Common Position (EC) No 50/2002 of 19 July 2002 adopted by the Council, acting in accordance with the procedure referred to in Article 251 of the Treaty establishing the European Community, with a view to adopting a directive of the European Parliament and of the Council on insider dealing and market manipulation (market abuse)
Date: 2002-07-19
Institutions: Council of the European Union
Subjects: approximation of laws, disclosure of information, financial instrument, financial market, insider trading, securities

25.9.2002

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Official Journal of the European Communities

C 228 E/19

COMMON POSITION (EC) No 50/2002

adopted by the Council on 19 July 2002

with a view to adopting Directive 2002/. . ./EC of the European Parliament and of the Council of
. . . on insider dealing and market manipulation (market abuse)

(2002/C 228 E/03)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE
EUROPEAN UNION,

Having regard to the Treaty establishing the European
Community, and in particular Article 95 thereof,

Having regard to the proposal from the Commission (1),

Having regard to the opinion of the Economic and Social
Committee (2),

Having regard to the opinion of the European Central Bank (3),

Acting in accordance with the procedure laid down in Article
251 (4),

Whereas:

(1) A genuine single market for financial services is crucial
for economic growth and job creation in the Community.

(2) An integrated and efficient

financial market

requires
market
integrity. The smooth functioning of securities
are
markets
prerequisites for economic growth and wealth. Market
abuse harms
financial markets and
the integrity of
public confidence in securities and derivatives.

in markets

confidence

public

and

framework for

(3) The Commission communication of 11 May 1999
financial
the
entitled ‘Implementing
markets: Action plan’
identifies a series of actions that
are needed in order to complete the single market for
financial services. The Lisbon European Council of April
2000 called for the implementation of that action plan by
2005. The action plan stresses the need to draw up a
directive against market manipulation.

(4) At its meeting on 17 July 2000, the Council set up the
Committee of Wise Men on the Regulation of European
Securities Markets. In its final report, the Committee of
Wise Men proposed the introduction of new legislative
techniques based on a four-level approach, namely

implementing measures,

coop-
framework principles,
eration and enforcement. Level 1, the Directive, should
‘framework’ principles
confine itself
while level 2 should contain technical
implementing
measures to be adopted by the Commission with the
assistance of a committee.

to broad general

(5) The resolution adopted by the Stockholm European
Council of March 2001 endorsed the final report of the
Committee of Wise Men and the proposed four-level
approach
for
Community securities legislation more efficient and trans-
parent.

to make

regulatory

process

the

(6) The resolution of the European Parliament of 5 February
2002 on the implementation of financial services legis-
lation also endorsed the Committee of Wise Men's report,
the solemn declaration made before
on the basis of
Parliament the same day by the Commission and the
letter of 2 October 2001 addressed by the Internal
Market Commissioner to the chairman of Parliament's
Committee on Economic and Monetary Affairs with
regard to the safeguards for the European Parliament's
role in this process.

(7) The measures necessary for the implementation of this
Directive should be adopted in accordance with Council
Decision 1999/468/EC of 28 June 1999 laying down the
procedures
implementing powers
the exercise of
conferred on the Commission (5).

for

(8) According to the Stockholm European Council,

level 2
implementing measures should be used more frequently,
to ensure that technical provisions can be kept up to date
with market and supervisory developments, and deadlines
should be set for all stages of level 2 work.

first

from the

(9) The European Parliament should be given a period of
transmission of draft
three months
to examine them
implementing measures to allow it
and to give its opinion. However,
in urgent and duly
justified cases, this period may be shortened. If, within
that period, a resolution is passed by the European
Parliament, the Commission should re-examine the draft
measures.

(1) OJ C 240 E, 28.8.2001, p. 265.
(2) OJ C 80, 3.4.2002, p. 61.
(3) OJ C 24, 26.1.2002, p. 8.
(4) Opinion of the European Parliament of 14 March 2002 (not yet
Journal), Council Common Position of
. . .

published in the Official
19 July 2002 and decision of
(not yet published in the Official Journal).

the European Parliament of

(10) New financial and technical developments enhance the
incentives, means and opportunities for market abuse:
through new products, new technologies,
increasing
cross-border activities and the Internet.

(5) OJ L 184, 17.7.1999, p. 23.

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(11) The existing Community legal

framework to protect
market integrity is incomplete. Legal requirements vary
from one Member State to another,
leaving economic
actors often uncertain over concepts, definitions and
enforcement. In some Member States there is no legis-
lation addressing the issues of price manipulation and
the dissemination of misleading information.

(12) Market abuse consists of

insider dealing and market
manipulation. The objective of legislation against insider
dealing is the same as that of legislation against market
manipulation:
to ensure the integrity of Community
financial markets and to enhance investor confidence in
those markets. It is therefore advisable to adopt combined
rules to combat both insider dealing and market manipu-
lation. A single directive will ensure throughout
the
Community the same framework for allocation of respon-
sibilities, enforcement and cooperation.

the

(13) Given the changes in financial markets and in Community
legislation since
adoption of Council Directive
89/592/EEC of 13 November 1989 coordinating regu-
lations on insider dealing (1), that Directive should now
be replaced, to ensure consistency with legislation against
market manipulation. A new Directive is also needed to
avoid loopholes in Community legislation which could be
used for wrongful conduct and which would undermine
public confidence and therefore prejudice the smooth
functioning of the markets.

(14) This Directive meets

following
States
Member
11 September 2001 as
financing terrorist activities.

the concerns expressed by the
attacks on
terrorist
against
the

the
regards

fight

(15) Insider dealing and market manipulation prevent full and
proper market transparency, which is a prerequisite for
trading for all economic actors in integrated financial
markets.

(16) Inside information is any information of a precise nature
which has not been made public, relating, directly or
indirectly, to one or more issuers of financial instruments
or to one or more financial
Information
which could have a significant effect on the evolution
and forming of the prices of a regulated market as such
information which indirectly
could be considered as
relates to one or more issuers of financial
instruments
or to one or more related derivative financial instruments.

instruments.

