce investor 
protection by narrowing or e liminating altogether the condition that for a delay to 
disclosure to take place, this delay should not mislead the public. The general 
objective of increasing investor  protection would therefore not be met by this option. 
This option would also risk having a negative impact on ma rket integrity by allowing 
greater scope for trading to take place by so me in possession of inside information 
not available to the wider public. 
                                                
 
350 Commission Directive 2003/124/EC of 22 Decembe r 2003 implementing Direc tive 2003/6/EC of the 
European Parliament and of the Council as regards the definition and public disclosure of inside information and the definition of market manipulation, OJ L339/70, 24.12.2003 
351 ESME (2007), p. 9. 
352 Ibid, p. 9. 
 
EN 179   EN 8.1.6.3. Option 5.6.3 - Reporting of delayed di sclosure of inside information 
Under this option, issuers w ould be required to inform the competent authority of 
their decision to delay the disclosure of inside information imme diately after such a 
disclosure was eventually made, to enable the regulator to further verify ex post if 
appropriate whether in fact the conditions for delay were met.  
This option would have the advantage of increasing investor pr otection and market 
integrity by ensuring that inside inform ation was not delayed except when fully 
justified because it was neither misleading to  the public nor posed a risk of leaking 
and therefore being abused. By harmoni sing the option which Member States 
currently have in the Directive to require that issuers inform the competent authority 
this option would also have  the advantage of meeting the operational objective of 
reducing or eliminating options and discretions. 
By requiring the notification to the regulator  immediately after th e delayed disclosure 
of inside information, the responsibility for assessing whether a dela y to disclosure is 
justified would remain with the issuer, but  the requirement to inform the competent 
authority ex post would provide a mechanis m for the regulator to further verify 
where appropriate whether the conditions for delay were indeed met and to sanction 
the issuer in the event that this was not the case. 
This approach would have the disadvantage  that investors' economic interests could 
be harmed by a delay to disclosure which was not justified, and there would be no 
means for them to obtain redress other than  through legal action against the issuer. 
Most respondents to the public  consultation did not address this issue. However, one 
public authority argued that th e risk of no di sclosure at all by an  issuer was greater 
than the risk of that issuer illegitimately delaying disclosure353. 
8.1.6.4. Option 5.6.4 - Determine conditions of delayed disclosure in case of systemic 
importance 
Under this option, where inside information is of systemic importance (e.g. 
information that a bank is receiving emerge ncy liquidity from a central bank) and it 
is in the public inte rest to delay its publ ication, the regulator  would be given the 
power to permit a delay in disclosure of  the information for a limited period.  
This option would meet the objective of e nhancing clarity and le gal certainty with 
regard to delays to disclosure in such cas es. It would not have a negative impact on 
investor protection as the decision to authorise a de lay would be taken by the 
regulator based on the systemic importance of  the information. In such cases there is 
a wider public interest in maintaining th e stability of the financial system and 
avoiding the losses which would result from the failure of an issuer. 
Many respondents to the public consultation di d not address this i ssue. Of those who 
did respond, while there was some support fo r regulators to have the power directly, 
the majority of respondents (acr oss all categories) felt that th e issuer itself rather than 
                                                 
353 See response by FSA/HM Treasury. 
 
EN 180   EN the competent authority should have the appropriate responsibility. Some 
respondents felt this could be done by the competent authority granting a waiver 
from the disclosure rules. One respondent felt that the trigger should not be if the 
institution is systematically important, but ra ther if the information is systematically 
important, and respondents also noted that at times of emergency, regulators and 
issuers would already be invol ved in close communication. 
8.1.6.5. Option 5.6.5 - clarify disclosure of managers transactions 
Under this option it would be clarified in the market abuse framework that 
transactions made for managers of the issu er by portfolio managers or transactions 
where managers of the issuers pledge or le nd their shares do qualify as transactions 
that need to be reported.  
An advantage would be that additional types of transactions will also be accessible to 
the public that are similar to sales or pur chases by the manager him- or herself and 
may convey important information. In a ddition, legal certainty for issuers and 
managers regarding the scope of the re porting obligation would be enhanced.  
A disadvantage would be that issuers ma y have to report mo re transactions, 
increasing slightly the costs imposed by the market abuse framework. However, this 
seems to be justified by the additional mark et transparency achieved and issuers and 
managers benefit from greater clarit y about what needs to be reported. 
This option is supported by CESR354. 
8.1.6.6. The preferred options 
_ Impact on stakeholders Effectiveness Efficiency 
Option 5.6.1 
(baseline) n.a. n.a. n.a. 
Option 5.6.2 
(clarify conditions for 
delayed disclosure of 
inside information) (+) issuers obtain greater freedom to 
delay disclosure of inside information 
(- - -) investors have less transparency 
on actions of issuers in their investment decisions 
(-) regulators may have to investigate 
more cases of delayed disclosure or insider trading (+) Partially meets objective 
of greater legal certainty (for 
issuers) 
(+) Partially meets objective 
of a level playing field (for 
issuers) 
(- - -) Negative impact on 
investor protection  (+) Likely to reduce 
costs for issuers but 
(-) Could increase 
costs for regulators who may have to 
investigate more cases 
of delayed disclosure or insider dealing 
Option 5.6.3 
(Reporting of delayed 
disclosure of inside 
information) (-) issuers face costs (see section 6.8) 
(+++) regulators gain a mechanism to 
control delays to disclosure 
(+++) investors better protected by 
strictly limited delays to disclosure (+++) Meets objectives of 
increasing investor protection 
and market integrity 
(+++) Eliminates an option 
in the current directive (-) Likely to impose 
increased costs on 
issuers and regulators, 
but these are mitigated by 'ex post' option 
                                                 
354 CESR Consultation Paper, "Market Abuse Directive Level 3 – Fourth set of CESR guidance and 
information on the common operation of the Directive to the market" , CESR/10-1168, p. 10 
 
EN 181   EN Option 5.6.4 
(Determine conditions 
of delayed disclosure 
in case of systemic 
importance) (+) issuers obtain greater clarity  
(0) neutral for investors as permission 
of regulator needed and losses due to 
failure or financial instability limited 
(+) regulators gain legal certainty (+++) Meets objective of 
greater legal certainty 
(0) Neutral impact on 
investor protection and 
market integrity (0) Cost implications 
limited as such cases are relatively rare 
Option 5.6.5  
(clarify disclosure of 
managers transactions) (+) issuers and 
(+) regulators would benefit from 
enhanced legal certainty 
(+) investors would benefit from 
additional publicly available 
information (+) Meets objective of greater 
legal certainty for issuers and 
regulators 
(+) Meets objective of 
increasing investor protection 
  (-)Likely to slightly 
increase costs for 
issuers due to additional reports  
 
