COMMISSION STAFF WORKING PAPER IMPACT ASSESSMENT
Date: 2011-10-20
Institutions: European Commission
Subjects: discriminatory price, economic offence, financial institution, insider trading, penalty, restriction on competition, selective dissemination of information, stock-exchange transaction

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} 

 
 
 
 
  
 
 
 
 
 
 
 
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 

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TABLE OF CONTENTS 

1. 

2. 

2.1. 

2.2. 

2.3. 

2.4. 

3. 

Introduction .................................................................................................................. 5 

Procedure...................................................................................................................... 6 

CESR and ESME reports ............................................................................................. 7 

Public consultation ....................................................................................................... 7 

Steering Group ............................................................................................................. 7 

Impact Assessment Board ............................................................................................ 8 

Problem Definition, Baseline scenario 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 markets, platforms and OTC instruments ..... 18 

3.2.2.  Problem 2: Gaps in regulation of commodity and commodity derivatives markets.. 20 

3.2.3.  Problem 3: Regulators cannot effectively enforce ..................................................... 23 

3.2.4.  Problem 4: Lack of clarity and legal certainty ........................................................... 28 

3.3. 

3.4. 

3.5. 

4. 

4.1. 

4.2. 

4.3. 

5. 

6. 

Problem 5: Disproportionate administrative burdens on issuers, especially SMEs... 29 

The Baseline Scenario................................................................................................ 31 

Subsidiarity and proportionality................................................................................. 33 

Objectives................................................................................................................... 33 

General, specific and operational objectives.............................................................. 33 

Consistency of the objectives with other EU policies................................................ 35 

Consistency of the objectives with fundamental rights.............................................. 36 

Policy options............................................................................................................. 36 

Analysis of impacts and choice of preferred 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 

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6.1.1.1.  Policy options to prevent market abuse on organised markets, platforms & OTC 

transactions................................................................................................................. 41 

6.1.1.2.  Policy options to prevent market abuse on commodities and related derivatives 

markets ....................................................................................................................... 44 

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................................................................................................................... 47 

6.1.2.2.  Policy options to ensure consistent, effective and dissuasive sanctions .................... 51 

6.1.3.  Policy options to reduce or eliminate options and discretions................................... 57 

6.1.4.  Policy options to clarify certain key concepts............................................................ 58 

6.1.5.  Policy options for reducing administrative burdens, especially 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 Member States with guidelines by ESMA ..... 68 

6.2.2.2.  A Directive amending the Market Abuse Directive................................................... 68 

6.2.2.3.  Transforming the Market Abuse Directive into a Regulation.................................... 69 

6.3. 

6.4. 

6.5. 

6.6. 

6.7. 

6.8. 

6.9. 

7. 

Impact on retail investors and SMEs ......................................................................... 70 

Impact on third countries ........................................................................................... 72 

Social impact.............................................................................................................. 73 

Impact on human rights.............................................................................................. 73 

Environmental impact ................................................................................................ 74 

Estimated cumulative impact in terms of benefits and costs ..................................... 74 

Estimate of impact in terms of administrative burden ............................................... 75 

Monitoring and evaluation ......................................................................................... 77 

Annex 1 - related initiatives ..................................................................................................... 78 

Annex 2 – summary of contributions 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 concerned by market abuse ............................................................. 106 

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Annex 7 – Problem definition – background 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 .................................................................................................. 199 

Annex 13: Effects of the change in the Market Abuse Directive – Impact on the administrative 
burden in the EU, EIM, December 2012.................................................................. 203 

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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  increase  investor  confidence  and  market  integrity  by 
prohibiting  those  who  possess  inside  information  from  trading  in  related  financial 
instruments,  and  by  prohibiting  the  manipulation  of  markets  through  practices  such  as 
spreading  false  information  or  rumours  and  conducting  trades  which  secure  prices  at 
abnormal levels.  

The importance of market integrity has been highlighted by the current global economic and 
financial  crisis.  In  this  context,  the  Group  of  Twenty  (G20)  agreed  to  strengthen  financial 
supervision and regulation and to build a framework 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 protection, 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 "Ensuring efficient, safe 
and  sound  derivatives  markets:  Future  policy  actions"  the  Commission  undertook  to  extend 
relevant  provisions  of  the  MAD  in  order  to  cover  derivatives  markets  in  a  comprehensive 
fashion3.  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  application  of  the  Market  Abuse  Directive  and 
has  put  forward  suggestions  for  its  review  aiming  at  clarifying  some  of  its  provisions  and 
increasing  its  effectiveness6.  Furthermore,  the  Commission  Communication  on  a  Small 
Business Act for Europe calls on the EU and Member States to design rules according to the 
"think  small  first  principle"  by  reducing  administrative  burdens,  adapting  legislation  to  the 

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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. 
COM (2009)114 of 4th March 2009.  
COM(2009) 563 final, 20.10.2009 
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.  
"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;  
See notably the consultation document on the review of the MAD, published on 28 June 2010. 

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needs  of  SMEs  and  facilitating  the  access  to  finance  of  SMEs7.  A  review  of  existing 
sanctioning  powers  and  their  practical  application  aimed  at  promoting  convergence  of 
sanctions  across  the  range  of  supervisory  activities  has  been  carried  out  in  the  Commission 
Communication on sanctions in the 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  accompanying  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 individual and institutional investors) and consumers. 
The evaluation of the MAD takes into consideration 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 burdens associated with the Directive and possible 
options to revise it12.  

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COM(2008)394  final,  Commission  Communication  "Think  Small  First”  A  “Small  Business  Act”  for 
Europe, 25.6.2008. 
Commission  Communication  on  reinforcing  sanctions  regimes  in  the  financial  services  sector, 
COM(2010) 71 final, 8.12.2010 
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 Regulators 2009/77/CE. OJ L25, 23.10.2009, p. 18). 
The role of CESR is to improve co-ordination among securities regulators, 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.  
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. 
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). 
EIM, Effects of the changes to the Market Abuse Directive – Impact on administrative burden of firms 
in the EU, Zoetermeer, December 2010. See annex. 

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2.1. 

CESR and ESME reports  

CESR  has  published  reports  evaluating  the  nature  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 weaknesses 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 integrity issues in the electricity and gas markets.  

2.2. 

Public consultation  

On 12 November 2008 the European Commission held a public conference 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 Commission services received 85 
contributions.  The  non-confidential  contributions  can  be  consulted  in  the  Commission 
website18.  

On  28  June  2010  the  Commission  launched  a  public  consultation  on  the  revision  of  the 
Directive  which  closed  on  23  July  201019.  The  Commission  services  received  96 
contributions. The non-confidential contributions can be consulted 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 was 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 General Justice, the Directorate General Information Society and 
Media,  the  Directorate  General  Climate,  the  Directorate  General  Energy,  the  Directorate 
General  Agriculture,  the  Legal  Service  and  the  Secretariat  General.  This  Group  met  three 
times, in June 2009, in October 2010 and December 2010. The contributions of the members 

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Ref. CESR/07-380, June 2007, available at www.cesr-eu.org. 
Ref CESR/09-1120. 
Issued in June 2007 and entitled "market abuse EU legal framework and its implementation by Member 
States: a first evaluation";  
"CESR and ERGEG advice to the European Commission in the context of the Third Energy Package, 
Response to Question F20 - Market Abuse". 
See http://ec.europa.eu/internal_market/securities/abuse/12112008_conference_en.htm. 
See http://ec.europa.eu/internal_market/consultations/2009/market_abuse_en.htm 
See http://ec.europa.eu/internal_market/consultations/docs/2010/mad/consultation_paper.pdf 
See http://ec.europa.eu/internal_market/consultations/2010/mad_en.htm 
See annex 3 for a summary of the discussions. 

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of the Steering Group have been taken into account in the content and shape of this impact 
assessment22.  

2.4. 

Impact Assessment Board  

DG  MARKT  services  met  the  Impact  Assessment  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  has  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  under  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  policy  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  approximation  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  reinforcing  sanctioning  regimes  in  the  financial  services 
sector; and 

–  A clearer presentation in the main text of the views of stakeholders, including institutional 

and individual investors, on the policy options. 

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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. 

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3. 

PROBLEM DEFINITION, BASELINE SCENARIO AND SUBSIDIARITY 

3.1. 

Background and context 

3.1.1.  What is market abuse? The current legislative framework 

The  Market  Abuse  Directive  aims  to  increase  investor  confidence  and  market  integrity  by 
prohibiting those who possess inside information from trading in related financial instruments 
("insider trading"), and by prohibiting the manipulation of markets through practices such as 
spreading  false  information  or  rumours  and  conducting  trades  which  secure  prices  at 
abnormal  levels  ("market  manipulation").  The  glossary  in  annex  5  provides  explanations  of 
key  terms,  including  insider  dealing  and  market  manipulation,  used  in  the  Market  Abuse 
Directive.  

Scope of the current Market 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. 

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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 financial instrument depends solely on whether 
or not that instrument has been admitted to trading on a regulated 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  MAD  (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).  

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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. 

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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 trading (points H, I and J). 

The only exception to this rule is that the insider trading prohibition also applies to financial 
instruments  not  admitted  to  trading  on  a  regulated  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 deliberately 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 mechanism of financial instruments; or 

•  have disseminated false or misleading information.  

Under these broad categories fall a number of detailed abusive practices, such as "spoofing", 
the  spreading  of  rumours  and  the  manipulation  of  commodity  supply  chains;  a  glossary 
containing examples of some of the common 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  disclosure  of  managers'  share  transactions.  It  also 
obliges issuers of financial instruments traded on a regulated market to make public as soon as 
possible inside information that they possess, 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 "effective, proportionate and dissuasive" sanctions. 

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The  MAD  is  accompanied  by  implementing  measures  which  consist  of  three  Commission 
Directives  and  a  Commission  Regulation.  The  first,  Commission  Directive  2003/124/EC 
specifies  the  definitions  of  inside  information  and  market  manipulation  and  the  conditions 
under  which  inside  information  must  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  disclosure  of  conflicts  of  interest26.  The  third,  Commission 
Regulation  2273/2003  specifies  the  Directive  in  respect  of  exemptions  for  buy-back 
programmes  and  the  stabilisation  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 reports28. 

3.1.2.  Nature and size of the market concerned 

A detailed breakdown of the markets is contained in Annex 4. Below is presented a high level 
summary of key market segments. 

Equity markets 

Since  the  MAD  was  adopted  in  2003,  financial  markets  have  continued  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 institutions (over the counter - OTC) and on multilateral trading 
facilities  (MTFs);  to  a  lesser  extent  equities  are  also  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  equity  MTFs  have  undergone  large  growth,  and  now  occupy  a  significant 
proportion of the European equity market turnover, SIs have 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 billion 31. Of this, 
approximately  52%  was  conducted  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 

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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 definition and public disclosure of inside information and 
the definition of market manipulation. 
Commission  Directive  2003/125/EC  of  22  December  2003  implementing  Directive  2003/6/EC  of  the 
European Parliament and of the Council as regards the fair presentation of investment recommendations 
and the disclosure of conflicts of interest  
Commission  Regulation  (EC)2273/2003  of  22  December  2003  implementing  Directive  2003/6/EC  of 
the  European  Parliament  and  of  the  Council  as  regards  exemptions  for  buy-back  programmes  and 
stabilisation of financial instruments. 
Commission  Directive  2004/72/EC  of  29  April  2004  implementing  Directive  2003/6/EC  of  the 
European Parliament and of the Council as regards accepted market practices, the definition of inside 
information  in  relation  to  derivatives  on  commodities,  the  drawing  up  of  lists  of  insiders,  the 
notification of managers’ transactions and the notification of suspicious transactions. 
For a glossary explaining key terms used in this report see annex 5. 
CESR MiFID database, http://mifiddatabase.cesr.eu/  
Thomson Reuters Monthly Market Share Report, March 2011.  
It is noted that OTC refers to a broad range of trading, ranging from pure bilateral trading (considered 
more  traditional  OTC),  to  more  organised  arrangements  (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 total equity trading, accounting for about 2% of total volume each. 