(17) As regards insider dealing, account should be taken of
from a

cases where inside information originates not

(1) OJ L 334, 18.11.1989, p. 30.

profession or function but from criminal activities, the
preparation or
a
significant effect on the prices of one or more financial
instruments or on price formation in the regulated market
as such.

execution of which could have

(18) Use of inside information can consist in the acquisition or
disposal of financial instruments by a person who knows,
or ought to have known, that the information possessed
is inside information. In this respect, the competent auth-
orities should consider what a normal and reasonable
person would know or should have known in the circum-
that market-makers,
the mere fact
stances. Moreover,
bodies authorised to act as counterparties, or persons
authorised to execute orders on behalf of third parties
with inside information confine themselves,
in the first
legitimate business of
to pursuing their
two cases,
buying or selling financial
in the last
case, to carrying out an order dutifully, should not in
itself be deemed to constitute use of
such inside
information.

instruments or,

(19) Member States should tackle the practice known as ‘front
running’,
commodity
‘front
derivatives, where it constitutes market abuse under the
definitions contained in this Directive.

including

running’

in

(20) A person who enters into transactions or issues orders to
trade which are constitutive of market manipulation may
be able to establish that his reasons for entering into such
transactions or issuing orders to trade were legitimate and
to trade were in
that
conformity with accepted practice on the regulated
market concerned. A sanction could still be imposed if
the
there was
another, illegitimate, reason behind these transactions or
orders to trade.

competent authority established that

the transactions and orders

e.g. definition of

(21) The competent authority may issue guidance on matters
covered by this Directive,
inside
information in relation to derivatives on commodities or
implementation of
the definition of accepted market
practices relating to the definition of market manipu-
lation. This guidance should be in conformity with the
provisions of
implementing
measures adopted in accordance with the comitology
procedure.

the Directive

and the

(22) Member States should be able to choose the most appro-
priate way to regulate persons producing or disseminating
instruments or issuers of
research concerning financial
financial
instruments or persons producing or dissemi-
nating other information recommending or suggesting
investment strategy,
including appropriate mechanisms
for
self-regulation, which should be notified to the
Commission.

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(23) Posting of inside information by issuers on their Internet
sites should be in accordance with the rules on transfer of
personal data to third countries as laid down in Directive
95/46/EC of the European Parliament and of the Council
of 24 October 1995 on the protection of individuals with
regard to the processing of personal data and on the
movement of such data (1).

(24) Prompt and fair disclosure of information to the public
enhances market integrity, whereas selective disclosure by
issuers can lead to a loss of investor confidence in the
integrity of
financial markets. Professional economic
actors should contribute to market integrity by various
for instance, the
means. Such measures could include,
creation of
‘window
‘grey lists’,
the
categories
trading’
application of internal codes of conduct and the estab-
lishment of ‘Chinese walls’. Such preventive measures may
contribute to combating market abuse only if they are
enforced with determination and are dutifully controlled.
Adequate enforcement control would imply for instance
the designation of compliance officers within the bodies
concerned and periodic checks conducted by independent
auditors.

the application of

of personnel,

to sensitive

(28) This Directive should be interpreted, and implemented by
Member States,
consistent with the
in a manner
requirements for effective regulation in order to protect
the interests of holders of transferable securities carrying
voting rights in a company (or which may carry such
rights as a consequence of
the exercise of rights or
conversion) when the company is subject to a public
takeover bid or other proposed change of control.
In
particular, this Directive does not in any way prevent a
Member State from putting or having in place such
measures as it sees fit for these purposes.

(29) Having access to inside information relating to another
company and using it in the context of a public takeover
bid for the purpose of gaining control of that company or
proposing a merger with that company should not in
itself be deemed to constitute insider dealing.

(30) Since the acquisition or disposal of financial instruments
necessarily involves a prior decision to acquire or dispose
taken by the person who undertakes one or other of these
operations, the carrying-out of this acquisition or disposal
should not be deemed in itself to constitute the use of
inside information.

(25) Modern communication methods make it possible for
financial market professionals and private investors to
have more equal access to financial
information, but
also increase the risk of the spread of false or misleading
information.

(31) Research and estimates developed from publicly available
data should not be regarded as inside information and,
therefore, any transaction carried out on the basis of such
research or estimates should not be deemed in itself to
this
constitute insider dealing within the meaning of
Directive.

(26) Greater

transactions

transparency of

conducted by
persons discharging managerial
responsibilities within
issuers and, where applicable, persons closely associated
with them, constitutes a preventive measure against
market abuse. The publication of those transactions on
either an individual or an aggregated basis can also be a
highly valuable source of information to investors.

(27) Market operators should contribute to the prevention of
market abuse and adopt structural provisions aimed at
preventing and detecting market manipulation practices.
Such provisions may include requirements concerning
transparency of transactions concluded, total disclosure
of price-regularisation agreements, a fair system of order
pairing,
atypical-order
detection scheme, sufficiently robust financial instrument
reference price-fixing schemes and clarity of rules on the
suspension of transactions.

introduction of

an effective

(1) OJ L 281, 23.11.1995, p. 31.

(32) Member States and the European System of Central Banks,
national central banks or any other officially designated
body, or any person acting on their behalf, should not be
restricted in carrying out monetary, exchange-rate or
public debt management policy.

(33) Stabilisation of financial

instruments or trading in own
shares in buy-back programmes can be legitimate,
in
certain circumstances, for economic reasons and should
not, therefore, in themselves be regarded as market abuse.
should be developed to provide
Common standards
practical guidance.

(34) The widening scope of financial markets, the rapid change
and the range of new products and developments require
to financial
a wide
instruments
to
in order
guarantee the integrity of Community financial markets.

this Directive
involved,

and techniques

application of

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to sanction actions

(35) Establishing a level playing field in Community financial
markets requires wide geographical application of
the
provisions covered by this Directive. As regards derivative
instruments not admitted to trading but falling within the
scope of this Directive, each Member State should be
competent
carried out on its
territory or abroad which concern underlying financial
instruments admitted to trading on a regulated market
situated or operating within its territory or for which a
for admission to trading on such a regulated
request
market has been made. Each Member State should also
be competent
to sanction actions carried out on its
territory which concern underlying financial instruments
admitted to trading on a regulated market in a Member
State or for which a request for admission to trading on
such a market has been made.

least

(36) A variety of competent authorities in Member States,
having different
responsibilities, may create confusion
among economic actors. A single competent authority
should be designated in each Member State to assume
final responsibility for supervising compliance
at
with the provisions adopted pursuant to this Directive,
as well as international collaboration. Such an authority
should be of an administrative nature guaranteeing its
independence of economic actors and avoiding conflicts
adequate
of
authority
consultation
arrangements
possible
legislation such as a consultative
changes in national
committee
issuers,
representatives of
financial services providers and consumers, so as to be
fully informed of their views and concerns.

interest. That
for

should have
concerning

composed of

ensure a degree of uniformity of regulation from one
Member State to another.