Most respondents to the public consultati on did not address option 5.6.3. However, 
one public authority argued that  the risk of no disclosure at all by an issuer was 
greater than the risk of that issuer illegitimately delaying disclosure355. Many 
respondents to the public consultation did not  address option 5.6.4. Of those who did 
respond, while there was some  support for regulators to ha ve the power directly, the 
majority of respondents (across all categories) felt that the is suer itself ra ther than the 
competent authority should have the appropriate responsibility. Some respondents felt this could be done by the competent authority granting a waiver from the 
disclosure rules. One respondent felt that th e trigger should not be if the institution is 
systematically important, but rather if th e information is systematically important, 
and respondents also noted that at times of emergency, regulators and issuers would 
already be involved in close communicat ion. Option 5.6.5 is supported by CESR
356. 
Based on the analysis above, the highest scor ing options are options 5.6.3, 5.6.4 and 
5.6.5. These options are compatible with each other and could be combined. Indeed a combination of options 5.6.3 and 5.6.4 would ensure greater legal certainty in respect 
of delayed disclosure while eliminating an option in the Directive. Combining these options would therefore cont ribute effectively to the ob jective of creating a single 
rulebook and a level playing field. These opt ions would also provi de additional tools 
for enforcement by regulators, as they woul d be systematically informed of delayed 
disclosure and could theref ore sanction delays which we re not in compliance with 
market abuse rules; regulators would also have clear powers to allow a delay to disclosure of inside information in the case of systemically important information. In combination these options w ould therefore also contribut e to achieving the specific 
objective of effective enforcement by regulators. 
The preferred option is therefore a combina tion of options 5.6.3, 5.6.4 and 5.6.5. 
                                                
 
355 See response by FSA/HM Treasury. 
356 CESR Consultation Paper, "Market Abuse Directive Level 3 – Fourth set of CESR guidance and 
information on the common operation of the Directive to the market" , CESR/10-1168, p. 10 
 
EN 182   EN 8.1.7. Policy options for reduc ing administrative burden s, especially on SMEs 
These options will be  assessed against their effectiven ess in achieving the specific 
objective of reducing administrative burdens  for issuers of financial instruments 
admitted to trading while at the same ti me avoiding unduly negative effects on 
market integrity, investor pr otection and market transpar ency. For SMEs specifically 
the options will also be assessed against the objective of making it more attractive for 
SMEs to raise finance via securities market s. Furthermore, these policy options will 
be assessed on their efficiency in achieving these objectives for a given level of resources or at least cost while a voiding unduly negative effects on market 
efficiency. However, options will also be assessed against other objectives where 
appropriate.  
8.1.7 .1. Option 5.7.1 – no action at EU level  
As explained in the problem definition, th ere are shortcomings in relation to the 
design and application of the issuer-rel ated obligations in the Market Abuse 
Directive. In addition, applying the issuer  obligations in an undifferentiated manner 
to SMEs may continue to deter small issu ers from raising capital via the capital 
markets. These shortcomings would remain  if no action at EU level was taken.  
8.1.7.2. Option 5.7.2 - SME regime for disc losure of inside information 
Under this option, SMEs would be require d to disclose inside information in a 
modified and simplified market -specific way. To that end a more specific obligation 
for disclosure of inside information by SM Es would be set out in the Directive. 
Rather than applying a general test for disc losure of inside information SMEs would 
follow a more prescriptive test. Rationale for this would be that information published by large issuers does need to pot entially cover a much broader range of 
information and so it is appropriate that the test needs to be very general. By contrast 
the scope and size of the busin ess of an SME is much more  restricted and the events 
giving rise to the need to di sclose inside information ar e typically more limited and 
so it is appropriate for the disclosure test to be more focused.  
This option as well as options 3, 5 and 8 need to be assessed in conjunction with the 
potential creation of the "SME Market" wh ich the Commission services are currently 
considering as part of the review of  the Markets in Financial Instruments 
Directive
357. A modified disclosure obligat ion would thus be one element 
characterising such an SME Market and would only apply to those SMEs 
deliberately choosing their admission to trading on such  specifically designed SME 
markets.  
This option would attain the regulatory obj ectives of reducing ad ministrative burdens 
for SMEs and making it easier for them to raise capital on the markets, as SMEs would incur lower compliance costs in relation to monitoring information and assessing when it needs to be  disclosed to the public. Im plementing this option could 
also contribute to establishing a specific single rulebook for small issuers that would 
                                                
 
357 The consultation document on the MiFID can be found at this page:  
http://ec.europa.eu/internal_market/consultations/2010/mifid_en.htm  
 
EN 183   EN be recognisable throughout Eu rope and may attract more  investors on an EU-wide 
basis to invest in SMEs, there by promoting the single market.  
Potential disadvantages would be that the level of transparency and the degree of 
supervision on the SME Markets could be s lightly different in comparison to the 
standard market segments. Applying it in  a modified format may discourage the 
investing public from entering those markets. However, this risk is diminished by the 
fact that most investors would be aware that this is the market segment intended 
specifically for SMEs. It would be tran sparent to investors that modified 
requirements apply in order to alleviate administrative  burdens and allow easier 
access to capital markets for smaller issuers.  Investors could then make an informed 
choice whether they want to invest on such  a specialist market. A substantive set of 
obligations would still apply to trading on thos e markets so that overall a sufficiently 
high degree of investor protec tion is preserved. These re quirements originate from 
the MiFID framework but also, as an exampl e, the obligation for intermediaries to 
report suspicious transactions  to supervisory authoritie s would apply to financial 
instruments on SME Markets. On balance, an increase in inve stor protection may 
even be achieved by implementing this option if it induces issuers to make the step-
up from lesser regulated environments (i.e. not admitted to trading on a trading 
venue) to an SME Market.  
Over half of the responde nts to the public consultation did not express a strong 
opinion on this issue, although a number of these commented that further analysis 
should be conducted. Approximately a quarter  of respondents did not  feel a specialist 
regime for SME issuers was necessary, wh ilst approximately one fifth supported an 
SME regime. Those supporting a specialist regi me felt that it was essential to give 
SMEs access to finance in order to encourag e growth in the SME market. Further, it 
was felt that a proportionate re gime would appropri ately reflect the di fference in size 
between SMEs, who have limited resources,  and larger firms,  who command more 
resources, whilst striking a balance of consumer protection. These respondents 
generally favoured the applic ation of secondary market  aspects of the MAD but 
considered it proportionate to modify some of the primary market requirements – 
such as insider lists and directors deali ngs obligations that apply to issuers. 
Of the approximately one quarter of re spondents who did not support a specifically 
adapted regime, most felt that MAD was a co rnerstone of financia l market stability 
and that reductions in its scope could reduc e investor protection which they feel is 
critical to EU markets.  
8.1.7.3. Option 5.7.3 - SME exemption for disclosure of inside information 
This option would go one step further than  option 2 and completely exempt issuers 
on SME markets from the obligation to  disclose inside information.  
Option 3 would thus reduce compliance costs even more radically than option 3 for 
SMEs and would also attain the other objectives described under option 2.  
The disadvantages of this op tion are, however, more seve re than under option 2. The 
obligation to disclose inside information is one of the cornerstones of the Market 
Abuse Directive, ensuring timely and consis tent information of investors and serving 
 