EN 

12 

   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 Equity Trading Volume by Venue Type- March 
2011

OTC; 34%

MTF; 14%

Exchange

Exchange; 
52%

MTF

OTC

Debt Markets 

Chart 134 

In  terms  of  debt  outstanding,  non-government  institutions  raised  a  total  of  $8,604.8  billion  on  the  domestic 
(European) debt Market and $14,761.3 billion on the international debt market as of December 200935.  

Unlike equity markets, non government debt markets have longer term objectives and 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 (average) relates to non-government bonds compared to 73% 
for government bonds

36

. 

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-government 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 listings but are still traded on MTFs; at present the MAD 
does  not  apply  to  these  instruments.  In  2009  it  is  estimated  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 over a sustained period in the international derivatives market, checked by a 
marked downturn in 2008. Whilst traditional exchange trading has seen some growth, the most significant growth 
has been in the OTC arena It is noted that exchange traded 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 indication of their respective growth. 

33 

34 

35 

36 
37 
38 

but 

All  European  Equities  Market  Activity  by  Trade  Type  (January  2010  to  January  2011),  Thomson 
Reuters, 2011 
All  European  Equities  Turnover  -  Thomson  Reuters  Monthly  Market  Share  Report,  February  2011. 
MTFs  taken  from  ESMA  MiFID  database,  February  2011.  Note:  Includes  limited  proportion  of 
Exchange. 
venues 
European 
http://thomsonreuters.com/products_services/financial/financial_products/a-z/market_share_reports/  
Source: Unpublished PWC report commissioned by DG MARKT, Data gathering and analysis in the 
context of the MiFID review.  
Celent, October 2009 “Electronic Trading of Bonds in Europe – Weathering the storm” 
Source: PWC report. PWC estimates based on FESE data. 
Source: PWC report. PWC estimates based on data from UK FSA. 

MiFID 

Swiss 

SIX 

non 

e.g. 

EN 

13 

   EN 

 
 
                                                 
International derivatives markets $bn, notional amounts outstanding

MiFID Implementation -

n
b
$

800,000

700,000

600,000

500,000

400,000

300,000

200,000

100,000

0

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

Exchange Traded

OTC

Chart 239 . 

The  following  table  shows  a  complete  breakdown  of  global  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 
Foreign exchange contracts 
Equity-linked contracts 
Commodity contracts 
Credit default swaps 
Unallocated 

452 
53 
6 
3 
30 
38 

77.5% 
9.1% 
1.1% 
0.5% 
5.2% 
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 undetected due to the sophistication of the abuses 
or the limited resources available to investigate cases. The table below shows the number of 
financial  sanctions  imposed  annually  in  the  last  two  or  three  years  for  market  abuse  in  the 
securities sector for the Member States for which the Commission has information. It should 

39 

40 

BIS, International derivatives markets $bn, notional amounts outstanding. Statistics on exchange traded 
derivatives http://www.bis.org/statistics/extderiv.htm and Semiannual OTC derivatives statistics at end-
June 2010, http://www.bis.org/statistics/derstats.htm  
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 

14 

   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 

Member State 

Criminal sanctions imposed by the judicial authorities – number per year 

2007 

2008 

DE42 

FR43 

UK44 

IT45 

ES46 

NL47 

BE48 

LU49 

AU50 

CY 

PL51 

2006 

20 

31 

6 

Not available 

Not available 

1 

1 

0 

7 

19 

1 

11 

14 

2 

2 

0 

Not available 

Not available 

Not available 

Not available 

4 

11 

16 

16 

6 

5 

11 

4 

1 

0 

21 

6 

8 

The  best  current  approximation  for  possible  cases  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  important  announcement  (e.g.  a  takeover).  The  UK 
Financial  Services  Authority  publishes  annually  its  own  research  entitled  the  "Market 
Cleanliness Survey" which analyses the scale of share price movements in the two days ahead 

41 
42 

43 

44 

45 
46 

47 
48 

49 
50 

51 

Sources: Annual Reports 2006, 2007 and 2008, http://www.cbfa.be/fr/sanc/sanc.asp (29 July 2010). 
criminal  financial  sanctions  imposed by  the  judicial  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 
Source: Annual report 2008, p. 197; Annual report 2007, p. 197; Annual Report 2006, p. 227; additional 
information by FR authorities 
Does not include criminal fines imposed, source: Annual report 2008/2009, p. 33; Annual Report 07/08 
P. 23Press releases 
Source: Annual report 2008, p. 241 
Number of sanctions imposed "mainly concerning market abuse, source: Annual Report 2008, p 210-
211 
Financial sanctions, source: Annual Report 2007, p. 38; Annual Report 2008, p. 40. 
Does 
fines 
http://www.cbfa.be/fr/sanc/sanc.asp (29 July 2010). 
Source: Annual Report 2008, p. 145; Annual Report 2007, p. 133; Annual Report 20006, p. 137. 
Does not include criminal fines imposed, Source: Annual Report 2008, p. 118); additional information 
by AU authorities 
only criminal sanctions imposed by the courts 

authorities, 

imposed 

criminal 

judicial 

include 

source: 

not 

the 

by 

EN 

15 

   EN 

 
                                                 
of  regulatory  announcements  such  as  takovers  (it  is  the  only  Member  State  to  do  so).  The 
latest  data  available,  for  the  year  2010,  estimates  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  dealing)  and  does  not  relate  to  other  forms 
such as manipulation through distortion of price-setting mechanisms, or data relating to false 
or misleading information.  

The UK FSA has started pursuing criminal prosecutions 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 measurable progress in the indicator since 2009 – a reduction from 
30.6% (in 2009) to 21.2% in 2010 in abnormal 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  this  is  the  lowest  level  of  APPMs  since  2003.  In  its  2009-10 
annual report the FSA argued that "our credible deterrence agenda has become increasingly 
visible in the last twelve months and as a result we would expect 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 taken place against the backdrop of increasing focus on market abuse, 
due  to  the  nature  of  the  statistic,  the  reason  behind  this  decline  cannot  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 trading across 10 international markets attempts to quantify this 
in  terms  of  profit  as  a  percentage  of  total  market  turnover.  These  estimates,  provided  by 
Capital Markets CRC, estimate that profit from insider trading accounts for between 0.01 and 
0.05%  of  total  market  turnover56.  However,  again  it  should  be  emphasised  that  this  data  is 
likely to underestimate the true extent of market abuse as it only relates to insider dealing, not 
market manipulation, and only relates to equity markets, not taking into account markets for 
other financial instruments. 

As  shown  in  annex  12,  the  weighted  average  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 estimates 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 market manipulation would 
be  of  the  same  order  of  magnitude  as  insider  dealing,  namely  0,0353%  of  market  turnover. 
Based on this assumption, the cost of market abuse, including both insider 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  manipulation  and  insider  dealing  is  estimated  at  EUR  13.3  billion  in 

52 
53 
54 
55 
56 
57 

See FSA Annual report 2010/11, p. 62.  
Ibid. 
See FSA Annual Report 2009/10, Financial Services Authority, pp. 35-36. 
See FSA Annual report 2010/11, p. 62.  
Capital Markets CRC Limited, Enumerating the cost of insider trading, unpublished, 2010, p. 8. 
Euronext, Deutche Börse, LSE Group 

EN 

16 

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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  are  the  following:  investors  (institutional  and 
individual),  financial  intermediaries,  trading  venues,  issuers,  small  and  medium  sized 
enterprises  (SMEs)  and  regulators  and  all  natural  and  legal  persons  that  could  be  subject  to 
market  abuse  investigations.  Further  consideration  of  how  these  stakeholders  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 categorised in five groups: (i) 
gaps  in  regulation  of  new  markets,  platforms  and  over  the  counter  trading  in  financial 
instruments, (ii) gaps in regulation of commodities and commodity derivatives, (iii) regulators 
cannot effectively enforce the MAD, (iv) lack of legal certainty undermines the effectiveness 
of the MAD, and (v) administrative burdens, especially for SMEs.  

The  figure  below  provides  an  overview  of  the  various  problems,  their  drivers  and  their 
consequences. 

EN 

17 

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Regulatory and 
market 
developments 

Regulators 
lack certain 
information or 
powers 

Sanctions 
lacking or not 
dissuasive 

Options and 
discretions in 
MAD  

Lack of clarity 
on certain key 
concepts 

Gaps in regulation of 
new markets, 
platforms and OTC 
instruments  

Gaps in regulation of 
commodities and 
commodity 
derivatives  

Regulators cannot 
effectively enforce 

Lack of legal 
certainty undermines 
effectiveness of 
MAD 

Administrative 
burdens, especially 
for SMEs 

Negative impact on 
market integrity 

Negative impact on 
investors 

No single rulebook - 
unlevel playing field  

Compliance costs 
and disincentive for 
SMEs to raise 
capital through 
securities markets 

Driver  Problem 

Consequences 

The following sections provide an executive summary 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 markets, platforms and OTC instruments  

General scope of MAD 

Section 3.1.1 has explained the scope of the MAD prohibitions on insider 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  regulated  markets  were  used  as  a  proxy  for 
instruments with the most liquid and mature markets. Instruments admitted to those markets 
were considered to be sufficiently standardised, the subject of enough public information and 
to have a broad range of investors (including retail investors), to warrant the MAD protections 
being  applied.  However,  this  focus  on  instruments  traded  on  regulated  markets  has  been 
overtaken  to  some  extent  by  market  developments.  Increased  competition  and  use  of 
technology  has  led  to  greater  use  of  MTFs  and  to  a  lesser  extent  broker  electronic  systems 

EN 

18 

   EN 

 
 
 
(such as crossing networks and swap execution facilities) to trade 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 adoption 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 
market58.  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 partially 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  crossing  networks,  swap  execution  facilities  and 
other inter-dealer broker systems bringing together third-party interests and orders by way of 
voice  and/or  hybrid  voice/electronic  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 illiquid and/or customised. In addition, the current review of the 
Markets  in  Financial  Instruments  Directive  (MiFID)  is  considering  the  option  of  requiring 
more standardised and liquid OTC instruments to be traded on organised venues64, which is 
expected  to  result  in  more  trading  of  instruments  such  as  CDS  on  organised  venues.  As  a 
result  of  the  development  of  these  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 spread across a number of different 
markets this may make it more difficult for a single market operator to detect possible abuse. 

58 
59 

60 
61 
62 
63 
64 

Source: PWC report, p. 315 
ES,  HU,  NL.  Source:  CESR  Review  Panel  report,  MAD:  Options,  Discretions  and  Gold  Plating, 
November 2009, Ref CESR/09-1120. 
AT, DK, LT, LU, PL; PT, SE, SK. Source: CESR/09-1120 
EL, MT. Source: CESR/09-1120. 
.BE, DE, FI, FR, IT, UK. Source: CESR/09-1120. 
BG, CY, CZ, EE, IE, LV, RO, SI. Source: CESR/09-1120. 
Public  consultation  on  the  review  of  the  Markets  in  Financial  Instruments  Directive  (MiFID),  8 
December 2010, p.12.  

EN 

19 

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This may inhibit effective enforcement. Also, they argue that surveillance requirements and 
standards  may  differ  according  to  the  nature  of  the  venue  which  creates  an  unlevel  playing 
field.  