(40) Increasing cross-border activities requires improved coop-
eration and a comprehensive set of provisions for the
exchange of
information between national competent
authorities. The organisation of supervision and of inves-
tigatory powers in each Member State should not hinder
cooperation between the competent national authorities.

(41) Since the objective of the proposed action, namely to
prevent market abuse in the form of insider dealing and
market manipulation, cannot be sufficiently achieved by
the Member States and can therefore, by reason of the
scale and effects of the measures, be better achieved at
Community level, the Community may adopt measures,
in accordance with the principle of subsidiarity as set out
in Article 5 of
In accordance with the
principle of proportionality, as set out in that Article,
this Directive does not go beyond what is necessary in
order to achieve that objective.

the Treaty.

(42) Technical guidance and implementing measures for the
rules laid down in this Directive may from time to time
be necessary to take account of new developments on
financial markets. The Commission should accordingly
implementing measures,
be
provided that
essential
the
this Directive and the Commission acts
elements of
according to the principles set out
in this Directive,
after consulting the European Securities Committee estab-
lished by Commission Decision 2001/528/EC (1).

these do not modify

empowered

adopt

to

(37) A common minimum set of effective tools and powers for
the competent authority of each Member State will
guarantee supervisory effectiveness. Market undertakings
and all economic actors should also contribute at their
level to market integrity. In this sense, the designation of
a single competent authority for market abuse does not
exclude collaboration links or delegation under
the
responsibility of the competent authority, between that
authority and market undertakings with a view to guar-
anteeing efficient supervision of compliance with the
provisions adopted pursuant to this Directive.

requirements

(38) In order to ensure that a Community framework against
market abuse is sufficient, any infringement of the prohib-
itions or
to this
Directive will have to be promptly detected and sanc-
tioned. To this end, sanctions should be sufficiently
dissuasive and proportionate to the gravity of
the
infringement and to the gains realised and should be
consistently applied.

laid down pursuant

(43) In exercising its implementing powers in accordance with
the

the Commission should respect

this Directive,
following principles:

— the need to ensure confidence in financial markets
among investors by promoting high standards of
transparency in financial markets,

— the need to provide investors with a wide range of
competing investments and a level of disclosure and
protection tailored to their circumstances,

— the need to ensure that independent regulatory auth-
orities enforce the rules consistently, especially as
regards the fight against economic crime,

— the need for high levels of transparency and consul-
tation with all market participants and with the
European Parliament and the Council,

— the need to encourage innovation in financial markets

if they are to be dynamic and efficient,

(39) Member States should remain alert,

in determining the
administrative measures and sanctions, to the need to

(1) OJ L 191, 13.7.2001, p. 45.

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— the need to ensure market

integrity by close and

reactive monitoring of financial innovation,

— the importance of reducing the cost of, and increasing

access to, capital,

relating, directly or
which has not been made public,
indirectly,
to one or more such derivatives and which
users of markets on which such derivatives are traded
would expect
to receive in accordance with accepted
market practices on those markets;

costs

— the balance of

to market
participants on a long-term basis (including small
and medium-sized businesses and small investors) in
any implementing measures,

and benefits

2.

‘market manipulation’ shall mean:

(a) transactions or orders to trade:

— the need to foster the international competitiveness of
EU financial markets without prejudice to a much-
needed extension of international cooperation,

— which give, or are likely to give, false or misleading
signals as to the supply of, demand for or price of
financial instruments, or

— the need to achieve a level playing field for all market
participants by establishing EU-wide regulations every
time it is appropriate,

— which secure, by a person, or persons acting in
collaboration, the price of one or several financial
instruments at an abnormal or artificial level,

— the need to respect differences in national markets
impinge on the

these do not unduly

where
coherence of the single market,

— the need to ensure coherence with other EU legislation
in this area, as imbalances in information and a lack
of transparency may jeopardise the operation of the
markets and above all harm consumers and small
investors.

unless the person who entered into the transactions or
issued the orders to trade establishes that his/her reasons
for so doing are legitimate and that these transactions or
orders to trade conform to accepted market practices on
the regulated market concerned;

(b) transactions or orders to trade which employ fictitious
devices or any other form of deception or contrivance;

(44) This Directive

rights

respects

fundamental

and
the
observes the principles recognised in particular by the
Charter of Fundamental Rights of the European Union
and in particular by Article 11 thereof and Article 10
of the European Convention on Human Rights. In this
in any way prevent
regard,
Member States from applying their constitutional rules
relating to freedom of
the press and freedom of
expression in the media,

this Directive does not

HAVE ADOPTED THIS DIRECTIVE:

Article 1

For the purposes of this Directive:

1.

‘inside information’ shall mean information of a precise
nature which has not been made public, relating, directly
or indirectly, to one or more issuers of financial instruments
or to one or more financial
if it
were made public, would be likely to have a significant
instruments or on
effect on the prices of those financial
the price of related derivative financial instruments.

instruments and which,

relation

In
‘inside
information’ shall mean information of a precise nature

commodities,

derivatives

on

to

(c) dissemination of

information through the media,
including the Internet, or by any other means, which
gives, or is likely to give, false or misleading signals as
to financial instruments, including the dissemination of
rumours and false or misleading news, where the person
who made the dissemination knew, or ought to have
known, that the information was false or misleading. In
respect of journalists when they act in their professional
capacity such dissemination of
information is to be
assessed, without prejudice to Article 11, taking into
the rules governing their profession, unless
account
an
indirectly,
those persons
advantage or profits from the dissemination of
the
information in question.

directly

derive,

or

In particular, the following instances are derived from the
core definition given in points (a), (b) and (c):

— conduct by a person, or persons acting in collaboration,
to secure a dominant position over the supply of or
demand for a financial instrument which has the effect
of fixing, directly or indirectly, purchase or sale prices or
creating other unfair trading conditions,

— the buying or selling of

instruments at the
the market with the effect of misleading

close of
investors acting on the basis of closing prices,

financial

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instrument

— taking advantage of occasional or regular access to the
traditional or electronic media by voicing an opinion
about a financial
its
issuer) while having previously taken positions on that
financial instrument and profiting subsequently from the
impact of
that
instrument, without having simultaneously disclosed
that conflict of interest to the public in a proper and
effective way.

the opinions voiced on the price of

(or indirectly about

The definitions of market manipulation shall be adapted so
as to ensure that new patterns of activity that in practice
constitute market manipulation can be included;

3.

