Opinion of the European Central Bank of 22 November 2001 at the request of the Council of the European Union concerning a proposal for a Directive of the European Parliament and of the Council on insider dealing and market manipulation (market abuse) (CON/2001/38)
Date: 2001-11-22
Institutions: European Central Bank
Subjects: European Central Bank, approximation of laws, financial market, insider trading, proposal (EU), securities

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Official Journal of the European Communities

26.1.2002

EUROPEAN CENTRAL BANK

OPINION OF THE EUROPEAN CENTRAL BANK

of 22 November 2001

at the request of the Council of the European Union concerning a proposal for a Directive of the
European Parliament and of the Council on insider dealing and market manipulation (market
abuse)

(CON/2001/38)

(2002/C 24/09)

1. On 10 July 2001 the European Central Bank (ECB) received
a request from the Council of the European Union for an
opinion on a proposal
for a directive of the European
the Council on insider dealing and
Parliament and of
market manipulation (market abuse)
(COM(2001) 281
final) (hereinafter referred to as the (cid:145)proposed directive(cid:146)) (1).

2. The ECB’s competence to deliver an opinion is based on
the first indent of Article 105(4) of the Treaty establishing
the European Community (hereinafter referred to as the
(cid:145)Treaty(cid:146)), since the objective of the proposed directive is
to ensure the integrity of Community financial markets
and to enhance public confidence in securities and
derivatives.
sentence of
In accordance with the first
Article 17(5) of the Rules of Procedure of the European
Central Bank,
this opinion has been adopted by the
Governing Council of the ECB.

It

the

intends

to complete

3. The objective of the proposed directive is to ensure the
integrity of European financial markets, enhance investor
confidence in these markets and establish and implement
throughout
common standards
against market abuse
Europe. Currently,
there are no common provisions
against market manipulation at the level of the European
Union and the Insider Dealing Directive (2) is limited to the
prevention of misuse of privileged information whereas, at
the level of the Member States, there is a great deal of
variation in the rules dealing with market abuse. The
proposed directive
existing
Community legal framework in order to protect market
competent
integrity.
authority of an administrative nature should be designated
in each Member State to deal with market abuse. Increasing
cross-border activities require improved cooperation and a
set of provisions for the exchange of information between
competent national authorities. The proposed directive also
provides
the
prohibition on engaging in market manipulation or
taking advantage of inside information shall be applicable
to any natural or legal person and that any infringement of
laid down by the
requirements
the prohibitions or
proposed directive should be promptly and effectively
sanctioned. Finally, the comitology procedure is envisaged
by the proposed directive, following the resolution of the
Stockholm European Council of 23 March 2001 (which

that Member States

also provides

ensure

single

shall

that

that

a

(1) OJ C 240 E, 28.8.2001, p. 265 (adopted by the European

Commission on 30.5.2001).

(2) Council Directive 89/592/EEC of 13 November 1989 coordinating
regulations on insider dealing (OJ L 334, 18.11.1989, p. 30).

endorses the recommendations of the Committee of Wise
Men).

rules

the harmonisation of

4. The ECB considers that the proposed directive constitutes
the
step towards
an important
currently divergent national
addressing market
manipulation and insider dealing. Consequently, the ECB
welcomes this contribution to the establishment of sound
and consistent standards, which should further promote
the integrity of European financial markets, enhance
investor confidence and ensure smooth functioning of
the market. The ECB also welcomes
the proposed
directive as it implements the conclusions of the Lisbon
European Council of March 2000, which stressed that steps
the
should be taken to accelerate the completion of
internal market
the
for financial services and those of
Stockholm European Council of March 2001, which
stated that
the creation of a dynamic and efficient
element
European securities market
thereof. Furthermore, the proposed directive responds to
one of the objectives of the financial services action plan,
i.e. the setting of common rules to prevent market players
the
from rigging the market.
proposed directive would contribute positively to the
achievement of these objectives.

In the view of

an essential

the ECB,

is

5. In

of

the

the necessary

recommendations

accordance with

the
Committee of Wise Men endorsed by the Stockholm
European Council, the ECB welcomes the use of the comi-
tology procedure as envisaged by the proposed directive,
the Committee of European
with the involvement of
Securities Regulators and of
the European Securities
Committee. The ECB considers that the use of the comi-
tology procedure provides
flexibility,
enabling the response in an adequate and timely manner
to dynamic market developments. Generally, the ECB holds
the view that the application of the comitology procedure
to securities market regulation should take account of the
advisory role that the Treaty confers upon the ECB, by
allowing for the incorporation of the views of the ECB
in the regulatory process. More specifically, and for the
sake of the clarity and efficiency of this procedure, there
a
the
a need for
may be
implementing measures
adopted in
that
accordance with the procedure referred to in Article
the comitology
17(2) of
to
either
It may therefore be advisable
procedure).
expressly enumerate the articles which envisage the use
the comitology procedure in Article 17(2) or, as a
of
minimum,
implementing
measures to be adopted according to the comitology
procedure in one single article.