Use of related instruments to manipulate a market 

In  their  evaluation  of  the  MAD,  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,  and  have  called  for  this  to  be  more  clearly  addressed  in  the 
MAD65.  For  example  the  use  of  an  OTC  derivative  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 use of related instruments although in practice 
a number of States already prohibit such conduct. This has negative consequences for market 
integrity and investor protection. 

Automated trading 

Finally, the increased trend towards algorithmic and high frequency trading has raised issues 
about  how  regulators  monitor  such  trading  and  whether  MAD  adequately  captures  specific 
strategies  that  may  be  abusive  practices.  The  MAD  definition  of  "market  manipulation"  is 
already very broad and expressly states that it should be adapted to cover new practices but 
the application of this wide definition to automated trading may not be sufficiently clear and 
precise to provide certainty to market participants. 

3.2.2.  Problem 2: Gaps in regulation of commodity and commodity derivatives markets 

Market  abuse  may  take  place  across  markets.  Manipulative  strategies  can  extend  across 
different types of markets, and a person can benefit from inside information in one market by 
trading on another. This raises special concerns for commodity and related derivative markets, 
where market integrity and transparency rules apply to the derivatives markets but not to the 
underlying  markets.  Because  commodity  and  commodity  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  includes  that  share  goes  up.  The  same  holds  for 
commodities: when the price of oil goes up, oil indices 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  markets.  This  is  because  each 
underlying  commodity  market  has  a  different  market  structure  and  set  of  price  drivers.  The 
degree  to  which  commodities  are  interchangeable  and  portable  may  also  vary  greatly,  and 
their production patterns are global. In contrast, financial instruments 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 Abuse Directive), p.3. 

EN 

20 

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a  specific  underlying  instrument  in  a  particular  jurisdiction.  Strong  business  secrecy  and 
geopolitical  issues  may  also  affect  and  abruptly  alter  information  flows  and  there  is  less 
systematic  disclosure  of  market  relevant  information  than  in  the  case  of  financial 
instruments66.  

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  and  prices  through  the  actions  of 
market participants, who carry out trading, hedging 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  agricultural  commodity  futures  on  the  Chicago 
Mercantile Exchange (CME), where 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  extend  across  both  the  commodity  and  the  commodity  derivatives 
market, detection and prosecution would require cooperation between authorities overseeing 
these markets. 

Currently,  there  is  no  obligation  in  the  MAD  for  financial  supervisors  to  take  into  account 
developments  on  physical  commodity  markets  when  monitoring  financial  markets  for 
possible market abuse, or to cooperate and exchange 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  have  signalled  the  need  to  take  a  greater  interest  in  the 
physical commodity markets and to cooperate more closely and share information69. This lack 
of cooperation between physical and financial market regulators could undermine the integrity 
of both physical and financial markets70. 

Market manipulation can occur across physical 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 how traders are required to behave. Such rules may be set by a market 

66 

67 

68 

69 

70 

issues  arising  from 

to  each  commodity  market,  as  well  as  further 

Issues  specific 
their 
interconnectedness  with  financial  markets,  are  addressed  in  the  Commission  Communication  on 
commodity and related derivative markets. 
These  commodity  traders  act  as  intermediaries,  selling  commodities  on  a  forward  basis,  and  hedging 
themselves in both the commodity and derivatives markets. They will therefore also be the counterparty 
to many derivatives trades. See http://www.gtsa.ch/geneva-global-trading-hub/key-figures 
The  December  2010  average  daily  volumes  for  maize  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 data supplied by NYSE-Euronext. 
Task  Force  on  Commodity  Futures  Markets,  Final  Report,  Technical  Committee  of  the  International 
Organization of Securities Commissions, March 2009 
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 

21 

   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  level  of  regulation  that  applies  to  the  underlying  market  may  be 
different for each commodity. 

First,  there  are  no  general  rules  that  specify  what  trading  behaviour  is  permissible  in 
commodities markets. As a result, market manipulation in commodities markets is currently 
not prohibited. This is a problem for derivatives markets because 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  futures,  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 trading in the derivatives market. For instance, a 
trader  can  drive  up  the  spot  price  of  a  commodity  by  hoarding  it.  For  instance,  if  a  trader 
stockpiles grain, the price of grain goes up. This also affects derivatives prices, so that a trader 
could  benefit  from  stockpiling  in  the  physical  market  through  derivatives  in  the  financial 
market.  This  hoarding  behaviour  may  be  perfectly  legitimate  in  the  underlying  market, 
depending on the rules that govern that market. 

The behaviour in the underlying and the derivatives market can also be more integrally linked. 
For  instance,  a  manipulative  strategy  may  involve  taking  a  large  derivatives  position; 
stockpiling the underlying commodity, and then requiring the counterparties 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, stockpiling 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  cases  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. Distorted commodity prices will affect end users 
in  the  real  economy.  This  type  of  behaviour  is  currently  not  prohibited.  Derivatives  trading 
which distorts the price of financial instruments is prohibited, but derivatives trading which 
distorts  the  prices  of  physical  markets  is  not  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 disclosed is only determined by the rules and practices 
that  govern  individual  commodity  markets.  These  rules  and  practices  may  not  be  precise 
enough or not even legally binding, and may vary from one market to the next. This has led to 

71 

72 

73 

Task  Force  on  Commodity  Futures  Markets,  Final  Report,  Technical  Committee  of  the  International 
Organization of Securities Commissions, March 2009, page 15 
Proposal  for  a  regulation  on  Energy  Market  Integrity  and  Transparency,  Impact  Assessment, 
SEC(20101510), 08/12/2010 
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 persons acting in collaboration, the price of one or several 
financial instruments at an abnormal or artificial level". 

EN 

22 

   EN 

 
                                                 
a  lack  of  transparency  of  fundamental  commodity  market  information  in  certain  key 
commodity markets. In addition to the question of what needs to be disclosed, there is also the 
issue  of  who  needs  to  disclose  it.  It  will  typically  be  market  participants  in  the  product 
markets  who  possess  such  information.  Because  they  are  not  generally  required  to  disclose 
price  sensitive  information  in  the  commodities  markets,  such  information  may  not  be 
published, or only published in a fragmented way.74 

In recent years, several studies have drawn attention 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  derivatives  markets,  because  the  value  of  a 
derivative is largely determined by the underlying 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 spot 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 participants. 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 commodity 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. Transactions 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 abuse. 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 for such abuses to take place.76 

3.2.3.  Problem 3: Regulators cannot effectively enforce 

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".  To  this  end,  the  group  considers  supervisory 
authorities  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  enforcement  requires  that,  in  accordance  with 
article  14  of  Directive  2003/6/EC,  measures  are  "effective,  proportionate  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 

74 

75 

European  Commission  Consultation  Paper  on  a  Revision  of  the  MAD,  Contribution  des  autorités 
françaises 
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 Commodity and Commodity Derivatives Markets, Piero Cinquegrana, European 

Capital Markets Institute (ECMI) (2008) 

IMF, Word Economic Outlook, October 2008 
76 

CESR  and  ERGEG  advice  to  the European  Commission  in  the  context  of  the  Third Energy  Package, 
Response to Question F.20 - Market Abuse, October 2008, page 3 

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23 

   EN 

 
                                                 
High-Level  Group  considers  that  "none  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 necessary powers to detect market abuse. Competent 
authorities  lack  data  on  suspicious  transactions  in  OTC  derivatives.  However,  securities 
regulators consider that OTC derivatives have the potential to be used for insider dealing and 
market manipulation77 which remains undetected.  

Lack of access to telephone and data traffic from telephone operators in some Member States 

Article 12 of the MAD stipulates that competent 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 authorities 
or with the market; or (c) under its responsibility by delegation to such authorities or to the 
market  undertakings;  or  (d)  by  application  to  the  competent  judicial authorities. In practice, 
two types of data constitute important evidence to detect and prove the existence of market 
abuse  such  as  market  manipulation  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 traffic records relating to 
trading kept by investment firms (e.g. to provide evidence of the 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 trading with this inside information, access to 
telephone  data  records  held  by  telecom  operators  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 who 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  demonstrate  that  a  call  had  been  placed  by  the 
primary insider to their friend or relative shortly before that person then called their broker to 
instruct  them  to  make  a  suspicious  transaction.  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 operators is considered among the most important 
issues  for  the  accomplishment  of  the  investigatory  and  enforcement  tasks  of  CESR 
members.78  Access  to  the  data  held  by  telecom  operators  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. State security), defence, public 
security, and the prevention, investigation, detection and prosecution of criminal offences or 
of unauthorised use of the electronic communication system, as referred to in Article 13(1) of 

77 

78 

79 

CESR’s  response  to  the  European  Commission’s  call  for  evidence  on  the  review  of  Directive 
2003/6/EC (Market Abuse Directive), p. 6 
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. 
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 

24 

   EN 

 
                                                 
Directive  95/46/EC."  Some  Member  States80  have  reported  that  this  provision  has  made  it 
impossible  for  them  to  obtain  access  to  existing  telephone  data  records  from  telecom 
operators to provide evidence for the investigation and sanctioning of market abuse when the 
authority does not have the possibility to pursue criminal cases. As a result, specific market 
abuses  subject  to  administrative  measures  and/or  administrative  sanctions  may  remain 
undetected and unsanctioned regardless of the powers provided by article 12 of the MAD.  

It should be noted that any policy 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 the power to ask permission from a court 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 sufficiently 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.  Moreover,  regulators  lack  the  tools  to  address 
"attempts  at  market  manipulation"  which  do  not  succeed,  and  where  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  administrative  sanctioning  regimes  under  the  MAD 
shows that not all competent authorities have a full set of powers at their disposal to ensure 
they can respond to all situations with the appropriate sanction corresponding 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  manipulation.  Further, 
respectively 4 and 8 Member States do not have pecuniary administrative sanctions available 
for insider dealing and market manipulation.  

Table 1: overview of availability of administrative sanctions83 

80 

81 

82 

83 

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. 
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) 
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"  
Executive summary to the CESR report on administrative measures and sanctions as well as criminal 
sanctions available in Member States under the Market Abuse Directive (MAD), p 2, ref CESR/08-099 
available at www.cesr-eu.org 

EN 

25 

   EN 

 
                                                 
Administrative sanctions 

Insider dealing 

MS without administrative measures 

MS 
pecuniary sanctions 

without 

administrative 

4 

8 

Market 
manipulation 

4 

4 

Source: Executive summary to the report on administrative 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, 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  management  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  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.  This  is  reinforced  by  the  fact  that  the  offender  might  consider 
that his offence could remain undetected. As shown in table 2, respectively 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 Million for the same offences. These sanctions can 
be considered weak as insider dealing and market manipulation offences 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  dealing  and  Market  Manipulation  among  Member 
States. 

Member States with maximum 
administrative sanctions  

≤ 200. 000 

> 1 Million 

Member States with administrative sanctions linked to the benefit 

Insider 
dealing 

Market 
manipulation 

4 

10 

9 

9 

14 

11 

84 

85 

CESR,  review  panel  report  on  MAD  options  and  discretions,  p  19,  ref.  CESR/09-1220,  available  at 
www.cesr-eu.org 
European  Commission,  Impact  assessment  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 

26 

   EN 

 
 
                                                 
No administrative pecuniary sanctions 

8 

4 

Source: Executive summary to the report on administrative 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, and additional information received from Member States in 2010.  