‘financial instrument’ shall mean:

In order to take account of developments on financial markets
and to ensure uniform application of this Directive in the
Community, the Commission, acting in accordance with the
procedure laid down in Article 17(2), shall adopt implementing
measures concerning points 1, 2 and 3 of this Article.

Article 2

1. Member States shall prohibit any person referred to in
the second subparagraph who possesses inside information
from using that information by acquiring or disposing of, or
by trying to acquire or dispose of, for his/her own account or
for the account of a third party, either directly or indirectly,
financial instruments to which that information relates.

— transferable securities as defined in Council Directive
93/22/EEC of 10 May 1993 on investment services in
the securities field (1),

The first subparagraph shall apply to any person who possesses
that information:

— units in collective investment undertakings,

(a) by virtue of his membership of

the

administrative,

management or supervisory bodies of the issuer; or

— money-market instruments,

— financial-futures contracts,

including equivalent cash-

settled instruments,

— forward interest-rate agreements,

— interest-rate, currency and equity swaps,

— options to acquire or dispose of any instrument falling
including equivalent cash-settled
in particular

into these categories,
instruments. This
options on currency and on interest rates,

category

includes

— derivatives on commodities,

— any other instrument admitted to trading on a regulated
market in a Member State or for which a request for
admission to trading on such a market has been made;

4.

‘regulated market’ shall mean a market as defined by Article
1(13) of Directive 93/22/EEC;

5.

‘accepted market practices’ shall mean practices that are
reasonably expected in one or more financial markets and
are accepted by the competent authority in accordance with
guidelines adopted by the Commission in accordance with
the procedure laid down in Article 17(2);

6.

‘person’ shall mean any natural or legal person;

7.

‘competent authority’ shall mean the competent authority
designated in accordance with Article 11.

(1) OJ L 141, 11.6.1993, p. 27. Directive as last amended by Directive
2000/64/EC of the European Parliament and of the Council (OJ L
290, 17.11.2000, p. 27).

(b) by virtue of his holding in the capital of the issuer; or

(c) by virtue of his having access to the information through
the exercise of his employment, profession or duties; or

(d) by virtue of his criminal activities.

2. Where the person referred to in paragraph 1 is a legal
person, the prohibition laid down in that paragraph shall also
apply to the natural persons who take part in the decision to
carry out the transaction for the account of the legal person
concerned.

3.
This Article shall not apply to transactions conducted in
the discharge of an obligation that has become due to acquire
or dispose of financial instruments where that obligation results
from an agreement concluded before the person concerned
possessed inside information.

Article 3

Member States
prohibition laid down in Article 2 from:

shall prohibit any person subject

to the

(a) disclosing inside information to any other person unless
such disclosure is made in the normal course of
the
exercise of his employment, profession or duties;

(b) recommending or inducing another person, on the basis of
financial

inside information,
instruments to which that information relates.

to acquire or dispose of

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Article 4

Member States shall ensure that Articles 2 and 3 also apply to
any person other than those persons referred to in those
Articles who possesses inside information while that person
knows, or ought to have known, that it is inside information.

competent authority the existence of transactions conducted
on their own account relating to shares of the said issuer, or
to derivatives or other financial
instruments linked to them.
Member States shall ensure that public access to information
concerning such transactions, on either an individual or on an
aggregated basis, is readily available as soon as possible.

Article 5

Member States shall prohibit any person from engaging in
market manipulation.

Article 6

1. Member States shall ensure that
financial
instruments inform the public as soon as possible of inside
information which directly concerns the said issuers.

issuers of

Without prejudice to any measures taken to comply with the
provisions of
the first subparagraph, Member States shall
ensure that issuers, for an appropriate period, post on their
Internet sites all inside information that they are required to
disclose publicly.

An issuer may under his own responsibility delay the
2.
public disclosure of
inside information, as referred to in
paragraph 1, such as not to prejudice his legitimate interests
provided that such omission would not be likely to mislead the
public and provided that the issuer is able to ensure the confi-
dentiality of that information. Member States may require that
an issuer shall without delay inform the competent authority of
the decision to delay
inside
information.

the public disclosure of

3. Member States shall require that, whenever an issuer, or a
person acting on his behalf or for his account, discloses any
inside information to any third party in the normal exercise of
his employment, profession or duties, as referred to in Article
3(a), he must make complete and effective public disclosure of
that information, simultaneously in the case of an intentional
disclosure and promptly in the case of a non-intentional
disclosure.

The provisions of the first subparagraph shall not apply if the
person receiving the information owes a duty of confidentiality,
regardless of whether such duty is based on a law, on regu-
lations, on articles of association or on a contract.

Member States shall require that issuers, or persons acting on
their behalf or for their account, draw up a list of
those
persons working for them, under a contract of employment
or otherwise, who have access to inside information. Issuers
and persons acting on their behalf or for their account shall
regularly update this list and transmit it to the competent
authority whenever the latter requests it.

4.
Persons discharging managerial responsibilities within an
issuer of financial instruments and, where applicable, persons
least, notify to the
closely associated with them, shall, at

research concerning financial

5. Member States shall ensure that there is appropriate regu-
lation in place to ensure that persons who produce or
disseminate
instruments or
issuers of financial instruments and persons who produce or
disseminate other information recommending or suggesting
investment strategy, intended for distribution channels or for
such
the public,
information is fairly presented and disclose their interests or
indicate
financial
instruments to which that information relates. Details of such
regulation shall be notified to the Commission.

concerning

to ensure

reasonable

conflicts

interest

take

care

that

the

of

6. Member States shall ensure that market operators adopt
structural provisions aimed at preventing and detecting market
manipulation practices.

7. With a view to ensuring compliance with paragraphs 1 to
4, the competent authority may take all necessary measures to
ensure that the public is correctly informed.