to assemble all categories of

the proposed directive (i.e.

identification of

should be

clear

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6. The ECB supports the wide scope of application of the
proposed directive in terms of the financial
instruments
and markets covered (Article 9), as well as its wide
geographical
application (Article 10), which should
contribute to creating a level playing field within the
European financial markets.

7. The ECB notes the exemption from the scope of

the
proposed directive of (cid:145)transactions carried out in pursuit
of monetary, exchange-rate or public debt-management
policy by a Member State, by the European System of
Central Banks, a national central bank or any other
officially designated body, or by any person acting on
their behalf(cid:146), as stated in Article 7. According to Article
105(2) of the Treaty, the basic tasks to be carried out by
the European System of Central Banks ((cid:145)Eurosystem(cid:146)) shall
be, inter alia, to define and implement the monetary policy
of the Community, to conduct foreign exchange operations
and to hold and manage the official foreign reserves of the
Member States. In these areas, the Governing Council of
the ECB has sole competence and as such always has inside
information at its disposal that should not prevent it from
carrying out the necessary transactions to implement its
policies and this should be reflected in the provisions on
this exemption. In addition, as long as there are Member
States with a derogation, their NCBs retain competence in
It
these areas pursuant to Article 122(3) of the Treaty.
should be noted, regarding Article 7 of
the proposed
directive, that a similar exemption is included in Article
2(4) of the Insider Dealing Directive.

8. The ECB understands

that

that

the proposed directive is
intended to cover market abuse both in the form of
insider dealing and in the form of market manipulation
(recital 9 of the proposed directive). The ECB recommends
in this respect
the core definitions related to the
purpose of the protection of market integrity be clarified
to avoid any
in the proposed directive itself,
laws of
discrepancy
Member States. As stated in the explanatory memorandum,
the ECB shares the view that the updating of the list of
financial instruments defined in Section A of the Annex to
the proposed directive should take into account new devel-
opments in financial markets.

so as
various national

between the

9. The ECB notes that the European Commission envisages, in
its preliminary suggestions regarding the future review of
the Investment Services Directive (ISD) (1),
the possible
incorporation in the revised ISD of
some provisions
which would supplement the obligations and prohibitions
currently enshrined in the proposed directive. Such
provisions might address, in particular, individual respon-
sibilities attributed to competent authorities within the
meaning of the proposed directive, to market operators
and to investment firms. Without prejudging any future
Commission proposal for a directive revising the ISD,
it
might be recommended at this stage that consistency be
ensured between the proposed directive and the revised

(1) Council Directive 93/22/EEC of 10 May 1993 on investment

services in the securities field (OJ L 141, 11.6.1993, p. 27).

ISD, in particular in respect of the legal concepts used in
these different legal texts and of the allocation of respon-
sibilities between the different parties concerned with
regard to the aim of safeguarding the integrity of
the
financial markets. In this respect, the ECB would like to
submit the following comments. First, Article 6(5) of the
proposed directive requires that (cid:145)a natural person, or an
entity, professionally arranging transactions in financial
instruments shall refrain from entering into transactions,
and reject orders on behalf of its clients, if it reasonably
suspects that a transaction would be based on inside
information or would constitute market manipulation(cid:146). It
may be helpful to clarify whether this provision also covers
back office activities such as order matching. Furthermore,
the desirability for market operators to have mechanisms
in place which promptly detect abusive or anomalous
activities may also be highlighted in the proposed directive.
Secondly,
it may be helpful to specify in the proposed
directive whether and under which conditions competent
authorities within the meaning of its Article 11 may have
the possibility to delegate parts of
supervisory
responsibilities to market operators in terms of monitoring
and surveillance activities. Such clarification might be
the proposed
desirable
directive only provides for collaboration of competent
authorities with (cid:145)other authorities, including judicial auth-
orities(cid:146). Thirdly, for the sake of consistency, it is recom-
mended that the list of financial instruments included in
the proposed directive be identical to the list annexed to
the ISD, once formally upgraded, and that the latter be as
exhaustive as possible.