Criminal  offences  are  not  harmonised  and  criminal  sanctions  are  lacking  in  some  Member 
States 

An  analysis  of  the  market  abuse  offences  which  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 market 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) 

Article  3a  (disclosure  of 
information by a primary insider)  

inside 

Article  3b  ("tipping"  by  primary 
insiders) 

Article  4 
secondary insiders) 

(insider  dealing  by 

Article  4 
information by secondary insiders) 

(disclosure  of 

inside 

Article  4  ("tipping"  by  secondary 
insiders) 

26/27 

22/27 

25/27 

23/27 

19/27 

21/27 

BG (SI has criminal fines not 
imprisonment) 

BG; CZ; EE; FI; SI 

BG;SI 

BG; IT; SI; ES 

BG; CZ; ET; FI; DE; IT; SI; ES 

BG; CZ; DE; IT; SI; ES 

Article 5 (market manipulation) 

23/27 

AT; BG; SK; SI 

Source: Executive summary to the report on administrative 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, and additional information received 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 expected to have negative effects 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  law  enforcement  authorities. 

EN 

27 

   EN 

 
 
 
 
Further,  since  criminal  sanctions  have  a  greater  deterrent  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. 

3.2.4.  Problem 4: Lack of clarity and legal certainty 

The  MAD  includes  certain  options  and  discretions  as  well  as  provisions  leaving  room  for 
interpretation in practical application. An evaluation 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  distortions  and  regulatory  arbitrage  thus  as  a 
hindrance  for  the  efficient  functioning  of  the  single  market.  As  a  consequence  the 
Commission, in its Communication on Driving European Recovery, has expressed the need to 
identify  and  remove  key  differences  in  national  legislation  stemming  from  options  and 
discretions  in  secondary  law87.  For  the  MAD  Review  the  focus  in  that  respect  is  on  the 
concept of accepted market practices (AMPs), the disclosure of inside information by issuers 
and the obligation on issuers' directors to report their dealings in financial instruments. Other 
options  and  discretions  are  addressed  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-established  customs  while 
potentially constituting market abuse in others. The MAD acknowledges the existence of such 
behaviours  and  allows  for  a  defence.  The  regulators  in  each  Member  State  can  establish  an 
AMP for the market they are responsible for. As a result the behaviours covered by that AMP 
will not constitute market abuse in that particular market. Inevitably the AMP concept leads to 
divergences in the practices allowed and the rules applicable in the different Member States, 
preventing a truly harmonised framework. 

Issuers have to disclose inside information directly 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 available 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  kept  confidential).  Market  participants  have 
expressed  the  view  that  these  conditions  lack  the  necessary  degree  of  clarity88.  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  directors  from  engaging  in  insider  trading  and  provides  useful 
information  to  the  investing  public89.  At  the  moment  the  scope  of  the  obligation  is  not 

86 

87 

88 
89 

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. 
Communication for the Spring European Council, Driving European Recovery, COM (2009) 114 final, 
4.3.2009, p. 6. 
See e.g. ESME report. 
Article 6.4 of Directive 2003/6/EC and Directive 2004/72/EC. 

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28 

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sufficiently clear. This lack of clarity refers to applying the obligation to transactions taken on 
behalf of the director by a portfolio manager and to the manager pledging or lending shares.  

In conclusion, the problems described 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 stand in the way of a level playing field and an efficient functioning of 
the single market.  

3.3. 

Problem  5:  Disproportionate  administrative  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  this  is  in  part  because  the  initial  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, growing 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  under  MiFID.  As  explained  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  MTFs,  SME  markets  in  some  Member  States93 
benefit  from  an  adapted  regime  to  keep  costs  of  listing  down  for  SME  issuers.  Some 
stakeholders  argue  that  if  all  the  MAD  obligations  are  extended  without  adaptation  to 
instruments only traded on MTFs, SMEs listed on, or considering a listing on, SME markets 
would  face  higher  costs  to  access  the  market94.  Stakeholders  have  identified  as  particularly 
problematic  in  this  regard  the  obligations  to  disclose  price  sensitive  information,  draw  up 
insider lists and disclose managers' transactions95. 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 administrative 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 

91 
92 
93 
94 
95 
96 

Survey  on  the  access  to  finance  of  small  and  medium-sized  enterprises  in  the  euro  area,  European 
Central Bank, September 2009, p. 4. 
Fabrice Demarigny, An EU-listing Small Business Act, March 2010, p. 13 
There are currently 14 specialist markets for SMEs that operate across Europe, including AIM and AlterNext. 
For example AIM in the UK, Alternext in France, Deutsche Börse Entry Standard in Germany. 
See response by European Issuers to public consultation, 27 July 2010, p. 2. 
See response by European Issuers to call for evidence, 15 June 2009, p. 1. 
All  data  taken  from  EIM,  Effects  of  the  changes  in  the  Market  Abuse  Directive  –  Impact  on 
Administrative Burden of Firms in the EU, EIM, December 2010. See annex 13. 

EN 

29 

   EN 

 
                                                 
Disclosure of inside 
information 

Requires issuers to identify inside 
it 
information 
disclose 
and 
for 
immediately,  with  option 
require 
States 
Member 
notification  of  intention  to  delay 
disclosure to regulator 

to 

identify inside information (one-
off 
comply  with 
information obligation ): €0.5m 97 

cost 

to 

to 

cost 

assess  conditions  for  delay  (one 
of 
comply  with 
information  obligation):  €1.7m 98 
to  delay 
intention 
reporting 
disclosure 
regulators 
to 
(administrative burden): €1.5m 99 

Insiders' lists 

Managers' 
transaction reports 

Requires  issuers  to  draw  up  and 
keep updated lists of persons with 
access  to  inside  information  for 
use by regulators if needed. 

Threshold for reporting managers' 
transactions  is  €5,000,  although 
in  some  Member 
not  applied 
States.  

€1.8m (administrative burden) 100 

€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 act 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 
98 
99 
100 
101 
102 

103 

EN 

EIM (2010), p. 13. 
EIM(2010), p. 37. 
EIM(2010); p. 38. 
EIM(2010), p. 38. 
EIM(2010), p. 39. 
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 MTF. 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  underpins  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  responsible  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 companies are based on the principles of MAD and the 
Transparency  Directive  but  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  
Article 6.3 of Directive 2003/6/EC and 5 of Directive 2004/72/EC. 

30 

   EN 

 
 
 
                                                 
are  considered  useful  by  competent  authorities  in  investigating  suspected  market  abuse  and 
have a deterrent effect. But SME stakeholders consider that the requirement to draw up and 
update  insider  lists  creates  significant  expense  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  have  also  been  criticised,  as  these  lead  to 
additional compliance and administrative costs for issuers listed in several countries105.  

The  MAD  also  requires  issuers  to  report  managers'  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 applied by some Member States. 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 discretions 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 nineteen Member States 
have  already  opted  to  extend  some  or  all  provisions  of  the  MAD  to  some  or  all  MTFs  at 
national  level108,  and  some  already  apply  the  Directive  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 approaches would continue to leave scope 
for higher compliance costs on market participants operating across several markets. 

In  relation  to  sanctions,  it  could  be  argued  that  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  further  harmonisation  would  provide  limited  benefit. 
However,  the  evaluation  of  the  national  sanctioning  regimes  under  the  MAD  shows  that  in 
some  parts  of  the  Union  certain  market  abuses  would  remain  unsanctioned  or  would  be 
sanctioned less severely than in others. This would limit the deterrent effect of sanctions and 
leave scope for regulatory arbitrage in the case of administrative sanctions and leave a certain 
scope for perpetrators who can often make use of the most lenient criminal sanction systems. 

104 

105 
106 
107 

108 

"An 

2010 

EU-Listing 

The  Quoted  Companies  Alliance,  response  to  the  consultation,  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 
at: 
on 
http://www.eurocapitalmarkets.org/node/446. 
See response by Herbert Smith to the call for evidence, 15 June 2009, p. 6. 
Article 6.4 of Directive 2003/6/EC and Directive 2004/72/EC . 
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 
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. 

available 

Business 

Small 

Act", 

EN 

31 

   EN 

 
                                                 
In addition, even the Member States who already apply criminal sanctions do not necessarily 
do this with regard to the same forms of market abuse. Therefore, EU-wide minimum rules on 
the  forms  of  market  abuse  that  are  considered  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  implementation  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  national  competent  authorities  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 convergent approach – therefore these differences 
are likely to persist in the absence of EU action. Further, differences 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 new 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  expected  to  receive  information  about  sanctions 
applied  by  national  authorities.  ESMA  could  also  issue  recommendations,  guidelines  and 
adopt common standards.  

It should also be noted that unless 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 already, 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  selling  and  certain  aspects  of  Credit  Default  Swaps109  includes  a  short 
selling disclosure regime which would make it easier for regulators to detect possible cases of 
market manipulation or insider dealing linked to short selling. The proposal for a regulation 
on  OTC  derivatives,  central  counterparties  and  trade  repositories110  will  also  increase 
transparency  of  significant  positions  in  OTC  derivatives  which  will  assist  regulators  to 
monitor  for  market  abuse  through  the  use  of  derivatives.  The  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 Regulation on energy market integrity 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  reporting  on  over  the  counter  (OTC)  transactions 
including  derivatives.  The  reporting  to  competent  authorities  of  OTC  transactions  in 
instruments  not  admitted  to  trading  on  a  regulated  market  is  not  currently  mandatory,  and 

109 

110 

111 

112 

Proposal  for  a  Regulation  on  Short  Selling  and  certain  aspects  of  Credit  Default  Swaps,  COM 
(2010)482 final, 15.9.2010 
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 
See public consultation on the DG ENER initiative for the integrity of energy markets, 
http://ec.europa.eu/energy/gas_electricity/consultations/2010_07_23_energy_markets_en.htm 
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 

32 

   EN 

 
                                                 
 
such  reporting  would  make  it  easier  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 subsidiarity (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  the  proposed  action,  be  better 
achieved by the EU. The preceding analysis has shown that although all the problems outlined 
above have important implications for each individual Member State, their overall impact can 
only be fully perceived in a cross-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  real  risk  of  national 
responses  to  market  abuse  being  circumvented  or  ineffective  in  the  absence  of  EU  level 
action. 

Further, a consistent approach is essential in order to avoid regulatory arbitrage and since this 
issue is already covered by the acquis of the existing Market Abuse Directive addressing the 
problems  highlighted  above  can  best  be  achieved  in  a  common  effort.  Against  this 
background EU action appears appropriate in terms of the principle of subsidiarity. 

The  principle  of  proportionality  requires  that  any  intervention  is  targeted  and  does  not  go 
beyond  what  is  necessary  to  achieve  the  objectives.  At  the  identification  of  alternative 
options, as well as throughout the analysis and comparison of options, 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  the  attractiveness  of 
securities markets for capital raising for SMEs.  

Reaching  these  general  objectives  requires  the  realisation  of  the  following  more  specific 
policy objectives: 

1. 

2. 

3. 

4. 

Ensure regulation keeps pace with market developments 

Ensure effective enforcement of market abuse rules 

Enhance the effectiveness of the market abuse regime by ensuring greater clarity and 
legal certainty 

Reduce administrative burdens where possible, especially for SMEs 

EN 

33 

   EN 

 
The  specific  objectives  listed  above  require  the  attainment  of  the  following  operational 
objectives: 

1. 

(a) 

(b) 

2. 

(a) 

(b) 

3. 

4. 

Prevent market abuse on organised markets, platforms & OTC transactions 

Prevent market abuse on commodities and related derivatives markets 

Ensure regulators have necessary information and powers to enforce effectively 

Ensure consistent, effective and dissuasive sanctions 

Reduce or eliminate options and discretions 

Clarify certain key concepts 

An  overview  of  the  various  objectives  and  their  interrelationships  is  described  in  the  figure 
below. 