8.
Public institutions disseminating statistics liable to have a
significant effect on financial markets shall disseminate them in
a fair and transparent way.

shall

States

require

person
9. Member
professionally arranging transactions in financial
instruments
who reasonably suspects that a transaction might constitute
insider dealing or market manipulation shall notify the
competent authority without delay.

that

any

In order to take account of technical developments on
10.
financial markets and to ensure uniform application of this
in accordance with
Directive,
the procedure referred to in Article 17(2),
implementing
measures concerning:

the Commission shall adopt,

— the technical modalities for appropriate public disclosure of
inside information as referred to in paragraphs 1 and 3,

— the technical modalities for delaying the public disclosure

of inside information as referred to in paragraph 2,

— the technical modalities designed to favour a common
approach in the implementation of the second sentence
of paragraph 2,

— the conditions under which issuers, or entities acting on
their behalf, are to draw up a list of those persons working
for them and having access to inside information, as
referred to in paragraph 3, together with the conditions
under which such lists are to be updated,

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— the categories of persons who are subject to a duty of
disclosure as referred to in paragraph 4 and the charac-
teristics of a transaction, including its size, which trigger
that duty, and the technical arrangements for disclosure to
the competent authority,

— technical arrangements, for the various categories of person
referred to in paragraph 5, for fair presentation of research
and other information recommending investment strategy
and for disclosure of particular interests or conflicts of
interest as referred to in paragraph 5,

— technical

competent
paragraph 9.

arrangements governing notification to the
referred to in

authority by the persons

Article 7

This Directive shall not apply to 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, by a national central bank or by any other officially
designated body, or by any person acting on their behalf.
Member States may extend this exemption to their federated
States or similar local authorities in respect of the management
of their public debt.

or for which a request for admission to trading on such
market has been made;

(b) actions carried out on its territory concerning financial
instruments that are admitted to trading on a regulated
market
for
in a Member State or for which a request
admission to trading on such market has been made.

Article 11

Without prejudice to the competences of the judicial auth-
orities, each Member State shall designate a single adminis-
trative authority competent
the provisions
to ensure that
adopted pursuant to this Directive are applied.

shall

States

effective

establish

consultative
Member
and procedures with market participants
arrangements
legislation. These
concerning possible changes
arrangements may include consultative committees within
each competent authority, the membership of which should
reflect as far as possible the diversity of market participants,
be they issuers, providers of financial services or consumers.

in national

Article 12

1.
The competent authority shall be given all supervisory
and investigatory powers that are necessary for the exercise
of its functions. It shall exercise such powers:

Article 8

(a) directly; or

The prohibitions provided for in this Directive shall not apply
to trading in own shares in ‘buy-back’ programmes or to the
stabilisation of a financial instrument provided such trading is
carried out in accordance with implementing measures adopted
in accordance with the procedure laid down in Article 17(2).

Article 9

This Directive shall apply to any financial instrument admitted
to trading on a regulated market in at least one Member State,
or for which a request for admission to trading on such a
market has been made,
irrespective of whether or not the
transaction itself actually takes place on that market.

Articles 2, 3 and 4 shall also apply to any financial instrument
not admitted to trading on a regulated market in a Member
State, but whose value depends on a financial instrument as
referred to in paragraph 1.

Article 6(1) to (3) shall not apply to issuers who have not
requested or approved admission of their financial instruments
to trading on a regulated market in a Member State.

(b) in collaboration with other authorities or with the market

undertakings; or

(c) under its responsibility by delegation to such authorities or

to the market undertakings; or

(d) by application to the competent judicial authorities.

2. Without prejudice to Article 6(7), the powers referred to
in paragraph 1 of this Article shall be exercised in conformity
with national law and shall include at least the right to:

(a) have access to any document in any form whatsoever, and

to receive a copy of it;

(b) demand information from any person, including those who
are successively involved in the transmission of orders or
the operations concerned, as well as their
conduct of
principals, and if necessary,
to summon and hear any
such person;

Article 10

(c) carry out on-site inspections;

Each Member
requirements provided for in this Directive to:

apply

State

shall

the prohibitions

and

(d) require existing telephone and existing data-traffic records;

(a) actions carried out on its territory or abroad concerning
financial
instruments that are admitted to trading on a
regulated market situated or operating within its territory

(e) require the cessation of any practice that is contrary to the
provisions adopted in the implementation of this Directive;

(f)

suspend trading of the financial instruments concerned;

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(g) request the freezing and/or sequestration of assets;

(h) request temporary prohibition of professional activity.

This Article shall be without prejudice to national legal

3.
provisions on professional secrecy.

Article 13

The obligation of professional secrecy shall apply to all persons
who work or who have worked for the competent authority or
for any authority or market undertaking to whom the
competent authority has delegated its powers,
including
auditors and experts instructed by the competent authority.
Information covered by professional
secrecy may not be
disclosed to any other person or authority except by virtue
of provisions laid down by law.

Article 14

1. Without prejudice to the right of Member States to
impose criminal sanctions, Member States shall ensure,
in
conformity with their national law, that the appropriate admin-
istrative measures can be taken or administrative sanctions be
imposed against the persons responsible where the provisions
adopted in the implementation of this Directive have not been
complied with. Member States shall ensure that these measures
are effective, proportionate and dissuasive.

2.
In accordance with the procedure laid down in Article
17(2), the Commission shall, for information, draw up a list of
referred to in
the administrative measures and sanctions
paragraph 1.

3. Member States shall determine the sanctions to be applied
for failure to cooperate in an investigation covered by Article
12.

4. Member States shall provide that the competent authority
may disclose to the public every measure or sanction that will
be imposed for infringement of the provisions adopted in the
implementation of this Directive, unless such disclosure would
seriously jeopardise the financial markets or cause dispropor-
tionate damage to the parties involved.

Article 15

Member States shall ensure that an appeal may be brought
before a court against the decisions taken by the competent
authority.

Article 16

1.
Competent authorities shall cooperate with each other
their
whenever necessary for the purpose of carrying out
duties, making use of their powers whether set out in this
Directive or
shall
render assistance to competent authorities of other Member
States.
they shall exchange information and
cooperate in investigation activities.

law. Competent authorities

In particular,

in national

Competent authorities

2.
immediately
supply any information required for the purpose referred to
in paragraph 1. Where necessary, the competent authorities

shall, on request,

shall

immediately take

any such request

the
receiving
necessary measures in order to gather the required information.
If the requested competent authority is not able to supply the
required information immediately, it shall notify the requesting
competent authority of the reasons. Information thus supplied
shall be covered by the obligation of professional secrecy to
which the persons employed or formerly employed by the
competent authorities receiving the information are subject.