EN 184   EN as an important preventive measure against insider trading. Exempting small issuers 
from this obligation completely would significantly reduce the transparency of an SME Market. Supervising insider trading woul d be more difficult for regulators and 
investor protection t hus considerably decreased. Inve stors would regard a market 
without a disclosure duty applying as substandard
358 and would be very cautious in 
committing investments.  
A large majority of respondents to the pub lic consultation who addressed this issue 
opposed exempting SME issuers from the obliga tion to disclose inside information as 
they felt that disclosure requirements were e ssential to market integrity, and that they 
should not be compromised. 
8.1.7.4. Option 5.7.4 - harmonise insiders' lists 
This option would entail prescribing conclusi vely the precise data an insider list has 
to contain in relation to each individual in cluded on the insider list, rather than 
prescribing only minimum requi rements. One example would be the identification of 
individuals which could be by first name and surname onl y or also by additional 
details such as date and pl ace of birth, address etc.  
Such a harmonisation would lower administ rative burdens especially for issuers 
listed on markets in more than one jurisdiction, as they could adapt one European-
wide format for their insider lists rather than having to modify them on a Member 
State specific basis. It would enhance legal certainty for all issuers and contribute to 
a further integration and leve l-playing field across the European markets as a whole. 
A harmonisation measure would not be to the detriment of investor protection. 
A disadvantage of this option is that some regulators may not wish to lose their 
discretion in determining which data fields n eed to be included in insider lists as they 
are comfortable with their current require ments and have tested them to work 
reasonably well in practice. However this  could be addressed by ensuring thorough 
discussions between ESMA and Member States on which fiel ds are required so that 
day-to-day market abuse supervision works as efficiently and smoothly as possible. 
Most responses to the public consultation did not directly address this specific issue. 
However in their response to the public consultation, the issuers association argued 
that issuer obligations should be simplified for all companies in the EU, not just SME issuers
359. 
8.1.7.5. Option 5.7.5 - SME exemption for insiders' lists 
Under this option, SMEs lis ted on an SME Market woul d be exempted from the 
obligation to draw up insiders' lists, while they would remain subject to a requirement to ensure that employees we re reminded of their obligations and the 
prohibitions on market abuse in the MAD. 
                                                
 
358 Numerous respondents to the consultation emphasised that investors in SME markets need the same 
level of protection as investors in other markets, cf. responses of European Savings Banks Group, Danish FSA, German Association of Energy and Water Industries (BDEW), World Economy, Ecology 
and Development (WEED), Czech National Bank , German Federal Ministry of Finance 
359 See response by European Issuers. 
 
EN 185   EN This option would reduce regulatory complexity for small issuers, therefore, 
achieving the objective of decreasing admi nistrative burden. This would also 
contribute to the objective of  increasing the attractivenes s of securities markets for 
the financing of SMEs and the objective of ensuring a single rulebook for small 
issuers as described under option 2.  
A disadvantage could be that supervisor y authorities may find combating market 
abuse more burdensome due to the absence of  insider lists, whic h have proved to be 
a useful tool in supervisory practice. However, insider lists for small issuers are not 
as comprehensive as for large multi-nat ional undertakings. Therefore, conducting 
investigations without being ab le to consult insider lists first does app ear feasible 
without lowering the existing level of market surveillanc e and investor protection 
significantly.  
8.1.7.6. Option 5.7.6 - abolish managers' transactions reporting 
Under this option the provisions in the Ma rket Abuse framework requiring managers 
of issuers to report transact ions in shares of the said issuer, or in associated 
derivatives or other financia l instruments by managers and persons closely associated 
with them, would be abolished.  
Implementing this option would have the advantage of reducing issuer-related 
administrative burdens. Transactions by mana gers and closely related persons would 
not need to be monitored and reported to supervisory authorities  within a period of 
five working days anymore.  
A disadvantage of not requiri ng directors' dealings a nymore would be that the 
deterrent effect the reports ha ve on managers from engagi ng in insider trading would 
disappear. As the managers' transaction repor ts need to be made publicly available 
they also serve as a useful tool for inve stors in estimating how managers of issuers 
themselves assess the current and future development of a share price. Hence, 
another disadvantage is that a well-estab lished transparency feature of capital 
markets would be lost.  
8.1.7.7. Option 5.7.7 - harmonise managers' transac tions reporting and raise threshold 
With this option the current ly existing threshold of €5,000 in a year below which 
managers' transactions do not need to be reported would be adju sted to a figure of 
€20,000. According to the existing rules appl ication of this threshold depends on the 
discretion of the Member States. Under this option the €20,000 threshold would in 
the future apply uniformly in the EU. 
An advantage of raising the threshold woul d be that relatively small and insignificant 
deals by managers would not need to be reported anymore which would result in a 
moderate reduction of administrative bur dens for issuers. Harmonising the 
application of the threshold by making it compulsory all over Europe would 
evidently reduce the number of notificati ons for issuers in Member States which 
currently do not apply the threshold and would, in addition, level the European 
playing field and increase legal certainty for issuers.  
 
EN 186   EN A disadvantage would be a moderate reducti on in market transparency which would 
not harm investor protection as even a slightly increase d threshold would still serve 
as a deterrent against engaging in insider trading and investors would still be informed about significant deals conducted by managers. 
8
.1.7.8. Option 5.7.8 - SME regime for managers' transaction reporting  
This option would introduce an alternative regime for reporting managers' 
transactions for issuers listed on SME Ma rkets. Such a regime would require 
disclosure of managers' transactions not wh en transactions reach an absolute figure 
but rather when a certain small percentage  of market capitalis ation (0.02%) of the 
issuer is reached. Such an approach woul d tie in with the sp ecific structure of a 
significant number of SMEs where there is one majority sharehol der who is also the 
key operative of the SME. Mainly transactions by this manager are of interest to the investing public and significant deals of him/her would still need to be disclosed 
under this alternative regime.  
The advantage of such an alternative appr oach would be that the number of reports 
necessary for SMEs would be reduced cons tituting a slightly reduced administrative 
burden.  
However, this approach would add a certa in level of complexity for issuers in 
determining reporting obligations (measuring transactions against market 
capitalisation rather than having a fixed ab solute figure). Also reporting of managers' 
transactions of issuers in SME Markets w ould apply at different  levels which would 
not contribute to a uniform "quality label"  of SME Markets in the union, retail 
investors in particular may find it difficult to determine at what level the reporting 
obligation applies per issuer, and the overall transparency of the regime would be 
blurred.  
8.1.7.9. The preferred options 
 Impact on stakeholders Effectiveness Efficiency 
Option 5.7.1  
(baseline) n.a. n.a. n.a. 
Option 5.7.2 
(SME regime for 
disclosure of inside 
information) (++) SMEs would profit from a 
simplified regime 
(-) regulators would need to adapt by 
supervising a modified, additional rule 
(+) investors may benefit from a wider 
choice of SMEs accessing the capital 
markets (+) contribution to objective 
of reducing administrative burden 
(++) one feature in concept 
of making the raising of finance on capital markets 
more attractive to SMEs  
(-) limited impact on market 
transparency and  
(-) investor protection as 
disclosure obligation would be reduced in scope 
 (+) SMEs would need 
slightly fewer resources to comply 
with disclosure 
obligation 
(-) regulators would 
need to commit slightly 
more resource to cope with an adapted rule 
 
 
EN 187   EN Option 5.7.3 
(SME exemption for 
disclosure of inside 
information) (-) SMEs would not have to adhere to 
the obligation anymore but investments in SMEs would be limited 
due to a lack of investor confidence  
(---) regulators would face problems in 
supervising the insider trading 
prohibition  
(--) investors would rate a market as 
substandard where the disclosure 
obligation for inside information does 
not apply  (+) contribution to objective 
of reducing administrative burden 
(0) on balance, would not 
improve the attractiveness of raising finance on capital 
markets to SMEs 
(--- )severe impact on market 
transparency, 
(---) integrity and 
(---) investor protection  (++) SMEs would need 
significantly fewer resources to comply 
with issuer-related 
obligations on trading venues 
(--) regulators would 
need to expand on resources significantly 
to supervise SME 
markets 
 
Option 5.7.4  (harmonise insiders' 
lists) (+) issuers would benefit from the 
certainty and uniformity of harmonised 
rules 
(0) regulators could work equally well 
with harmonised requirements 
(0) no discernible impact on investors (+) contribution to objective 
of reducing administrative 
burden 
(0) no discernible impact on 
market transparency, 
integrity and investor 
protection (+) issuers would need 
slightly fewer 
resources for 
compliance 
 