EN 

34 

   EN 

 
Prevent market abuse 
on organised markets, 
platforms & OTC 
transactions 

Prevent market 
abuse on 
commodities and 
related derivatives  
markets 

Ensure regulators 
have necessary 
information and 
powers to enforce 
effectively 

Ensure consistent, 
effective and 
dissuasive sanctions 

Reduce or eliminate 
options and 
discretions  

Clarify certain key 
concepts 

Ensure regulation 
follows market 
developments 

Increase market 
integrity 

Increase investor 
protection 

Move towards a single 
rulebook and create a 
level playing field 

Increase attractiveness 
of securities markets 
for  capital raising for 
SMEs 

Ensure effective 
enforcement  

Ensure clarity and 
legal certainty  

Reduce administrative 
burdens where 
possible, especially for 
SMEs 

Operational objective  Specific objective 

General objective 

4.2. 

Consistency of the objectives 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  consistent  with  the  reform  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 integrity and transparency and on integrity of 
emission  allowance  markets  and  the  ongoing  MiFID  review.  As  emission  allowances  are 
proposed to be reclassified as financial instruments as part of the MiFID review, they will also 

113 

Communication for the spring European Council, Driving European recovery, COM(2009)114. 

EN 

35 

   EN 

 
 
 
                                                 
fall into the scope of the market abuse framework. Specific provisions will be introduced to 
ensure that the market abuse rules 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 proportionality of the legislative measures. 

The  following  fundamental  rights  of  the  Charter  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  essence  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  recognised  by  the  Union  or  the  need  to  protect  the  rights  and 
freedoms  of  others114.  In  the  case  of  market  abuse,  the  general  interest  objective  which 
justifies certain limitations of fundamental rights is the objective of ensuring 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 caused 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 Commission services have 
identified  different  policy  options.  The  table  below  assigns  "short  titles"  to  the  options  and 
sets  out  a  brief  explanation  of  the  option.  Where  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 

36 

   EN 

 
                                                 
Option 5.1.1 no action 

Take no action at EU level 

Option 5.1.2 align the definition of 
financial 
the 
clarify 
MiFID  definition 
application of MAD to CDS 

instrument  with 

and 

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)  

Option  5.1.6  extend  market  abuse 
rules  to  instruments  traded  purely 
OTC  

Option  5.1.7  provide  examples  of 
specific 
trading 
automated 
that  constitute  market 
strategies 
manipulation 

Option  5.1.8  Improve  monitoring 
for  market  abuse  of  investment 
firms  operating  trading  facilities 
such as 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 market, MTF or systematic internaliser.  

Market  abuse  rules  would  be  extended  to  instruments  that  are  traded 
purely OTC. Pure OTC transactions are bilateral transactions between two 
parties  which  take  place  off  market  through  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. 

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. 

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  obligation  only  applies  to  regulated 
markets. 

Except for 5.1.1, the above policy 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 

37 

   EN 

 
5.2.3 

Option 
information 
derivatives 

define 

inside 
commodity 

for 

market participants. 

This  option  would  bring  the  definition  of  inside  information  for 
commodity  derivatives  in  line  with  the  general  definition  for  financial 
instruments  by  clarifying 
is  non-public 
information  which  would  be  likely  to  have  a  significant  effect  on  the 
prices of such derivatives or the underlying commodities. 

information 

inside 

that 

Option  5.2.4  obligation  for  spot 
to 
market 
information 
from 
competent authorities 

requests 

respond 

traders 

to 

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  require  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. 

5.2.7 

Option 
manipulation 
derivatives 

clarify  market 
commodity 

for 

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 policy 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 
and  OTC 
orders 
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  records  from  telecom  operators  where  a 
reasonable suspicion exists of insider dealing or market manipulation . 

Option  5.3.5  ensure  access 
private 
premises 
documents 
investigations  

to 
for  market 

to 
seize 
abuse 

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 principles115. 

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,  auditing  matters,  fight  against 

EN 

38 

   EN 

 
                                                 
Except for 5.3.1, the above policy 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 

5.4.3 

Option 
administrative  measures 
sanctions 

uniform 
and 

This  option  would  introduce  uniform  types  and  level  of  administrative 
measures and administrative sanctions across the EU.  

Option  5.4.4 
criminal sanctions  

requirement 

for 

This option would introduce a requirement for Member States 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 necessary 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 concept 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 
inside 
delayed 
information 

disclosure 

of 

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, 
http://ec.europa.eu/justice/policies/privacy/docs/wpdocs/2006/wp117_en.pdf 

financial 

banking 

crime, 

and 

available 

at: 

EN 

39 

   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  inform  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 bank 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 
bold) 

Policy  options  for  reducing  administrative  burdens,  especially  on  SMEs  (SME  specific  options  in 

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  issuer,  or  in  associated  derivatives  or 
other  financial  instruments  by  managers  and  persons  closely  associated 
with them, would be abolished. 

5.7.7 

Option 
harmonise 
managers' transactions reporting 
requirements  with  an  increased 
threshold 
issuers, 
for 
including SMEs 

all 

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' transaction reporting 

This  option  would  introduce  an  alternative  and  proportionate  regime  for 
reporting managers' transactions for issuers listed on SME Markets. 

Options 5.7.2 and 5.7.3 are mutually exclusive, as are options 5.7.6, 5.7.7 and 5.7.8. 

EN 

40 

   EN 

 
6. 

ANALYSIS OF IMPACTS AND CHOICE OF PREFERRED OPTIONS AND INSTRUMENTS 

This section sets out in the form of summary tables the advantages and 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  given  level  of  resources  or  at  least  cost.  Impacts  on  relevant 
stakeholders  are  also  considered.  Impacts  on  fundamental  rights  are  also  considered  where 
appropriate with reference to the Charter of Fundamental Rights (CFR). 

The  options  are  measured  against  the  above-mentioned  pre-defined  criteria  in  the  tables 
below.  Each  scenario  is  rated  between  "---"  (very  negative),  0  (neutral)  and  "+++"  (very 
positive).  The  assessment  highlights  the  policy  options  which  are  best  placed  to  reach  the 
related objectives outlined in section 5 and therefore the preferred one. 

For  a  more  detailed  analysis  of  the  impacts,  including  an  assessment  of  the  impacts  on 
fundamental rights for each option where appropriate, please see annex 8. 

6.1. 

Analysis of impacts 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 
(baseline) 

5.1.1 

n.a. 

n.a. 

n.a. 

Option 5.1.2 

(align the definition of 
instrument 
financial 
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 

(++) 
objective  

achieves 

specific 

(0)  

(++) 
protection  

investors 

receive 

greater 

(++) 
protection and 

increases 

investor 

(+)  market  integrity  is  increased  for 
investors 

(++)  market 
ensuring 
through  CDS 
prohibited 

integrity  by 
abuse 
clearly 

market 
is 

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 
the 
underlying market  

to  manipulate 

(0) 

specific 
achieves 
(++) 
instruments 
objective 
for 
traded  OTC 
as 
(such 
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 

EN 

41 

   EN 

 
 
 
 
 
 
 
market 
increases 
(++) 
integrity  by  ensuring  market 
manipulation  through  related 
OTC 
is 
prohibited 

instruments 

(++) 
achieves 
objective for MTFs 

specific 

(++) 
protection on MTFs 

increases 

investor 

(++) 
integrity of MTFs 

increases 

market 

achieves 
(++) 
objective 
for 
trading facilities  

specific 
organised 

(++) 
protection on OTFs 

increases 

investor 

(++) 
integrity of OTFs 

increases 

market 

(0)  SME  issuers  listed 
only  on  MTFs  could 
face  increased  costs  to 
disclose 
inside 
information  and  keep 
insider 
in 
accordance  with  MAD 
these  would  be 
but 
mitigated 
SME 
by 
specific options below 

lists 

some 

MTF 
(-) 
face 
operators  could 
some increased costs of 
monitoring 
for  MAD 
compliance  by  issuers 
and investors 

costs 

(-)  issuers  could  face 
to 
increased 
disclose 
inside 
information  and  keep 
in 
insider 
accordance  with  MAD, 
but these costs could be 
mitigated 
by 
calibration of measures

lists 

Option 5.1.4 

(extend  the  MAD  to 
financial 
instruments 
traded only on a MTF) 

investors 

(++) 
instruments 
only  traded  on  a  MTF  receive  greater 
protection 

trading 

(+)  there  is  improved  market  integrity 
for instruments only traded on MTFs 

Option 5.1.5 

(++)  increased  protection  and  market 
integrity for investors on such facilities 

legal  uncertainty 

(-)  possible 
for 
operators,  investors  and  issuers  in 
applying 
to  differing 
instruments  and  facilities  –  could  be 
mitigated by calibration of measures 

the  MAD 

(extend  the  MAD  to 
instruments 
only 
traded on other trading 
facilities  (other  than 
MTFs) ) 

Option 5.1.6 

(extend  market  abuse 
rules 
instruments 
traded purely OTC ) 

to 

(-)  some  operators  of 
facilities  could 
face 
some increased costs of 
monitoring 
for  MAD 
compliance  by  issuers 
and investors 

increased 
(--) 
for 
compliance  costs 
private 
parties 
to 
transactions 
to 
determine  if  and  how 
to 
Directive  applies 
them. 

investor 
(0)  negligible  effect  on 
protection since instruments are traded 
privately 

(+) partially achieves specific 
objective,  

(--)  un  certainty  for  users  and  issuers 
about when and how the MAD applies 
to instruments 

effect 

negligible 

(0) 
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 

Option 5.1.7 

(provide  examples  of 
specific algorithmic or 
that 
HFT  strategies 
constitute 
market 
manipulation) 

(++)greater 
help 
clarity 
regulators  to  take  enforcement  action 
against  automated  trading  strategies 
that are manipulative 

will 

(0)  

(++)achieves 
specific 
without 
objective 
compromising broad scope of 
existing  definition  of  market 
manipulation 

(++)  greater  clarity  will  help  prevent 
and  provide  increased  protection  for 
other  investors  against  manipulative 

(++) 
protection and 

increases 

investor 

EN 

42 

   EN 

 
 
 
 
 
 
 
strategiess 

it 

integrity  by 
(++)  market 
making 
for 
easier 
regulators to sanction market 
abuse 
through  automated 
trading strategies 

Option 5.1.8 

(Improve  monitoring 
for  market  abuse  of 
firms 
investment 
trading 
operating 
facilities 
as 
such 
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 

(++) 
objective  

achieves 

specific 

(++) also achieves objectives 
of 
investor 
protection and  

increasing 

firms  operating 
(0) 
face 
platforms  could 
increased 
costs, 
however,  these  will  in 
most cases be mitigated 
due 
to  arrangements 
already in place 

(++) market integrity 

Over  three  quarters  of  respondents  to  the  public  consultation  who  expressed  an  opinion  on 
option 5.1.3 expressed support for 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. However, some respondents commented that some 
Member  States  had  already  modified  local  regimes  to  accommodate  specialist  MTFs;  for 
example  specialist  SME  markets.  These  respondents  felt  that  current  bespoke  regimes  for 
these  MTFs  were  appropriate,  that  harmonisation  would  need  to  encompass  these  different 
evolutions, and that this may be a difficult task.  