current wording of

their

the

as

the ECB,

10. The ECB also notes that the proposed directive provides for
specific cooperation (such as mutual assistance and sharing
of
information) between the competent (cid:145)single adminis-
trative authorit[ies](cid:146) in order to ensure the application of
the provisions of
the proposed directive (hereinafter
referred to as the (cid:145)administrative authorities(cid:146)). In the view
of
this cross-border cooperation is certainly
valuable and the ECB welcomes the relevant provisions
in the proposed directive. In addition, the ECB suggests
that broadening the scope of cooperation should be
considered, by including a possibility, or even an obli-
gation, of cooperation and sharing of
information that
goes beyond mere cooperation between administrative
authorities. This is of particular relevance in the light of
Articles 9 and 10 of the proposed directive which recall
the increasing cross-border dimension of abusive practices
in financial markets. The ECB sees potential benefits in a
closer cooperation between the administrative authorities
and the competent authorities in charge of supervising
credit
insurance under-
takings and, perhaps, collective investment undertakings
(regulated entities),
they are distinct
from the designated administrative authorities. These
regulated entities participate actively in regulated markets
and their staff often possess inside information. As part of
the operational risk, these regulated entities are exposed to
the risk that their staff or management may breach the
provisions of the proposed directive. Such breaches may
have a significant negative impact on investors and also
mean significant reputational risk for the regulated entity
involved. The ECB therefore believes that close cooperation
between the administrative authorities and the (cid:145)competent

to the extent

institutions,

investment

firms,

that

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Official Journal of the European Communities

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the desirable

convergence of

the administrative authorities
convergence of

supervisory
pursuit of
practices could be best fostered to ensure a level playing
field. In the view of the ECB, a committee of represen-
tatives of
in charge of
supervisory practices
promoting the
might be valuable in this respect. Moreover, a provision
calling for a report by the Commission on the progress
regarding harmonisation and Member States’ experience
with the application of the proposed directive might be
considered.

12. The ECB notes the priority given by the Council to the
proposed directive and its firm objective of ensuring that
the fight against financial crime linked to terrorist activities
will be covered by the Community’s proposed legal
In line with its public
framework on market abuse.
statement of 1 October 2001 on its
for
measures to prevent the use of the financial system in
the funding of
the ECB wishes to
reiterate the commitment of the Eurosystem, within its
to contribute to the adoption,
field of competence,
implementation and execution of measures against
the
use of the financial system for terrorist activities.

terrorist activities,

support

13. This opinion shall be published in the Official Journal of the

European Communities.

Done at Frankfurt am Main on 22 November 2001.

The President of the ECB

Willem F. DUISENBERG

to the pursuit of

field already provides,

the entire single market. However,

the
authorities(cid:146) will be beneficial
respective objectives of these authorities. In fact, national
legislation in this
in certain
instances, for such cooperation. Consequently, it may be
worthwhile to introduce such a framework of mutual
cooperation for
in
order to achieve this result, a re-examination not only of
the provisions of
the proposed directive (in particular
Articles 12 and 16) but also of the relevant provisions of
the sectoral directives on professional secrecy and super-
visory cooperation (see Article 30 of
the Consolidated
Banking Directive (1) and the corresponding provisions in
the other sectoral Directives) is warranted. Such a re-exam-
ination would have to investigate, in accordance with the
the
abovementioned
respective provisions of these directives allow such coop-
eration (2).
the ECB also
recommends
the single administrative authorities
designated by Member States in accordance with Article
11 of the proposed directive (i.e. the (cid:145)coordinating auth-
orities(cid:146)) be notified to the European Commission and their
names published in the Official
the European
Communities.

comitology procedure, whether

Journal of

sake of

clarity,

that

For

the

11. As stated in the explanatory memorandum (see section
1(d)),
the (cid:145)new disciplinary framework set out by this
Directive is not intended to replace the national provisions
by
but
contribute towards helping some convergence among the
different national regimes through compliance with the
requirements of the Directive(cid:146).
In this respect, the ECB
it should be further considered how the
suggests that

applicable Community

provisions,

directly

(1) Directive 2000/12/EC of

the European Parliament and of

the
Council of 20 March 2000 relating to the taking up and pursuit
of business of credit institutions (OJ L 126, 26.5.2000, p. 1).
(2) For the banking sector, the question at issue would be, for instance,
whether (cid:145)authorities responsible for the supervision of
financial
markets(cid:146) within the meaning of the first indent of Article 30(5)
of the Consolidated Banking Directive, are identical with (cid:145)adminis-
trative authorities(cid:146) within the meaning of the proposed directive. As
regards the proposed directive, for instance, the question at issue
would be whether for such cooperation to take place, the scope of
powers laid down in Article 12 of the proposed directive should be
amended in order to allow sharing of information with (cid:145)competent
authorities(cid:146).