Option 5.7.5 (SME exemption for 
insiders' lists) (++) SMEs would not need to commit 
resources to drawing up insiders' lists 
(-) regulators cannot use lists as a 
supervisory tool for SME issuers 
(0) no discernible impact on investors (+) contribution to objective 
of reducing administrative 
burden 
(+) contribution to objective 
of making the raising of 
finance on capital markets 
more attractive to SMEs 
(0) no discernible impact on 
market transparency, 
integrity and investor 
protection (+) SMEs would not 
need to commit 
resources to the 
drawing up of insiders' lists  
Option 5.7.6 
(abolish managers' 
transactions reporting) (+) issuers would feel impact of 
reduction in regulatory complexity and 
transparency as to dealings of their directors 
(-) regulators would lose benefit of 
deterrent effect of disclosure duty in relation to engaging in insider trading  
(--) investors would lose access to an 
important feature of capital market transparency (++) strong contribution to 
objective of reducing 
administrative burden 
(---) severe impact on market 
transparency and  
(-) small impact on investor 
protection  (++) issuers could 
reduce resources 
committed to fulfilling issuer-related 
obligations 
significantly 
(--) market efficiency is 
reduced significantly 
due to important information not 
contributing to the 
valuation of instruments anymore 
Option 5.7.7 
(harmonise managers' 
transactions reporting 
requirements and raise 
threshold) (+) issuers would benefit of moderate 
reduction of transaction reports 
(0) regulators and  
(0) investors would not be discernibly 
affected  (+) contribution to objective 
of reducing administrative burden 
(0) negligible impact on 
market transparency and no impact on market integrity 
and investor protection (+) issuers could 
slightly reduce resources committed to 
compliance with 
reporting obligation 
 
Option 5.7.8 (SME regime for 
managers' transaction (+) SMEs would benefit of further 
moderate reduction of transaction 
reports 
(-) regulators would need to adapt to (0) negligible contribution to 
objective of reducing 
administrative burden and 
(0) making the raising of (0) SMEs resources 
committed to 
compliance would not 
be discernibly reduced 
 
EN 188   EN reporting) additional rule 
(-) investors would lose benefit of 
clearly fixed threshold applying 
uniformly for all issuers finance on capital markets 
more attractive to SMEs  
(-) small impact on market 
transparency  
 
Over half of the responde nts to the public consultation did not express a strong 
opinion on option 5.7.2, although  a number of these commen ted that further analysis 
should be conducted. Approximately a quarter  of respondents did not  feel a specialist 
regime for SME issuers was necessary, wh ilst approximately one fifth supported an 
SME regime. Those supporting a specialist regi me felt that it was essential to give 
SMEs access to finance in order to encourag e growth in the SME market. Further, it 
was felt that a proportionate re gime would appropri ately reflect the di fference in size 
between SMEs, who have limited resources,  and larger firms,  who command more 
resources, whilst striking a balance of consumer protection. These respondents 
generally favoured the applic ation of secondary market  aspects of the MAD but 
considered it proportionate to modify some of the primary market requirements – 
such as insider lists and directors deali ngs obligations that apply to issuers. 
Of the approximately one quarter of re spondents who did not support a specifically 
adapted regime, most felt that MAD was a co rnerstone of financia l market stability 
and that reductions in its scope could reduc e investor protection which they feel is 
critical to EU markets. A large majority of respondent s to the public consultation 
who addressed the issue oppos ed exempting SME issuers from the obligation to 
disclose inside information as they felt that disclosure requirements were essential to market integrity, and that they should not be compromised. 
Most responses to the public consultation did not directly address option 5.7.4. 
However in their response to the public consultation, the issuers association argued 
that issuer obligations should be simplified for all companies in the EU, not just SME issuers
360. 
Based on the analysis above, the highest scoring options are options 5.7.2, 5.7.4, 
5.7.5 and 5.7.7. These four options are co mpatible with each other and could be 
combined.  
A combination of such options would co mprehensively reduce the administrative 
burdens related to the issuer-related requi rements of the market abuse framework, 
and would establish a tailored market abuse regime for SMEs with a reduced 
administrative burden on them (see table be low). Larger enterp rises would benefit 
particularly from the reduction in admi nistrative burden associated with the 
harmonised conditions for insider lists (5 .7.4) and harmonised requirements for 
managers' transaction reports (5.7.7), and these options would also eliminate 
discretions in the current legislation for re gulators to impose additional requirements, 
thereby reinforcing the opti ons for creating a single rule book and level playing field 
(see section 6.1.3). 
                                                 
360 See response by European Issuers. 
 
EN 189   EN As a result the preferred option is a combination of options 5.7.2, 5.7.4, 5.7.5 and 
5.7.7.  
 
EN 190   EN ANNEX 9 - THE MARKET ABUSE REGIME IN THE UNITED STATES  
In the United States, market manipulation a nd insider dealing are c overed by the antifraud 
provisions of the Securities Exchange Act of 1934 (the " 1934 Act ").  
Market manipulation  
Section 9 of the 1934 Act prohibits  the manipulation of securities  prices by creating a false or 
misleading appearance of active trading in such securities, or through the practices of false or 
misleading statements or dissemination of inform ation in order to secure prices at abnormal 
levels. The Dodd-Frank Act now cl arifies that this prohibition applies to any security other 
than a government security, any s ecurity not registered  on a national securiti es exchange, or in 
connection with any security-based swap or s ecurity-based swap agr eement with respect to 
such security.361 The 1934 Act did not expressly prohibi t manipulation in OTC securities. 
However, already before the Dodd-Frank Act am endments, the courts ha ve interpreted Rule 
10b-5's broad prohibition against securities fraud (as describe d below) to prohibit market 
manipulation in the OTC market.362  
Insider Trading  
No federal statute defines insider tr ading. Section 10(b ) of the 1934 Act363 is a catchall 
provision which prohibits "to use or employ, in connection with the purchase or sale of any 
security registered on a national securities exchange or any security not so registered, or any 
securities-based swap agreement, any manipula tive or deceptive device  or contrivance in 
contravention of such rules and regulations as the [SEC] may prescribe as necessary or 
appropriate in the public interest or  for the protection of investors."  
Section 10(b) has been im plemented by Rule 10b-5,364 which has been generally interpreted 
by the courts to prohibit securities fraud. Ov er the time the courts have developed a regime 
that prohibits insider trading based on implied duties of confidentiality: any person in the possession of material, nonpublic information ha s a duty to disclose the information (or 
abstain from trading) if the person obtains the information in a relation of trust or 
confidence.
365 The SEC offers a restatement of federa l insider trading la w in its Rule 10b5-
1.366  
Therefore the 1934 Act and its implementing rule s prohibit securities price manipulation by 
corporate insiders. The paradigm case of insider trading arises when a corporate insider trades 
securities using material, non public informa tion obtained through the insider's corporate 
                                                 
361 Security-based swap as defined by Section 3(63) of the 1934 Act.  
362 SEC v. Resch-Cassin & Co. , 364 F. Supp.964 (S.D.N.Y. 1973).  
363 Regulation of the use of manipulative and deceptive devices.   
364 Employment of manipulative and deceptive devices.  
365 See Chiarella v. United States , 445 U.S. 222 (1980).  
366 Trading “on the basis of” material non-public info rmation in insider trading cases, according to which 
the "manipulative and deceptive devices" prohibited by Section 10(b) of the Act and Rule 10b-5 
thereunder "include, among other things, the purchase or sale of a security of any issuer, on the basis of material non-public information about that security or issuer, in breach of a duty of trust or confidence 
that is owed directly, indirectly, or derivatively, to th e issuer of that security or  the shareholders of that 
issuer, or to any other person who is the source of the material non-public information."  
 