Most respondents to the public consultation did not address option 5.1.7 specifically in their 
responses, although there was specific support for it from some stakeholders.117 Respondents 
to  the  public  consultation,  including  investor  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  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 investment firms, they can admit to trading financial instruments not admitted to trading on 
a regulated market. Therefore including OTFs within the scope of market abuse rules (option 
5.1.5)  in  addition  to  MTFs  (option  5.1.4)  would  ensure  that  trading  facilities  with  similar 
characteristics  are  subject  to  the  same  rules  and  investors  on  both  types  of  platform  benefit 

116 

117 

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, EUMEDION (Dutch institutional investors), Investment 
Managers Association, European Fund and Asset Management Association (EFAMA). 
The  Association  of  British  Insurers,  Autorité  des  marchés  financiers  and  Ministère  de  l'économie,  de 
l'industrie et de l'emploi. 

EN 

43 

   EN 

 
 
 
 
 
                                                 
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 investors 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 instruments 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 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  trading  fall  within  the 
definition  of  market  manipulation.  Finally,  combining  option  5.1.8  with  the  above  options 
ensures that the different types of trading venues and facilities which are within the scope of 
market abuse legislation are subject to similar requirements to monitor 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  authorities  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. 

6.1.1.2.  Policy  options  to  prevent  market  abuse  on  commodities  and  related  derivatives 

markets 

- 

Impact 
on 
stakeholders 

Effectiveness

Efficiency 

Option 
(baseline) 

5.2.1 

n.a. 

n.a. 

n.a. 

Option 5.2.2 

(extend  MAD 
commodity 
markets) 

to 
spot 

insures 

market 
(+) 
transparency  and 
integrity 
rules  apply  to  all  commodity 
markets 

(-)  financial  market  rules 
may  overlap  and  conflict 
with 
sectoral 
legislation 

existing 

competent 
(+) 
gives 
authorities  a 
consolidated 
view  over  commodity  (spot 
and derivatives) markets 

(-)  commodity  markets 
are  global  and  EU  rules 
will  not  apply 
to  all 
relevant firms 

(-) financial market rules may 
not be appropriate for market 
participants 
certain 
markets  

in 

(-)  difficult 
general 
heterogeneous markets 

to  apply 
to 

rules 

increase 
(-)  will 
costs 
compliance 
market 
for 
not 
participants 
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 
information 

inside 
for 

 (+)  improves  legal  certainty 
for producers as to when they 
to  disclose  and  are 
need 
allowed to trade 

(+) 
all 
captures 
information  relevant  for 
derivatives prices 

(+) does not affect 
the 
underlying 
market itself 

EN 

44 

   EN 

 
 
commodity 
derivatives) 

clarifies 

(++) 
information 
expect to receive 

investors 

which 
can 

(++)  creates  information 
symmetry 
between 
investors 

(-)  may  make 
more 
hedging 
expensive 
for 
producers 

(+)  gives  supervisors  clear 
benchmark  to  assess  insider 
dealing 

(+)  creates  incentives  for 
inside 
disclosure 
information 

of 

(--)  does  not  ensure  that 
all inside information will 
be published- 

(-) those only active in the 
underlying  market  will 
continue  to  be  allowed  to 
inside 
on 
trade 
information 

Option 5.2.4 (clarify 
the power to request 
from 
information 
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 
for 
handling 
competent 
authorities 

(-) 
imposes 
additional costs on 
non-financial 
market 
participants 
to 
submit information 
specific 
a 
in 
allow 
format, 
their 
access 
systems,  and 
to 
report  suspicious 
transactions. 

to 

Option 5.2.5 

(promote 
international 
cooperation  among 
of 
regulators 
financial 
and 
physical markets) 

Option 5.2.6 

(require  issuers  of 
commodity 
derivatives 
publish 
sensitive 
information) 

to 
price 

Option 5.2.7 

market 
for 

(clarify 
manipulation 
commodity 
derivatives) 

(+)  gives 
supervisors  a 
consolidated  overview  of  the 
market 

(++) 
increases  market 
integrity  by  reducing  risk 
of 
cross-market 
manipulation 

(+)  no  additional 
obligations 
on 
market 
participants 

(+)  allows  supervisors 
combine 
experience 

their 

to 
market 

(-) supervisors will 
incur 
for 
costs 
transmitting 
and 
processing data 

(+)  provides  investors  with  a 
single  feed  to  all  relevant 
information 

published 
(--) 
information 
be 
can 
inaccurate or incomplete 

(+) lowers investor 
costs  of  gathering 
information 

(-)  time  lag  compared  to 
news feeds 

(--) 
issuer  costs 
may deter issuance 
of such instruments 

(+)  allows  supervisors 
sanction 
offence 
the 
manipulating 
markets through derivatives 

to 
of 
commodity 

to 
(+)  allows  supervisors 
of 
sanction 
offence 
the 
manipulating 
derivatives 
markets  through  commodity 
markets 

(++) 
the 
closes 
regulatory  gap  for  forms 
of  market  abuse 
that 
affect 
commodityand 
derivatives markets 

(++)  increases  protection 
of investors and 

financial 

(-) 
competent 
authorities 
will 
need to incur costs 
to  gain  access  to 
data 
necessary 
and 
extend 
monitoring 
capability 

(++) market integrity 

EN 

45 

   EN 

 
 
 
 
promotes 

investor 
derivatives 

in 

(+) 
confidence 
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  the  proposal  for  a  regulation  on  energy 
market  integrity  and  transparency,  while  approximately  one  third  of  respondents  had  no 
strong opinion.  

In the public consultation option 5.2.5 was not specifically raised. However, the majority of 
all respondents agreed, to differing 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  strengthened  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  differences  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 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  information  from  spot  market  participants,  is  notably 
important for markets where such requests cannot be done through a sectoral supervisor. 5.2.4 
is  thereby  complementary  to  option  5.2.5  (strengthening  international  cooperation  between 
spot and derivative market supervisors). 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 

119 

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. 
Ministère de l'économie, de l'industrie et de l'emploi 

EN 

46 

   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  active  in  the  derivatives  market.  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 markets. This package achieves this without 
extending  financial  regulation  to  underlying  commodity  markets,  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. 

6.1.2.  Policy options to ensure effective enforcement  

6.1.2.1.  Policy options to ensure regulators have necessary information and powers to enforce 

effectively 

Impact on stakeholders 

Effectiveness 

Efficiency 

Option 
(baseline) 

5.3.1 

n.a. 

n.a. 

n.a. 

Option 
5.3.2 
(introduce  reporting 
of  suspicious  orders 
and suspicious OTC 
transactions) 

(++)  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  

Impact on fundamental rights 

to 

(++)contributes 
the 
objective  of  dissuasive 
sanctions  by  improving 
detection 
of  market 
abuse  based  on  orders 
and 
suspicious  OTC 
transactions  

(+)  adaptation  of 
internal  monitoring 
systems 
are 
proportionate  and 
therefore  reporting 
is  an  efficient  tool 
to  detect  market 
abuse . 

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  transaction  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. 

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 
sanctions 
to 
to  market 
attempts 
manipulation 

facilitates 
(++) 
sanctioning 
of 
market  abuse  by 
competent 
who 
authorities, 
can  sanction  failed 
attempts  

(++) 
contribution 
general 
market integrity  

objective 

to 

overall 
the 
of 

EN 

47 

   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.  

Option 5.3.4 (ensure 
access  to  telephone 
traffic 
and 
data 
from 
records 
telecom 
operators 
for  market  abuse 
investigations)  

(++)  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 

(++)  contribution  to  the 
objective  of  dissuasive 
sanctions  by  increasing 
possibility  to  detect  and 
sanction market abuse 

(+) 
the 
facilitates 
detection  of  market 
abuse  by  enabling 
collection 
of 
evidence. 

(++)  contribution  to  the 
general 
of 
market integrity 

objective 

investors: 

(++) 
indirect 
benefit  from  increased  market 
integrity 

(++)  market  participants: 
benefit  from  increase  market 
integrity  due  to  more  easy 
detection of market abuse.  

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  market  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. 

Option  5.3.5  ensure 
to  private 
access 
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 

(+)  contribution  to  the 
objective  of  dissuasive 
sanctions  by  increasing 
possibility 
detect 
market abuse 

to 

facilitates 
(+) 
detection  of  market 
abuse  by  enabling 
collection " on-site" 
of evidence.  

investors: 

(++) 
indirect 
benefit  from  increased  market 
integrity 

(+)  contribution  to  the 
general 
of 
market integrity 

objective 

(++)  market  participants: 
benefit  from  increase  market 
integrity  due 
improved 
detection of market abuse. 

to 

EN 

48 

   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  and  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. 

Option  5.3.6  (grant 
and 
protection 
incentives 
to 
whistleblowers) 

increases  protection 
individuals 

(++) 
available 
reporting market abuse. 

to 

(++) 
the 
enhances 
information  available  to 
regulators. 

(+)  highly  efficient 
limited 
to 
due 
associated costs 

(+)  provides  regulators  with 
primary 
and 
assistance  in  market  abuse 
cases. 

information 

(+)  acts  as  a  deterrent 
against  potential  market 
abuse. 

(+) increases the  accessibility 
of regulators. 

(+)  ensures  legal  clarity 
for 
the  protection  of 
whistle blowers. 

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).  

including  of 

It is proportionate as it will ensure the protection of whistle 
blowers, 
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. 

their  personal  data,  and 

Generally,  respondents  to  the  public  consultation  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 the extension, including representatives of 
institutional  and  individual  investors120).  Regulators  and  member  states  were  strongly  in 
favour  of  an  extension,  and  while  most  other  respondents  also  supported  the  extension,  a 
number  raised  potential  issues  as  to  the  increased  costs  and  its  practical  implementation 
(although no specific details of costs were presented). 

120 

For positive investor responses see those of the Association 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 

49 

   EN 

 
                                                 
The  public  consultation  highlighted  that  there  is  broad  support  from  stakeholders  for  the 
option  of  prohibiting  attempts  at  market  manipulation.  Overall,  three  quarters  of  those 
respondents who expressed an opinion on this issue were in favour of the proposed extension 
of  the  MAD  regime,  including  investor  representatives121.  However,  respondents  were 
generally also concerned about the need to improve 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 intent would be proven on a practical level. 

On  option  5.3.4,  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  consultation  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  cases122.  Industry  respondents  mainly  responded  that  competent 
authorities should make better use of existing information they receive and apply fully their 
current powers. 

Few respondents addressed option 5.3.5 specifically 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-blowing  could  play  an  important  role  in  ensuring 
stable and well-functioning financial markets in general124.  

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 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 transactions, nor do they 
all receive information from whistle blowers. Combining these options will therefore 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 the prohibition of attempts at market manipulation (option 5.3.3) in the 
package  of  preferred  options,  regulators  will  be  able  to  sanction  such  attempts.  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 

121 

122 

123 
124 

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 (Dutch institutional investors) were unconvinced of this option. 
Joint FSA/HM Treasury Response (UK), Ministry of Finance of the Czech Republic, CNMV (Spain), 
Ministère de l'économie, de l'industrie et de l'emploi 
Joint FSA/HM Treasury response (UK), Central Chamber of Commerce of Finland, Athens Exchange 
Response by UNI-Europa Finance 

EN 

50 

   EN 

 
                                                 
sanction  market  abuse,  but  are  proportionate  as  they  are  subject  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  operators  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. Option 5.2.5 will also facilitate the enforcement task of financial 
regulators  by  promoting  good  international  cooperation  with  physical  commodity  market 
regulators, thereby making the detection of cross-border and cross-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 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  preferred  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 
(baseline) 

5.4.1 

n.a. 

n.a. 

n.a. 

Option 
Introduction 
minimum 
administrative 
measures 
sanctions  

5.4.2 
of 
rules  on 

and 

(++) 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 
sanctions 
deterrence 

rules  of 
to 

contribute 

playing 

field: 
(++)level 
similar 
abuse 
market 
sanctioned based on the same 
common standards  

(++)  minimum  rules  reduce 
regulatory arbitrage 

(+/0)  compliance  costs 
competent 
for 
authorities 
those 
for 
Member  States  which 
lower level of sanctions 
in place  

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  ensuring  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. 