The competent authorities may refuse to act on a request for
information where:

— communication might adversely affect

the sovereignty,
security or public policy of the Member State addressed,

— judicial proceedings have already been initiated in respect
of the same actions and against the same persons before
the authorities of the Member State addressed, or

— where a final

judgment has already been delivered in
relation to such persons for the same actions in the
Member State addressed.

In any such case, they shall notify the requesting competent
authority accordingly, providing as detailed information as
possible on those proceedings or the judgment.

Without prejudice to Article 226 of the Treaty, a competent
authority whose request for information is not acted upon
within a reasonable time or whose request for information is
rejected may bring that non-compliance to the attention of the
Committee of European Securities Regulators, where discussion
will take place in order to reach a rapid and effective solution.

Without prejudice to the obligations to which they are subject
in judicial proceedings under criminal law, the competent auth-
orities which receive information pursuant to paragraph 1 may
use it only for the exercise of their functions within the scope
of this Directive and in the context of administrative or judicial
proceedings
those
functions. However, where the competent authority communi-
cating information consents thereto, the authority receiving the
information may use it for other purposes or forward it to
other States' competent authorities.

specifically related to the exercise of

that

3. Where a competent authority is convinced that acts
this Directive are being, or
contrary to the provisions of
have been, carried out on the territory of another Member
instruments traded
State or that acts are affecting financial
on a regulated market situated in another Member State,
it
shall give notice of
in as specific a manner as
fact
the other Member
possible to the competent authority of
State. The competent authority of the other Member State
shall
inform the notifying
competent authority of the outcome and, so far as possible,
of significant interim developments. This paragraph shall not
prejudice the competences of the competent authority that has
forwarded the information. The competent authorities of the
various Member States that are competent for the purposes of
Article 10 shall consult each other on the proposed follow-up
to their action.

take appropriate action.

It shall

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A competent authority of one Member State may request
4.
that an investigation be carried out by the competent authority
of another Member State, on the latter's territory.

It may further request that members of its own personnel be
allowed to accompany the personnel of
the competent
authority of that other Member State during the course of
the investigation.

The investigation shall, however, be subject throughout to the
overall control of the Member State on whose territory it is
conducted.

The competent authorities may refuse to act on a request for
an investigation to be conducted as provided for in the first
subparagraph, or on a request for its personnel to be accom-
panied by personnel of the competent authority of another
Member State as provided for in the second subparagraph,
where such an investigation might adversely affect the sover-
eignty, security or public policy of the State addressed, or
where judicial proceedings have already been initiated in
respect of
the same persons
before the authorities of the State addressed or where a final
judgment has already been delivered in relation to such persons
for the same actions in the State addressed. In such case, they
shall notify the requesting competent authority accordingly,
providing information, as detailed as possible, on those
proceedings or judgment.

the same actions and against

Without prejudice to the provisions of Article 226 of the
Treaty, a competent authority whose application to open an
inquiry or whose request for authorisation for its officials to
accompany those of
the other Member State's competent
authority is not acted upon within a reasonable time or is
rejected may bring that non-compliance to the attention of
the Committee of European Securities Regulators, where
discussion will
take place in order to reach a rapid and
effective solution.

5.
In accordance with the procedure laid down in Article
17(2), the Commission shall adopt implementing measures on
the procedures for exchange of information and cross-border
inspections as referred to in this Article.

Article 17

1.
The Commission shall be assisted by the European
Securities Committee instituted by Decision 2001/528/EC
(hereinafter referred to as the ‘Committee’).

2. Where reference is made to this paragraph, Articles 5 and
7 of Decision 1999/468/EC shall apply, having regard to the
provisions of Article 8 thereof, provided that the implementing
measures adopted according to this procedure do not modify
the essential provisions of this Directive.

The period laid down in Article 5(6) of Decision 1999/468/EC
shall be set at three months.

3.

The Committee shall adopt its Rules of Procedure.

the application of

requiring the adoption of

4. Without prejudice to the implementing measures already
adopted, on the expiry of a four-year period following the
its
this Directive,
entry into force of
provisions
rules and
decisions in accordance with paragraph 2 shall be suspended.
On a proposal from the Commission, the European Parliament
and the Council may renew the provisions concerned in
accordance with the procedure laid down in Article 251 of
the Treaty and, to that end, they shall review them prior to
the expiry of the period referred to above.

technical

Article 18

Member States shall bring into force the laws, regulations and
administrative provisions necessary to comply with this
Directive not later than [. . .] (*). They shall forthwith inform
the Commission thereof.

When Member States adopt those measures, they shall contain
a reference to this Directive or be accompanied by such a
reference on the occasion of
their official publication.
Member States shall determine how such reference is to be
made.

Article 19

Article 11 shall not prejudge the possibility for a Member State
to make separate legal and administrative arrangements for
overseas European territories for whose external relations that
Member State is responsible.

Article 20

Directive 89/592/EEC and Articles 68(1) and 81(1) of Directive
2001/34/EC of the European Parliament and of the Council of
28 May 2001 on the admission of securities to official stock
exchange listing and on information to be published on those
securities (1) shall be repealed with effect from the date of entry
into force of this Directive.

Article 21

This Directive shall enter into force on the day of its publi-
cation in the Official Journal of the European Communities.

Article 22

This Directive is addressed to the Member States.

Done at Brussels, 19 July 2002.

For the Parliament

The President

For the Council

The President

(*) Eighteen months after the entry into force of this Directive.
(1) OJ L 184, 6.7.2001, p. 1.

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STATEMENT OF THE COUNCIL'S REASONS

I. INTRODUCTION

On 30 May 2001 the Commission presented a proposal for a directive on insider dealing and market
manipulation (1), replacing existing Directive 89/592/EEC on insider dealing and extending it to market
manipulation.

The European Central Bank delivered its opinion on 22 November 2001 (2). The European Parliament
delivered its opinion on 14 March 2002 and the Economic and Social Committee delivered its opinion
on 17 January 2002 (3). The Committee of the Regions decided not to deliver an opinion.

On 19 July 2002, the Council adopted its Common Position pursuant to Article 251 of the Treaty.