EN 191   EN position. Moreover, under th e misappropriation theory,367 10b-5 liability arises also in cases 
of outsider trading, i.e. when a person trades on confidential information in breach of a duty 
owed to the source of the informa tion, even if the source is a complete stranger to the traded 
securities.  
Regulation FD complements the statutory and implementing pr ovisions on insider trading by 
forbidding public companies from selectively disclosing material, non-public information. 
This applies to specific market professionals as well as security holders who it is reasonably 
foreseeable will trade on the basis of the info rmation. Therefore, when the disclosure is 
intentional issuers must disclose insi de information to the investing public simultaneously  
with any disclosure to selected analysts or in vestors. If the disclosure is unintentional, the 
issuer must disclose the information to the public promptly .368  
Enforcement and sanctions  
The SEC has the power to make such investig ations as it deems necessary to determine 
whether any person has viol ated, is violating, or is about to violate  any provision of the 1934 
Act.369 The SEC has broad administrative author ity to ensure compliance of the federal 
securities laws,370 and whenever it appears that any person is engaged or is about to engage  in 
acts or practices constituting a violation of any provision of the 1934 Act, it has the power to 
bring a judicial action, to enjoin such acts or  practices, and to be granted a permanent or 
temporary injunction or restrain ing order. The SEC can also re fer such acts or practices as 
may constitute willful violation of the 1934 Act to the Attorney General, who may, in his 
discretion, institute the necessary criminal proceedings.371 The SEC can refer cases to the US 
DoJ for criminal prosecution to punish those w ho engage in willful violations of the 1934 Act 
(market fraud and insider trading).372 The SEC can also seek disgorgement of any profits373 
and civil monetary penalties,374 beyond disgorgement, by any pe rson who has violated the 
securities laws.  
In addition to the SEC enforcement described be low, the 1934 Act authorizes a private action 
for persons injured by market manipulation prohibited by Section 9.  
Moreover, for insider trading:  –
 Section 20A limits recovery to traders whos e shares were contemporaneous with the 
insider's.375 Recovery is based on the disgorgement of  the insider's actual profits realized or 
losses avoided, reduce by any disgorgement ob tained by the SEC under its authority to 
seek injunctive relief.  
                                                 
367 See U.S. v. O'Hagan , 521 U.S. 642 (1997). See also Rule 10b5-2 on Duties of trust or confidence in 
misappropriation insider trading cases. This means that a stranger who overhears the information or 
develops it on his own has no 10b-5 duties.  
368 See Regulation FD, Rule 100(a). However, Regulation FD is enforceable only through SEC 
enforcement actions and does not give rise to 10b-5 liability or private enforcement. See Rule 102.  
369 See Section 21(a)(1) of the 1934 Act – "Investiga tions; Injunctions and Prosecution of Offenses."  
370 See Section 21C of the 1934 Act – "Cease-and-Desist Proceedings."  
371 See Section 21(d)(1) of the 1934 Act – "Investigations; Injunctions and Prosecution of Offenses."  
372 See Section 32(a) of the 1934 Ac t – "Penalties." Maximum criminal fines are up to $5m ($25 for non 
natural persons) and jail sentences to 20 years.  
373 See Section 21B(e) of the 1934 Act – "Civ il Remedies in Administrative Proceedings."   
374 See Section 21(d)(3) of the 1934 Act – "Investigations; Injunctions and Prosecution of Offenses."  
375 See Section 20A of the 1934 Act – "Civil liability to contemporaneous traders."  
 
EN 192   EN – Owners of confidential information who purchase or  sell securities can also bring a private 
action under Rule 10b-5 against insider traders and tippees who adversely affect their 
trading prices.  
– The SEC can bring a judicial enforcement act ion seeking a court order that enjoins the 
insider trader or tippee from insider trading and that compels disgorgement of any trading 
profits.376  
– To add deterrence, the SEC can also seek a ju dicially imposed civil penalty of up to three 
times the profits realized or lo sses avoided by the insider trading.377 The SEC can also seek 
civil penalties against employers and others  who control insider traders and tippers.378  
The Dodd-Frank Act has also introduced a ne w Section 21F on "Securities Whistleblower 
incentives and protection379" which grants awards380 to whistleblowers who voluntarily 
provides original information to the Commission that leads to the successful enforcement of 
judicial or administrative act ion resulting in monetary sanctions exceeding $1m. The 
protection of whistleblowers is ensured by the prohibition against any retaliation by the employer and some confidentiality provision s on the identity of a whistleblower.  
                                                
 
376 See Section 21B(e) of the 1934 Act – "Civ il Remedies in Administrative Proceedings."   
377 See Section 21A(a)(2) of the 1934 Act – "Civil Penalties for Insider Trading."  
378 See Section 21A(a)(3) of the 1934 Act – "Civil Penalties for Insider Trading."  
379 See also the SEC proposed rules for implementing the whistleblower provisions of section 21f of the 
securities exchange act of 1934 at http://www.sec.gov/rules/proposed/2010/34-63237.pdf   
380 Not less than 10% and no more than 30% of the monetary sanctions imposed to be paid from the SEC 
Investor Protection Fund established in the Treasury of the United States.  
 
EN 193   EN ANNEX 10 – ADMINISTRATIVE BURDEN  
In order to determine the administrative bur den of the policy options, an external study381 was 
conducted by EIM on behalf of the Commission which assessed th e effects of the change in 
the Market Abuse Directive. The methodology of the study is based on the application of the 
Standard Cost Model (SCM) to determine the administrative burden caused by legislation. In 
addition, one-off compliance costs were determined with regard to some information obligations. To determine the impact of new rule s, interviews were conducted with relevant 
stakeholders including financial markets, ba nks and investment firm s and issuers including 
SMEs. Particular attention was given to impact of administra tive burden on SME issuers.  
In this context, administrative burden is defi ned, in accordance with the impact assessment 
guidelines, as the information obligat ions for businesses,  for citizens and 
national/regional/local administratio ns that are likely to be a dded or eliminated if a policy 
option were implemented. 
The preferred options which are estimated to ha ve an impact on administrative burden are the 
following:  
• Extending the scope of the MAD to MTFs (option 5.1.4)  
• Extending the scope of the MAD to other orga nised trading faciliti es (Option 5.1.5); 
• Extending suspicious transaction reporting to suspicious OTC transactions and suspicious 
orders (option 5.3.2) 
• Requiring issuers to notify competent authorities ex post  of delays to disclosure of inside 
information (Option 5.6.3);  
• An SME regime for disclosure of inside information (5.7.2) 
• Harmonising the requirements for insider lists Option (5.7.4);  
• SME exemption for insiders  lists (option 5.7.5)  
• A harmonising the conditions for reporting of ma nagers transaction reports (option 5.7.8), 
including increasing the th reshold (option 5.7.8).  
• The impacts of these options on administrativ e burden are further explored below.  
Extending the scope to MTFs (option 5.1.4)  
According to a study carried out by external consultant s for the Commission services382, the 
estimated administrative burden of the current  MAD provisions in terms of surveillance 
obligations is in the order of € 2.7 million. The number of MTFs estimated not to comply 
fully with the MAD at present is estimated to be 44383. The additional administrative burden 
for MTFs of extension of the scope of the MA D is estimated at EUR 211,650 per year for all 
44 MTFs or an average of EUR 4,810 per MTF.  This covers the extension of existing 
surveillance software already avai lable for their internal controls384. This number does not 
                                                 
381 EIM, Effects of the changes to the Market Abuse Direc tive – Impact on administ rative burden of firms 
in the EU , Zoetermeer, December 2010, See annex 13 
382 EIM, Effects of the changes to the Market Abuse Direc tive – Impact on administ rative burden of firms 
in the EU , Zoetermeer, December 2010, see annex 13 
383 On a total of 127 MTFs, it is estimated that 44 do not need to fully comply with current MAD 
requirememts, (more specifically, 4 MTF2s and 40 MTF3 s) EMI, Effects of the change in the Market 
Abuse Directive, 2010. 
384 Given the high level of uncertainty regarding the es timates, care should be taken in using these results. 
 