EN 

51 

   EN 

 
 
5.4.3 

Option 
uniform 
administrative 
measures 
sanctions  

– 

and 

(++) 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 
sanctions 
deterrence 

rules  of 
to 

contribute 

playing 

(++)level 
field: 
abuse 
market 
similar 
sanctioned based on the same 
common standards  

(++)  uniform  rules  reduce 
regulatory arbitrage  

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  ensuring  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.  

5.4.4 

Option 
–
for 
requirement 
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 
for 
market  abuse  improving  level  playing 
field 

to  criminal  sanctions 

(+)Investors  will  benefit  from  greater 
market  integrity  due  to  the  additional 
deterrent effect of criminal sanctions 

criminal 

(++)  evidence  from  studies 
and  Member  States  shows 
sanctions 
that 
to 
contribute  strongly 
the 
objective 
increasing 
of 
deterrence.  They  have  a 
deterrent  effect  due  to  the 
stigma  attached  to  criminal 
conduct125; 
criminalisation 
and 
particular 
incarceration  are  considered 
the 
by  companies 
strongest possible deterrent126 

to  be 

in 

distinct  market 
legal 

(-) 
situations  and 
traditions 

(+) a limited number of 
Member  States  without 
criminal  sanctions  will 
need  to  introduce  new 
rules 
criminal 
sanctions  and  ensure 
enforcement 

on 

(+)  harmonisation  of 
the 
of 
definitions 
certain  offences  would 
facilitate  cross-border 
law 
enforcement 
cooperation  

criminal 
to 

(+) 
contribute 
market integrity127 and 

sanctions 
improved 

125 

126 

127 

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. 
Report for the Office of Fair Trading (UK), An assessment of discretionary penalties regimes, London 
Economics,  October  2009.  In  a  survey  by  the  OFT,  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). 
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 started pursuing criminal prosecutions for market abuse more aggressively 
in  recent  years,  and  the  data  from  the  last  market  cleanliness  survey  shows  some  progress  in  the 

EN 

52 

   EN 

 
 
 
 
 
                                                 
(+)  contribute  to  improved 
investor protection128 

(+)  improves  level  playing 
field  by  ensuring  that  in  all 
criminal 
States 
Member 
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 Member 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 Union 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 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  serious 
law 
market  abuse  offences  would 
enforcement authorities in the EU.Successfully prosecuting market abuse 
offences  under  criminal  law  often  results  in  extensive  media  coverage, 
which  helps 
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. 

to  deterpotential  defenders  and  has  an 

the  cooperation  of 

facilitate 

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 become 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. 
Utpal  Bhattacharya  and  Hazem  Daouk,  The  World  Price  of  Insider  Trading,  Journal  of  Finance, 
February  2002,  p.  25,  concludes  that  although  the  introduction  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". 

53 

   EN 

128 

EN 

 
                                                                                                                                                         
Option 
minimum 
criminal sanctions  

5.4.5 
rules 

– 
for 

(+)  regulators  gain  a  tool  to  sanction 
market abuse in those MS where this is 
not yet available 

(++)  availability  of  criminal 
sanctions  contributes  to  the 
objective  of  deterrence  of 
market abuse 

(--) 
the  majority  of 
Member State will need 
to  introduce  new  rules 
to ensure compliance 

(++)  all  market  participants  will  be 
subject to criminal sanctions based the 
same  minimum  principles  for  market 
abuse improving level playing field 

criminal 
to 

(+) 
contribute 
market integrity and  

sanctions 
improved 

(+)  Investors  will  benefit  from  greater 
market  integrity  due  to  the  additional 
deterrent effect of criminal sanctions 

improved 

(+) 
protection.  

investor 

(+)  contributes  strongly  to 
creation  of  a  level  playing 
field  as  similar  market  abuse 
can be addressed by 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 Member 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 criminal 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 reconsidered whether any further EU level 
harmonisation is required in this area. 

Option 5.4.6 –improve 
by 
enforcement 
for 
providing 
of 
publication 
and 
sanctions 
on 
cooperation 
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 

(0/-)  limited  additional 
effort  generated  by 
of 
publication 
sanctions 
and 
improved  cooperation 
among regulators . 

(++) publication of sanctions 
contribute  to  the  objective  of 
deterrence  of  market  abuse 
(name and shame) 

(+) 
improved  detection  of 
sanctions  and  publication 
investor 
contributes 
protection.  

to 

(+)  improved  level  playing 
field  by  better  detection  of 
market  abuse  and  improved 
inforcement  by  publication  of 
sanctions 
in  all  Member 
States  

EN 

54 

   EN 

 
 
 
Respondents  to  the  MAD  public  consultation,  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 administrative 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.  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 harmonisation of criminal sanctions in the responses 
to  the  public  consultation  on  the  MAD  review.  Two  respondents  felt  that  penal  measures 
should  be  left  to  member  States130,  while  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 another131.  

There  was  a  mixed  response  to  the  option  of  harmonising  criminal  sanctions  in  financial 
services legislation in general outlined in the responses to the Communication on reinforcing 
sanctioning  regimes  in  the  financial  services  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  the  other  hand,  other  public  authorities135,  industry  and 
institutional  investor  representatives136  or  others137  were  opposed  to,  or  sceptical  of, 

129 

130 
131 
132 

133 

134 

135 

136 

See responses by the Association of Private Client Investment Managers and Stockbrokers (APCIMS), 
Danish Shareholders Association, Finnish Shareholders Association, EUMEDION (Dutch institutional 
investors),  Investment  Managers  Association,  European  Fund  and  Asset  Management  Association 
(EFAMA). 
Finnish Ministry of Finance and Central Chamber of Commerce of Finland 
German Insurance Association (GDV) 
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 interference with criminal law in general to be avoided, offences to be 
clearly defined), Spanish CNMV (offences to be clearly defined). 
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).  
Financial  Services  User  Group,  Private  Client  Investment  Managers  and  Stockbrokers  (but  to  be 
properly targeted and applied carefully). 
Czech National Bank, Swedish Ministry 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.  
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 (further 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 

55 

   EN 

 
                                                 
harmonisation  of  criminal  sanctions.  At  the  same  time,  many  respondents  from  public 
authorities, industry and one investor/user group took the view that criminal sanctions for the 
most  serious  offences  were  appropriate138,  and  several  banking  and  institutional  investor 
representatives  specifically  cited  market  abuse  as  being  an  appropriate  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  together  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 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 the 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  should  be  published,  and  by  strengthening  cooperation  between 
regulators in investigating 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  regulators  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 
organised markets and platforms and in relation to commodity and related derivative markets. 
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  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 

137 

138 

139 

140 

Linklaters  (may  be  an  obstacle  to  consistent  application  of  EU  law)  IMF  (may  create  problems  in 
cooperation between authorities). 
Central Bank of Ireland, Danish FSA (for both legal 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  cooperation  issues  to  be  reflected);  Association  Française  des  marches 
financiers; FSUG (but right to claim damages to be dissociated from the result of criminal 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).  
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).  
ING  Group,  Austrian  FSA,  CFA  Institute  (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 

56 

   EN 

 
                                                                                                                                                         
additional information and powers they 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 impose on fundamental rights are necessary and 
proportionate 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 address market abuse is likely to lead 
to increased successful prosecution of market abuse offences and to contribute to ensuring the 
effective functioning of the internal market, (for a more detailed evaluation of the impacts on 
fundamental rights and compatibility with article 83 (2), see annex 8).  

In light of the above analysis, the preferred option is a combination of options 5.4.2, 5.4.4 and 
5.4.6. 

6.1.3.  Policy options to reduce or eliminate options and discretions 

Impact on stakeholders 

Effectiveness 

Efficiency 

Option 5.5.1  

n.a. 

n.a. 

n.a. 

(baseline) 

Option 5.5.2 

(harmonise 
market practices) 

accepted 

investment 

firms  and 

applying  EU-wide 

investors 
(0) 
the  certainty  of  safe 
would  have 
harbours 
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 

no 

discernible 
(0) 
impact  on  resources  of 
or compliance costs for 
market participants 

(+)  enhancing  clarity  and 
legal certainty 

(-)small  negative  impact  on 
investor protection and 

(-) on market integrity 

Option 5.5.3 

(remove 
accepted 
market  practices  and 
phase-out 
existing 
practices) 

(+)  investment  firms  and  investors 
would  benefit 
legal 
certainty  and  a  gradual  move  towards 
a single rulebook 

from  greater 

(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 
and 
market integrity 

protection 

no 

discernible 
(0) 
impact  on  resources  of 
or compliance costs for 
market participants 

Based  on  the  analysis  above,  the  highest  scoring  option  is  option  5.5.3.  Implementing  this 
option would reduce a source of legal uncertainty, clarify the legal framework applicable and 
would be a step towards the creation 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 

57 

   EN 

 
 
 
 
 
 
 
 
                                                 
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 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  require  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 will also eliminate options and discretions in 
the  current  legislation.  Taken  together,  all  these  options  will  go  a  long  way  towards  the 
objective of creating a single rulebook and a level playing field. 

In light of the above analysis, option 5.5.3 is a preferred option. 

6.1.4.  Policy options to clarify certain key concepts  

_ 

Impact on stakeholders 

Effectiveness 

Efficiency 

5.6.1 

n.a. 

n.a. 

n.a. 

Option 
(baseline) 

Option 5.6.2 

(clarify  conditions  for 
delayed  disclosure  of 
inside information) 

(+)  issuers  obtain  greater  freedom  to 
delay disclosure of inside information 

(+)  Partially  meets  objective 
of greater legal certainty (for 
issuers) 

(+)  Likely  to  reduce 
costs for issuers but 

(- - -) investors have less transparency 
on actions of issuers in their investment 
decisions 

(+)  Partially  meets  objective 
of  a  level  playing  field  (for 
issuers) 

(-)  regulators  may  have  to  investigate 
more  cases  of  delayed  disclosure  or 
insider trading 

(-  -  -)  Negative  impact  on 
investor protection  

increase 
(-)  Could 
regulators 
costs 
for 
who  may  have 
to 
investigate  more  cases 
of  delayed  disclosure 
or insider dealing 

Option 5.6.3 

(-) issuers face costs (see section 6.8) 

(Reporting  of  delayed 
disclosure  of 
inside 
information) 

(+++) 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 

to 
costs 

impose 
(-)  Likely 
on 
increased 
issuers  and  regulators, 
but  these  are  mitigated 
by 'ex post' option 

Option 5.6.4 

(+) issuers obtain greater clarity  

(Determine  conditions 
of  delayed  disclosure 
in  case  of  systemic 
importance) 

(0)  neutral  for  investors  as  permission 
of  regulator  needed  and  losses  due  to 
failure or financial instability limited 

(+) regulators gain legal certainty 

Option 5.6.5  

(+) issuers and 

(clarify  disclosure  of 
managers 
transactions) 

(+)  regulators  would  benefit 
enhanced legal certainty 

from 

investors  would  benefit 
publicly 

from 
available 

(+) 
additional 
information 

(+++)  Meets  objective  of 
greater legal certainty 

(0)  Cost  implications 
limited  as  such  cases 
are relatively rare 

(0)  Neutral 
investor 
market integrity 

impact 

protection 

on 
and 

(+) Meets objective of greater 
legal certainty for issuers and 
regulators 

of 
(+)  Meets 
increasing investor protection 

objective 

(-)Likely 
increase 
issuers 
additional reports  

to 
costs 
due 

slightly 
for 
to 

EN 

58 

   EN 

 
 
 
Most respondents to the public consultation 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 disclosure142. 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 have the power directly, 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 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  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 CESR143. 