II. OBJECTIVE

The overall objective of the Directive is to ensure the integrity of European financial markets and to
enhance investor confidence in those markets by establishing a level playing field for all economic
actors in Member States in the fight against market abuse.

The Directive introduces a Community legal framework for the prevention, detection, investigation of
market abuse and the imposition of sanctions, covering both insider dealing and market manipulation,
in order to ensure certainty among market participants over concepts and enforcement.

III. ANALYSIS OF THE COMMON POSITION

The Common Position broadly follows the approach of the Commission proposal as amended by the
European Parliament, diverging from it on only a few points. Of the 77 amendments proposed by the
European Parliament, 60 are fully incorporated into the Common Position, for a large part verbatim,
and 10 amendments are partially incorporated.

The text of the Common Position and the way in which the amendments of the European Parliament
were incorporated is analysed below.

(a) The preamble

The preamble has been adapted to take account of the changes to the enacting terms of the Directive
which are explained below and incorporates in full Amendments 1, 3, 77, 78, 5, 6, 7, 8, 9, 10, 12, 13,
14, 15, 16, 17 and 18.

Amendment 2 (recital 9) is partly incorporated in the Common Position. The Council feels that a
reference to possible future discussions between the European institutions is out of place in a legal
act and has therefore not included the last sentence of Amendment 2. Amendment 11 (recital 36) has
been incorporated in a form adapted to the wording of Article 11, to which it relates.

(b) Article 1 — Definitions

Article 1(1) incorporates the main part of Amendment 19. The term ‘accepted market practices’, which
is defined in paragraph 5, has been used instead of the term ‘acceptable practices’. The definition of
inside information set out in Article 1(1) does not explicitly exclude the practice known as ‘front-
running’ from the scope of the definition, since the Council considers that in some cases front-running
may not constitute market abuse. Instead, recital 19 indicates that Member States should tackle front-
running, including front-running in commodities derivatives, where it constitutes market abuse under
the definitions contained in the Directive.

(1) OJ C 240 E, 28.8.2001, p. 265.
(2) OJ C 24, 26.1.2002, p. 8.
(3) OJ C 80, 3.4.2002, p. 61.

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Amendments 20 and 21 were not included in the Common Position since the Council finds that the
definitions of ‘information of a precise nature’ and ‘information made public’ could unnecessarily
restrict
the text. Since paragraph 1 is covered by the committee procedure, any
necessary clarification of the definition of ‘inside information’ can be done by way of the implementing
measures to be adopted by the Commission.

the scope of

Article 1(2) partially incorporates Amendment 79 rev. As in Amendment 79 rev., paragraph 2 of the
Common Position is structured so that general definitions of market manipulation are set out first,
followed by precise instances of what in particular constitutes market manipulation. To prevent the
Directive prohibiting accepted market practices by defining them too rigidly, paragraph 2(a) introduces
an element of flexibility: when a person enters into transactions or orders to trade which would
normally constitute market manipulation, this person may establish that his/her reasons for entering
into such transactions or orders are legitimate and that these transactions or orders to trade are in
conformity with accepted market practices on the regulated market concerned. In that case the actions
or orders to trade shall not constitute market manipulation. This element of flexibility does not apply to
transactions or orders to trade which employ fictitious devices or other forms of deception referred to
in paragraph 2(b), since such fictitious devices or deception would never be in conformity with
accepted market practices.

them. The Common Position does not require that

The wording of Article 1(2)(c) is slightly more general than that of Amendment 79 rev., stipulating that
instruments, not to particular
the false or misleading signals referred to should apply to financial
aspects of
the disseminator or the persons
informed derive an advantage or profit
from the dissemination of misleading information. The
Council finds that such a provision could exempt clear examples of market manipulation from the
scope of the Directive, e.g. if the ‘manipulator’ for some reason fails to make the expected profit from a
sustained campaign of misinformation. However, in order not to prejudice journalists and the freedom
of the press, the Common Position introduces a special provision stipulating that for journalists, when
acting in their professional capacity, dissemination of information which gives or is likely to give false
or misleading information with regard to financial instruments, must be assessed taking into account
the rules governing their profession unless the journalists involved derive, directly or indirectly, an
advantage or profits from the dissemination of the information in question, in which case the normal
rules of the Directive applies.

As a consequence of the incorporation of Amendment 79 rev. the Common Position also includes
Amendment 74, calling for the deletion of Annex B, which was contained in the Commission proposal.

Article 1(3) incorporates Amendment 23 and as a consequence the Common Position also includes
Amendment 73, calling for the deletion of Annex A, which was contained in the Commission proposal.

Article 1(5) includes Amendment 81 in a slightly amended form. The only differences between the
amendment and the Common Position are that the word ‘accepted’ has been chosen as a more precise
term and that, in order to take account of the cases where a practice relates to a new instrument and
therefore is not yet customary, the term ‘reasonably expected’ has been used instead of ‘customary’.

Article 1(6) and (7) incorporate Amendments 24 and 25 respectively.

The final sentence of Article 1 incorporates Amendment 86 and extends the committee procedure to
cover implementing measures concerning the definition or dissemination of
false or misleading
information set out in paragraph 2(c).

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(c) Articles 2 to 5 — Prohibition of insider dealing and market manipulation

Article 2 incorporates Amendments 27, 28 and 29. The Council
is reluctant to include a special
provision explicitly relating to takeover bids and omitting mergers. However, recital 29 makes it
clear that having access to insider information of another company and using it in the context of a
public takeover bid for the purpose of gaining control of the company or proposing a merger with it
should not in itself be deemed to constitute insider dealing. So, while the Common Position takes
account of the concerns expressed in Amendment 30, this amendment is not included as such in the
Common Position.

Articles 3 and 4 incorporate Amendments 31 and 32 respectively.

Article 5 incorporates Amendments 33 and 34.

(d) Article 6 — Disclosure

Article 6 is structured to achieve precise and cohesive wording, and differs slightly from the structure
of the Commission proposal on which the amendments of the European Parliament are based. The
order of paragraphs 2 and 3 is reversed and all provisions relating to implementing measures to be
adopted by the Commission are set out in paragraph 10. Thus, paragraph 10 includes Amendment 39
on implementing measures relating to drawing up the list of persons having inside information.