EN 194   EN cover the one- off cost related to devel oping monitoring systems which amount to EUR 1 
Million, 70% of which could be considered bu siness as usual. Therefore, this option is 
expected to imply EUR 300.000 one-off cost to comply with the information obligation.  
Extend the scope to other organised tr ading facilities (OTFs) option 5.1.5  
The administrative burden of extending the sc ope of the MAD to other organised trading 
facilities is estimated at EUR 481,000. These co sts relate to surveillance costs of these 
markets. As the study on administrative burden385 does not cover this t opic, the Commission 
services have estimated the administra tive burden based on the assumption of 100386 of such 
facilities operating in EU mark ets and similar cost (as for MT Fs) of EUR 4,810 per facilities. 
Extending suspicious transacti on reporting to orders and OT C transactions (option 5.3.2)  
a) Extension to suspicious OTC transactions When the reporting obligation is extended to OTC transactions, the total administrative cost is 
estimated at € 29 million in one-off costs, and € 29 million per year in ongoing costs. This is based on an assumed investment cost of EU R 11.250 and an annual cost of EUR 11.250 per 
institution to report OTC transactions. These costs relate to the extension of monitoring 
systems and the reporting when susp icious transactions would occur. In addi tion it takes into 
account that only 40% of financial institutions tr ade in OTC Derivatives. This assumption was 
based on a survey of respondents to the EIM st udy. This leads to a recurring administrative 
burden of EUR 29 million and a one off cost  of EUR 29 million to comply with the 
information obligation.  
b) Extension to suspicious orders Introducing a requirement to report  suspicious orders is expected  to lead to administrative 
costs of EUR 56,000 one-off cost and EUR 28, 000 recurring costs per institution as this 
would lead to considerable re design of the order system. The one-off cost relates to the 
modifications and adaptations of the ordering syst ems to ensure that orders can be monitored 
and suspicious transactions can be identified. Recurring costs relate to the identification and 
reporting of suspicious transactions, and is expected to require on average annually 625 
manhours. Based on research by the EIM study, it is assumed that currently only 20% of 
institutions already comply with this measure.  Other institutions woul d need to adapt their 
surveillance systems and report suspicious orde rs where necessary. Due to the limited number 
of institutions who currently monitor suspicious  orders, the total costs are estimated at EUR 
145 million recurring administrative burden an d EUR 291 million one-off compliance cost 
linked to the information obligation.  
Requirement for issuers to notify competent authorities 
ex post of delayed disclosure (option 
5.6.3)  
                                                 
385 EIM, Effects of the changes to the Market Abuse Direc tive – Impact on administ rative burden of firms 
in the EU , Zoetermeer, December 2010, see annex 13 
386 As no statistical data are available on such f acilities, the Commission services estimate the number of 
"other trading facilities" on 100 other trading fac ilities, based on 9 crossing networks (see: Celent, 
MiFID, spirit and reality of a European Financial Markets Directive, September 2010, p29) and the 
members of the Wholesale Market Brokers Associ ation. http://www.wmba.org.uk/member.php which 
would be covered by the definition, taking into account that the actual number will depend on the 
definition of organised trading facilities.  
 
EN 195   EN Currently, according the st udy on administrative burden387, 16 Member States require issuers 
to notify the competent authority of decisions to delay disclosure  of inside information and 11 
do not. About 42% of all large enterprises and 45% of all SM E issuers are located in one of 
the Member States which already require this obligation. For large enterprises the cost is 
estimated at EUR 17,550 for large enterprises an d for SME issuers the cost is considered EUR 
1,755 per year. It should be noted that the costs for enterprises relate to the investigation to 
delay disclosure and of external costs due  for legal advice. Therefore the existing 
administrative burden in these Member States is respectively 92 million for large enterprises and 1.5 million for SME issuers. Extending the scope of the obligations to the 11 Member 
States who currently do  not provide for these requirement will result in an incremental 
recurring administrative burden of EUR 127 mill ion for large enterprises and EUR 1.8 million 
for SMEs. This is based on the assumption that  large issuers would have 5 such cases and 
small would have 0.5 of such cases per year. It should be noted that this might be an 
overestimation of the costs as not all issuers w ould be subject to disclosure requirements and 
small enterprises in the survey did not report any delay of disclosure.  
SME regime for disclosure of in side information. (option 5.7.5
) 
An SME regime for disclosure of inside info rmation would mean that  SME issuers would be 
required to disclose inside information in a simplified market-specific way. This could be 
done by a specific checklist for SM Es on which information is cons idered inside information. 
This option is expected to reduce administrativ e burden for SMEs. In order to estimate what 
this reduction would consist in, the current ad ministrative burden of disclosure of inside 
information for the 1.900 SME issuers is based on following assumptions for the distinct cost elements: identification, analysing and disclosing of inside information. Cost elements relate to the identification, and then the disclosure, of  inside information. For SMEs, the total cost 
per year for identifying inside information is therefore estimated at EUR 2.7 million, of which 
according to the study 80% is business as usua l and EUR 500.000 can be considered linked to 
the existing MAD provisions.
388 In addition, disclosi ng this information is estimated to imply 
39 hours per SME issuer at an hourly cost of EUR 45. For all 1900 SME issuers this would 
imply a yearly cost of EUR 3.3 million or EU R 1755 per SME. Therefore, the total existing 
administrative burden for disclosure of inside information is estimated at EUR 3.8 million for 
SME issuers. We estimate that the SME regi me, which implies a simplified and market-
specific disclosure process for inside inform ation, would lead to a reduction 30% in 
administrative burden, which would lead to co sts saving of EUR 1.1 Million for SME issuers.  
Harmonising the requirements fo r insider lists (option 5.7.4)  
The current yearly administrative burden of implementing and updating the insiders' list is 
estimated by the study at € 945 for SME issuers and almost € 2,025 for large issuers. For the 
whole EU, this represents a cost of EUR 1,8 million for SME issuers a nd EUR 25 million for 
other issuers. According to the study, the harmon isation of the elements of information to be 
included in the insiders' list could reduce this cost by 5% or EUR 94 for other issuers. Total 
administrative burden reduction of this measure is  therefore estimated at EUR 1.2 million for 
other issuers.  
                                                 
387 EIM, Effects of the changes to the Market Abuse Direc tive – Impact on administ rative burden of firms 
in the EU , Zoetermeer, December 2010, see annex 13 
388 EIM, Effects of the changes to the Market Abuse Direc tive – Impact on administ rative burden of firms 
in the EU , Zoetermeer, December 2010, see annex 13 
 
EN 196   EN Exempt SMEs from inside rs lists (option 5.7.5).  
Based on the above, exempting SME issuers from the requirement to keep insiders' lists 
would reduce the administrative burden on SME issuers by EUR 945 per SME per year, 
giving a total reduction of administrative burden on SMEs of EUR 1.8 million per year. SMEs would only be required if there is a suspicious of market abuse, to provide who has inside 
information.  
Harmonising the conditions for reporting of managers transaction reports, including 
increasing the threshold (option 5.5.8)  
According to the study, the admini strative burden of the current obligation in th e Directive is 
estimated to be € 135 per SME issuer per year (based on 2 reports) and € 405 per large issuer 
per year (6 reports). The total managers' tran sactions reports per year, with the existing 
threshold of EUR 5.000, is estimated at 78.800 tr ansactions reports per year with a threshold 
of EUR 5.000. A questionnair e among CESR Members found that  that 41% of managers' 
transactions concerned transactions are be low EUR 20.000. Theref ore, increasing the 
threshold to 20.000 would lead to a reduction of 32.000 transact ion reports. This implies an 
administrative burden reduction of EUR 2.2 million for large issuers and 0,1 for SME issuers. 
Total administrative burden li nked to the revision to MAD  
In light of the above, the overall  impact of the revision of the MAD in terms of administrative 
burden is estimated to be of the order of EU R 297 million recurring administrative burden. In 
addition, a one off cost for co mplying with the information ob ligation is estimated at EUR 
320.3 million. For the specific case of SMEs, the net administrative burden would be reduced 
with EUR 1.2 Million.  
Table 3: overview of admin burden of the MAD  
Incremental cost per entity (EUR) Total incremental cost 
(Million EUR) Policy option description 
 Recurring 
Admin 
burden One- off cost recurring 
annual 
admin 
burden (million 
EUR) One of cost 
(million 
EUR)  
5.1.4 Extending scope to 
MTFs  4,810  0.2 0.3 
5.1.5 Extening scope to 
OTFs  4.810  0.5  
OTC 11,250 11,250 29 29 
Orders 28,000 56,000 145 291 5.3.2 reporting of 
suspicious OTC 
transactions and orders Total   147 320 
LE 17,550  127  
SMEs 1755  1.8  5.6.3 Reporting of 
delayed disclosure  
Total   129  
5.7.2 SME regime for 
disclosure of inside 
information    -1.1 
(reduction)  
5.7.4  Harmonisation of 
insider lists  2,025  -1.2 
(reduction)  
5.7.5 SME exemption for  945  -1.8  
 
EN 197   EN insiders lists (reduction) 
Large 
issuers 405  -2,2 
(reduction)  5.7.8 Harmonisation of 
managers 
transactions reports SMEs 135  -0.1 
(reduction)  
Recurring admin burden  297  
One off costs to comply with 
information obligations   320,3 
 Admin burden on SMEs  -1.2 
(reduction)  
 
EN 198   EN ANNEX 11 - LIST OF OPTIONS AND DISCRETIONS IN THE MARKET ABUSE DIRECTIVE AND 
RELATED IMPLEMENTING MEASURES389 
A. Whether to extend the scope of application of the MAD to MTFs in full, in part or 
not at all (article 9) 
B. Whether to require an issuer to inform the competent authority without delay of the 
decision to delay the disclosure of inside information (article 6.2) 
C. Whether to require that managers' transact ion reports are notified to bodies other than 
the competent authority (article 6.4), and how to apply the notification threshold of 
€5,000 (implementing Directive 2004/72/EC) 
D. What do "all necessary measures" that Memb er States may take to ensure that the 
public is correctly informed consist of (article 6.7) 
E. Whether to extend suspicious trans action reports to OTC derivatives whose 
underlying is traded on a re gulated market and to susp icious unexecuted orders 
(article 6.9 of Directive 2003/6/EC and articles 7, 8, 9 and 10 of Directive 
2004/72/EC)  
F. How the supervisory and investigatory pow ers of regulators are exercised – directly; 
in collaboration with, or by delegation to, other authorities/market undertakings; or 
by application to judicial authorities; and whether to confer additional powers on 
regulators (article 12) 
G. Whether to foresee the possibility to wa ive the obligation of pr ofessional secrecy and 
for which reasons (article 13) 
H. Whether and how to disclo se to the public every meas ure or sanction imposed for 
infringement of the Directiv e and in which circumstances this publication may not be 
required (article 14.4) 
I. Reasons for denying assistance or joint inve stigations with the regulator of another 
Member State (article 16.4) 
J. Whether to require additional items in lists of insiders and for how long these should 
be kept (articles 5.2 and 5.4 of  implementing Directive 2004/72/EC) 
K. What threshold to apply for disclosure  by providers of investment advice on their 
interests and conflicts of interest (article 6.1(a)  of Directive 2003/125/EC) 
L. Whether to apply additional obligations in relation to fair presentation of 
recommendations (article 4. 1 of Directive 2003/125/EC) 
                                                 
389 All references to articles concern the level 1 Directive 2003/6/EC unle ss otherwise specified. The source for this 
list of options and discretions is the CE SR review panel report of 27 January 2010, MAD Options, Discretions and 
Gold-plating 2009  
 
EN 199   EN M. Whether to require disclosure of additio nal information beyond that set out in article 
5.2 of Directive 2003/125/EC 
ANNEX 12: COST AND BENEFITS  
7.1. Benefits 
In order to estimate the overall benefit of the package of policy options a 2 step approach has 
been taken. First, the size of  the existing problem of  market abuse is estimated. Second, the 
benefits are estimated, in terms of the estimated reduction of market abuse which the preferred policy options ar e expected to achieve. 
1) Estimating the size of th e problem of market abuse 
Attempting to quantify the size of  the problem of market abuse is very difficult as it is by 
definition an illegal activity for which no statistics are available. This is reinforced by the fact 
that estimates of the actual levels of market abuse depend on a multitude of factors, such as: 
how many people commit market abuse whic h goes undetected? How many cases are 
detected but there is insufficient evidence to prosecute? How many cases are deemed too 
difficult or insignificant to pros ecute by competent authorities? 
Estimates of market abuse can therefore only be made indirectly, ba sed on indicators. The 
following indicators can be used to  quantify the size of the problem. 
First of all, 
data from one regulator  about suspicious financial movements  before a major 
announcement (e.g. a takeover) whic h could include market abuse390 could be used as a 
measure to indicate market abuse. It should be noted that this measure considers only insider 
dealing and not market manipula tion in specific markets and this measure is only available for 
the UK, which is the only EU Member State to  publish such data. In addition, this measure 
also includes the effect of rumours and therefore is probably an over-estimate.  
Second, data from a study which attempts to quan tify the cost of insider dealing, in terms of 
estimated profit from insider dealing391. Table 1 shows the estimat ed profit gained from 
insider dealing on 3 major exch anges which represent 48 % of  market turnover in the EU392. 
Although only 3 EU exchanges are included in the study, since they are the three largest and account for such a large share of total market turnover, they can be considered representative.  
Table 1 estimated profit due to insider dealing 
                                                