Article 6(1) fully incorporates Amendment 36. The main part of Amendment 35 is incorporated, but the
reference to Article 1(1)(c) has not been taken on board, since Amendment 21 relating to that
provision is not included in the Common Position.

Article 6(2) includes an option for Member States to require that an issuer shall, without delay, inform
the competent authority of the decision to delay the public disclosure of inside information, that was
not present in the Commission proposal. The Council feels it would be wrong for Member States to be
obliged to require notification of the delay, mainly since this could result in a degree of liability for the
competent authority in that such prior information might be construed as tacit approval of the delay in
disclosure should the authority fail to act. Amendment 41 has thus been partially included.

Article 6(3) (Article 6(2) of the Commission proposal) incorporates Amendment 37, and also Amendment
38 by deleting Article 6(2)(b) of the Commission proposal relating to issuance of credit ratings.

Article 6(4) incorporates the spirit of Amendment 40 with some changes in the wording. A different
balance has been struck between the need to keep the public informed and the need to ensure the right
to privacy of the managers and persons associated with them. On the one hand, the words ‘at least’
have been added to make it clear that the notification requirement can be given a broader scope than
that set out in the Directive. On the other hand, the Common Position refers only to shares and
derivatives and other financial instruments linked to them, since the Council finds it unnecessary to
extend the notification requirement to debt securities where the price is normally less volatile or
sensitive to this kind of information. Finally, it will be possible for Member States to ensure publication
on an aggregate basis in order to protect the privacy rights of the individuals involved. The last part of
Amendment 40 relating to implementing measures has been incorporated in paragraph 10.

Article 6(5) incorporates Amendment 85.

Article 6(6) incorporates part of Amendment 80. The first sentence of Amendment 80 has been included
in a more precise drafting. Examples of what may constitute such provisions have been included in
recital 27.

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Article 6(7) incorporates Amendment 43.

Article 6(8) incorporates Amendment 82, in a wording which aims to ensure that the provision will not
impede the communication of data to public authorities, e.g. Ministries of Finance, to carry out their
functions before such data are made available to the public.

Article 6(9) incorporates Amendment 45.

Article 6(10) incorporates Amendment 46 and aspects of Amendment 40, using different wording
adapted to the structure of Article 6 (see above).

(e) Articles 7 to 10 — Scope

Article 7 incorporates Amendment 47.

Article 8 incorporates the spirit of Amendment 48, and sets out the same substantive provisions but in a
simplified form which merges the two paragraphs of Article 8 contained in the Commission proposal.

Article 9 and 10 incorporate Amendments 49 and 50 respectively.

(f) Articles 11 and 12 — The competent authority

Article 11 incorporates part of Amendment 51. The first subparagraph of Amendment 51 is included in
the Common Position. The second subparagraph on consultative arrangements reflects the concern of
the European Parliament that market participants should be consulted. The Council finds, however, that
introducing an obligation for Member States to set up a consultative committee at national level would
run counter to the principle of subsidiarity laid down in the Treaty and a more flexible wording has
been introduced, stressing the aim of this provision while leaving its implementation to Member States.
The wording also makes it clear that the consultation in question relates to changes in national
legislation, since another forum for the consultation of market participants at European level will be
set up, attached to the Committee of European Securities Regulators (CESR).

The third subparagraph of Amendment 51, concerning the financing of the supervisory authority, is
not included in the Common Position because the Council finds such a provision out of place in a
legislative instrument of this kind. Instead, the Council has decided to enter a statement in the Council
minutes to the effect that achievement of an effective system of securities markets supervision requires
that adequate resources are allocated to competent authorities to allow them to discharge properly their
legal duties.

Article 12 incorporates Amendments 52, 53, 54, 55, 56 and 57. The Council finds that the introductory
phrase in Article 12(2) makes it sufficiently clear that the powers listed in this provision shall be
exercised in conformity with national law and that no further stipulation in the specific indents is
necessary. The Council also finds it inappropriate to restrict the scope of point (d) to professional
dealers in financial instruments and Amendment 58 is therefore not included. The only change made to
point (d) as contained in the Commission proposal is to make it clear in the Common Position that this
provision concerns existing records only.

(g) Articles 13 to 21 — Other provisions

Article 13 incorporates the substance of Amendment 59 but with different wording. The Council shares
the concerns of the European Parliament that it should be possible to disclose information to persons
to whom the competent authority has delegated powers and the Common Position makes it clear that
these persons must be bound by an obligation of professional secrecy in the same way as persons
working in the competent authority.

Article 14 incorporates Amendments 60, 61 and 62, with the sole exception that the Council finds that
the word ‘informative’ better expresses the nature of the list referred to in paragraph 2.

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Article 15 is unchanged from the Commission proposal.

Article 16(1) is unchanged from the Commission proposal. In the light of Article 11, the Council finds
it inappropriate to extend the obligation to assist to other authorities and delegates and therefore
Amendment 63 is not included in the Common Position. The same is true for Amendment 65, which
amends Article 16(2) and is linked to Amendment 63.

in the light of Amendment 83 of

the Common Position amends Article 16(2) of

the
The third subparagraph of Article 16(2) of
Commission proposal
the European Parliament. The Council
agrees with Parliament that it is useful to stipulate that the refusal of or non-compliance with a
request for information should be brought to the attention of the Committee of European Securities
Regulators (CESR). However, the Council would emphasise that, while the CESR should be a forum for
debate, it is not the aim of this Directive to entrust this Committee with formal judicial or arbitration
powers and the text of the provision has been drafted accordingly. The Common Position thus partially
incorporates Amendment 83.

Article 16(3) incorporates Amendment 66.

Article 16(4) does not incorporate Amendment 67 nor the first part of Amendment 84 for the same
reasons as led the Council to reject Amendment 63. The part of this provision which concerns the
CESR is drafted in the same way as Article 16(2) and the Common Position thus partially incorporates
Amendment 84.

Article 17 relating to the committee procedure includes Amendments 69 and 70.

Article 18 sets implementation at 18 months after entry into force, which is the minimum period
required in some Member States to implement the new regime laid down by the Directive.

Article 19 incorporates Amendment 71.

Article 20 incorporates Amendment 72.

IV. CONCLUSIONS

The Council considers that all the changes to the Commission proposal are fully in line with the
objectives of the Directive. The main changes to the text of the Commission have been made in
accordance with the amendments proposed by the European Parliament, the overwhelming majority
of which are included in the Common Position.