 
390 This measure of market cleanliness is based on th e extent to which share prices move ahead of the 
regulatory announcements which issuers are required to make to the market. More information on this methodology can be found at:
 FSA Occasional papers series, nr 25, Updated Measuring Market 
Cleanliness, March 2007, http://www.fsa.gov.uk/pubs/occpapers/op25.pdf . and, FSA, Occasional 
papers series, nr 23, Measuring Market Cleanliness, March 2006, http://www.fsa.gov.uk/pubs/occpapers/op23.pdf
,  
391 Capital Markets CRC Limited, Enumerating the cost of insider trading,  unpublished, 2010, p. 8. 
392 Thomson Reuters, Monthly Market share reports, 2011: Thomson Reuters website, 
http://thomsonreuters.com/products_services/financi al/financial_products/equities_derivatives/europe/
market_share_reports/#tab2  
 
 
EN 200   EN 2009 average 2003-2009
Euronext 147.315                 29,9% 0,0418% 0,0173%
Deutsche Borse 116.431                 23,6% 0,0073% 0,0394%
LSE Group 228.765                 46,4% 0,0463% 0,0455%
Total 492.511                 100,0% 0,0318% 0,0341%
weighted average 0,0357% 0,0356%Market turnover 
volume  (EUR 
Million) weightestimated cumulative profit  (due to 
market abuse) as percentage of market 
turnover
 
Source: European Commission, Thomson Reuters, Capital Markets CRC Limited393,  
As shown in table 3, the weighted average pr ofit gained from insider dealing on these 3 
exchanges, which equates to the detriment for investors due to th is form of market abuse, is 
estimated at 0.0356% in the period 2003-2009 a nd represented 0.0357% in 2009 . However, 
this data only estimates the profit due to insi der dealing and does not encompass the estimated 
profit due to market manipulation. In order to reach an estimate of the full cost of market 
abuse, including both insider dealing and market  manipulation, it seems reasonable to assume 
that that the cost of market manipulation would be of the same  order of magnitude as insider 
dealing, namely 0,0353% of market turnover. Ba sed on this assumption, the cost of market 
abuse, including both insider dealing and market manipulat ion, on these 3 markets is 
estimated at 0.0712% of total market turnover.  
Table 3 estimated detriment due to market abuse and impact of new package 
Total impact
Market turnover Equity Markets (M EUR) 18.803.179Estimated yearly detriment 0,0712%
Estimated yearly detriment due to market abus
e 13.388
Esimated reduction of market abuse 20%
Estimated benefits (M EUR) 2.677, 6 
Source: European Commission, Thomson Reuters 2010 
To estimate the cost of market abuse for the Eu ropean market as a whole, the estimated size 
of market abuse in terms of ma rket turnover (0.712% of total ma rket turnover) is extrapolated 
to be applied to the to tal market turnover of European ma rkets. Table 3 shows the estimated 
yearly size of market abuse which is estimated at 0,0712% of the total market turnover. When 
applied to the market turnover on equity mark ets in 2010, the value of  market abuse due to 
market manipulation and insider dealing is estimated at EUR 13. 3 billion in 2010. This is an 
annual recurring number which evolves with the si ze or market turnover.  It should be noted 
that the Commission considers this to be an underestimation of the full magnitude of the 
problem, as this is based on market turnover from equity markets only. 
To estimate the expected benefits to be ach ieved by applying the pref erred policy options, we 
propose applying a conservative assumption that market abuse can be reduced by 20% due to 
the package of measures. This assumption is ba sed on the experience of reinforced efforts to 
sanction market abuse in UK (as part of the FSA's "credible de terrence" strategy) which has 
experienced a significant improvement of market cleanliness of 58% in the period 2008-
                                                 
393 Capital Markets CRC Limited, Enumerating the cost of insider trading,  unpublished, 2010, p. 8 
 
EN 201   EN 2009394. In order to take a conservative approach to estimating the extent to which the 
preferred options could reduce market abuse, it seems reasonable to reduce this figure to 20%. 
Using this assumption, the bene fits of the package of measures are estimated at EUR 2.7 
billion per year, as shown in table 3 above.  
7.2. Costs 
In order to determine the cost implications of the package of preferred policy options in this 
report, a study was carried out for th e Commission by external contractors395 to estimate the 
impact of the possible changes to the Market Abuse Directive, particularly in terms of 
administrative burden, which has been summar ised in annex 11. The administrative burden 
impacts outlined in annex 11 are considered the main cost implications of the package of 
retained options, particularly for industry stak eholders. In addition, the Commission services 
assessed the additional cost implications of th e proposal, particularly with regard to the 
transposition and supervision of the new rules by Member States. 
With regard to the compliance costs for Member States, the preferred options are expected to 
create some limited additional costs to condu ct market surveillance. For large markets 
(including UK, FR, DE, IT, ES), the Commission assumes that this  would require up to 3 Full 
Time Equivalents (FTE's) and for the remaining sm aller markets, it is expected to require 1 
FTE. A full time equivalent is assumed to re present 200 mandays of 8 hours at an average 
hourly rate of EUR 45 throughout the EU. This w ould lead to an estimated cost of EUR 2.7 
Million per year in terms of manpower for all EU Member Stat es to perform the supervisory 
activities required by the packag e of preferred options. In a ddition, Member States would 
probably need to invest in syst ems and get access to market data  to ensure market monitoring 
of the new rules. This is expected to gene rate an annual cost of EUR 20.000 per year per 
Member State or EUR 0.5 Mi llion per year for all Member  States. Therefore, total 
surveillance costs are expected to amount to an estimated EUR 3,2 Million per year for all 
Member States.  
The costs of the package on industry stakeholders  relate to administra tive burdens linked to 
information requirements and one-off costs to comply with these information obligations. 
These costs have been assessed in detail in A nnex 11 of the report. The package of retained 
policy options entails an estima ted administrative burden of a nnual recurring administrative 
costs of EUR 297 million, and a one off cost  of EUR 320 million to comply with the 
information obligations.  
7.3. Summary of Costs/benefits 
The results of the analysis of the expected costs and benefits  of the package of retained 
options are presented in table 4.  
Table 4. Summary of costs and benefits  of the package of retained options 
                                                 
394 Market cleanliness in terms of abnormal pre-price announcements decreased from 10% to 4,2% in the 
period 2008-2009, Financial Services Authority, Annual Report 2009/2010, p35-36, table 2.2, the 
measures of market cleanliness fo r the FTSE 350, available at 
http://www.fsa.gov.uk/pubs/an nual/ar09_10/ar09_10.pdf 
395 EIM, Effects of the changes to the Market Abuse Direc tive – Impact on administ rative burden of firms 
in the EU , Zoetermeer, December 2010, See annex 13 
 
EN 202   EN  Recurring (Million EUR) One-off (Million EUR) 
Benefits 2.667, 4  
Costs   
Compliance costs 3,2  
Administrative burden 297 320 
Total Costs 300,2 320 
Net Benefit 2.367,2  
The annual benefits in terms of the estimated reduction of market abuse are estimated at EUR 
2.7 billion annually, and the annual costs are es timated at EUR 300 million (plus in the first 
year estimated one-off costs of EUR 320 million to comply with the information obligations).  
Therefore the package of preferred polic y options is expect ed to generate net benefits of an 
estimated 2.4 billion per year.  As the new rules will extend to instruments and markets 
which are expected to grow in the coming year s, the potential annual benefits of addressing 
market abuse, the potential of market abuse would be growing if these markets and would 
remain uncovered. Therefore, the benefits due  to the new rules are expected to grow.  
 
EN 203   EN ANNEX 13: EFFECTS OF THE CHANGE IN THE MARKET ABUSE DIRECTIVE – IMPACT ON THE 
ADMINISTRATIVE BURDEN IN THE EU,  EIM,  DECEMBER 2012 
See separate document EIM Report