Based  on  the  analysis  above,  the  highest  scoring  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 
contribute effectively to the objective of creating a single rulebook and a level playing field. 
These  options  would  also  provide  additional  tools  for  enforcement  by  regulators,  as  they 
would be systematically informed of delayed disclosure and could therefore sanction delays 
which  were  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  would  therefore  also  contribute  to 
achieving the specific objective of effective enforcement by regulators. 

The preferred option is therefore a combination of options 5.6.3, 5.6.4 and 5.6.5. 

6.1.5.  Policy options for reducing administrative burdens, especially on SMEs 

Impact on stakeholders 

Effectiveness 

Efficiency 

Option 5.7.1  

n.a. 

n.a. 

n.a. 

(baseline) 

Option 5.7.2 

regime 

(SME 
disclosure  of 
information) 

for 
inside 

(++)  SMEs  would  profit 
simplified regime 

from  a 

(-)  regulators  would  need  to  adapt  by 
supervising a modified, additional rule 

(+) investors may benefit from a wider 
choice  of  SMEs  accessing  the  capital 
markets 

(+)  SMEs  would  need 
slightly 
fewer 
to  comply 
resources 
with 
disclosure 
obligation 

(-)  regulators  would 
need to commit slightly 
more  resource  to  cope 
with an adapted rule 

(+)  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 

142 
143 

See response by FSA/HM Treasury. 
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 

59 

   EN 

 
 
 
 
                                                 
Option 5.7.3 

(SME  exemption 
disclosure  of 
information) 

for 
inside 

obligation 

(-)  SMEs  would  not  have  to  adhere  to 
but 
the 
investments  in  SMEs  would  be  limited 
due to a lack of investor confidence  

anymore 

(---) regulators would face problems in 
trading 
supervising 
prohibition  

insider 

the 

(--)  investors  would  rate  a  market  as 
substandard  where 
the  disclosure 
obligation  for  inside  information  does 
not apply  

be reduced in scope 

(+)  contribution  to  objective 
of  reducing  administrative 
burden 

(0)  on  balance,  would  not 
improve  the  attractiveness  of 
finance  on  capital 
raising 
markets to SMEs 

(--- )severe impact on market 
transparency, 

(---) integrity and 

(---) investor protection  

(++) SMEs would need 
fewer 
significantly 
to  comply 
resources 
with 
issuer-related 
obligations  on  trading 
venues 

(--)  regulators  would 
need 
to  expand  on 
resources  significantly 
to 
SME 
markets 

supervise 

Option 5.7.4  

(harmonise 
lists) 

insiders' 

(+)  issuers  would  benefit  from  the 
certainty and uniformity of harmonised 
rules 

(+)  contribution  to  objective 
of  reducing  administrative 
burden 

(+) issuers would need 
fewer 
slightly 
resources 
for 
compliance 

(0) regulators could work equally well 
with harmonised requirements 

(0) no discernible impact on investors 

(0)  no  discernible  impact  on 
transparency, 
market 
investor 
integrity 
protection 

and 

Option 5.7.5 

(++)  SMEs  would  not  need  to  commit 
resources to drawing up insiders' lists 

(SME  exemption  for 
insiders' lists) 

(-)  regulators  cannot  use  lists  as  a 
supervisory tool for SME issuers 

(0) no discernible impact on investors 

Option 5.7.6 

managers' 
(abolish 
transactions reporting) 

feel 

issuers  would 

(+) 
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 

(+)  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 
transparency, 
market 
investor 
integrity 
protection 

and 

(++)  strong  contribution  to 
objective 
reducing 
of 
administrative burden 

(---) severe impact on market 
transparency and  

(-)  small  impact  on  investor 
protection  

to 

(+)  SMEs  would  not 
commit 
need 
resources 
the 
drawing up of insiders' 
lists  

to 

issuers 

could 
(++) 
reduce 
resources 
committed  to  fulfilling 
issuer-related 
obligations 
significantly 

to 

(--) market efficiency is 
significantly 
reduced 
important 
due 
not 
information 
the 
contributing 
valuation 
of 
instruments anymore 

to 

Option 5.7.7 

(+)  issuers  would  benefit  of  moderate 
reduction of transaction reports 

(harmonise  managers' 
transactions 
reporting 
requirements  and  raise 
threshold) 

(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 

60 

   EN 

 
 
 
 
 
Option 5.7.8 

(SME 
managers' 
reporting) 

regime 

for 
transaction 

(+)  SMEs  would  benefit  of  further 
moderate  reduction  of 
transaction 
reports 

(0)  negligible  contribution  to 
objective 
reducing 
of 
administrative burden and 

resources 
(0)  SMEs 
committed 
to 
compliance  would  not 
be discernibly reduced 

(-)  regulators  would  need  to  adapt  to 
additional rule 

(0)  making  the  raising  of 
finance  on  capital  markets 
more attractive to SMEs  

(-)  investors  would  lose  benefit  of 
clearly 
applying 
fixed 
uniformly for all issuers 

threshold 

(-)  small  impact  on  market 
transparency 

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  commented  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 market. Further, it was felt that a proportionate regime would 
appropriately  reflect  the  difference  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  application  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 dealings obligations that apply to issuers. 

Of the approximately one 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. A large 
majority  of  respondents  to  the  public  consultation  who  addressed  the  issue  opposed 
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 issuers145. 

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 compatible with each other and could be combined.  

A  combination  of  such  options  would  comprehensively  reduce  the  administrative  burdens 
related to the issuer-related requirements of the market abuse framework, and would establish 
a tailored market abuse regime for SMEs with a reduced administrative burden on them (see 
in 
table  below).  Larger  enterprises  would  benefit  particularly  from 

the  reduction 

144 

145 

There  was  support  from  the  following  investor  groups:  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,  EUMEDION  (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. 
See response by European Issuers. 

EN 

61 

   EN 

 
 
 
                                                 
administrative 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  regulators  to  impose  additional 
requirements, thereby reinforcing the options for creating a single rulebook 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 

Insiders' lists 

Insiders' lists must be 
drawn up. 

SMEs are 
exempted. 

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.  

€1.1m 

€1.8m 

€0.1m 

Although these reductions in administrative burden are not on a large scale, were they to be 
combined  with  similar  policy  actions  to  the  benefit  of  SMEs  in  other  financial  services 
proposals the cumulative impact could contribute to increasing the attractiveness of securities 
markets for SMEs. These options also have the advantage of eliminating several options in the 
current legislation, contributing to the objective of ensuring 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 preferred options to achieve the objectives set out in 
this  impact  assessment  have  been  identified  in  the  preceding  sections.  An  overview  of  the 
preferred options is provided in the table below.  

–  Specific objective 1: Ensure regulation follows market developments 

146 
147 

For details of the calculation of the impact on SMEs in terms of administrative burden see section 6.8. 
SME  managers  tend  to  execute  smaller  transactions  so  that  more  of  these  will  be  below  the  new 
threshold. 

EN 

62 

   EN 

 
 
 
 
 
 
                                                 
Prevent  market  abuse  on  organised  markets, 
platforms and OTC transactions 

Prevent  market  abuse  on  commodity  and  related 
derivative markets 

–  align  the  definition  of  "financial  instrument"  with 
the  definition  in  the  MiFID  (so  it  clearly  covers 
derivatives such as credit default swaps); 

–  Clarify  definition  of  inside  information  in  relation 

to commodity derivatives; 

–  Require  financial  regulators  to  cooperate  and 
exchange  information  with  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  underlying  commodity  markets, 
and  to  transactions  in  commodities  that  distort  the 
price of the derivatives markets. 

instruments 

–  extend the scope of the MAD to prohibit the use of 
to 
related 
manipulate  the  underlying  market  where  such 
instruments  can  have  an  impact  on  the  underlying 
market; 

(such  as  derivatives) 

–  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 
to 
manipulation  practices 
firms 
operating  an  MTF  and 
to  entities  operating 
organised trading facilities. 

investment 

Specific objective 2: Ensure effective enforcement 

Enhance  information  and  powers  for  regulators  to 
enforce effectively 

Ensure 
sanctions 

consistent, 

effective 

and  dissuasive 

–  Introduce  reporting  of  suspicious  orders  and 

– 

suspicious OTC transactions. 

introduce minimum principles on type and level of 
administrative  measures 
administrative 
sanctions  

and 

–  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  a  coordination 

role 

for  ESMA  on 

application and enforcement of sanctions; 

–  introduce  an  obligation 

require  criminal 
sanctions  for  the  most  serious  insider  dealing  and 
market  manipulation  offences  as  defined  at  EU 
level across the EU.  

to 

–  Specific objective 3: Ensure clarity and legal certainty 

Reduce or eliminate options and discretions 

Clarify certain key concepts  

EN 

63 

   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 
can  where 
appropriatefurther verify if the conditions for delay 
were met  

regulator 

the 

so 

–  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 options will lead to considerable 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 addition the preferred options will improve protection against market 
abuse  in  commodity  derivatives  by  improved  market  transparency.  In  addition  they  will 
ensure  better  detection  of  market  abuse  by  offering  the  necessary  powers  to  competent 
authorities  to  perform  investigations  and  improve  the  deterrence  of  sanctioning  regimes  by 
introducing  minimum  principles  for  administrative  measures  of  sanctions  and  requiring  for 
the introduction of criminal sanctions. Furthermore, 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 improved integrity of financial markets which will 
have a positive impact on investors' confidence and this will further contribute to the financial 
stability of financial markets. The table below seeks to summarise the cumulative impact of 
the packages of preferred options. 

Package of preferred options 

Impact on stakeholders 

Effectiveness 

Efficiency 

EN 

64 

   EN 

 
 
to  prevent 
Preferred  options 
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 

instruments, 
improve 

(extend  scope  to  CDS,  to  related 
OTC 
to 
to  MTFs, 
supervision  of 
OTFs, 
HFT, improve monitoring by MTFs 
and OTFs) 

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 

inside 

information 

(define 
for 
commodity  derivatives,  power  to 
request 
traders, 
info  from  spot 
international  cooperation  among 
market 
regulators, 
manipulation 
commodity 
derivatives) 

clarify 
for 

Preferred  options 
information  and  powers 
regulators to enforce effectively 

ensure 
for 

to 

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 
premises, 
whistleblowers protection) 

private 

to 

(0)  Cost  neutral  for 
SME  issuers  due  to 
SME  specific  options 
issuers  on 
and 
OTFs 
to 
due 
calibration of measures 

for 

- Some MTF and  OTF 
operators  could  face 
some  increased  costs 
of 
monitoring 
compliance 

+++ 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 

+++  Specific  objective  of 
regulation  keeps 
ensuring 
pace 
market 
with 
developments  fully  achieved 
by combination of options 

+++  Investors  on  all  trading  venues 
and facilities protected equally against 
market  abuse,  and  level  of  protection 
is higher  

from 

Issuers  benefit 

+++ 
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 

+++  Optimal 
level of market integrity and 

increases 

in 

investor 

+++ 
across  all 
facilities and instruments 

protection 
trading  venues, 

benefit 

+++  Regulators 
from 
comprehensive  information  and  clear 
mandate  to  sanction  market  abuse 
which 
commodity 
across 
derivative  and  underlying  commodity 
markets 

cuts 

+++  Specific  objective  of 
regulation  keeps 
ensuring 
pace 
market 
with 
developments  fully  achieved 
by combination of options 

(0)  Regulators  will 
have  clearer  rules  and 
comprehensive 
more 
data  but  will 
incur 
some 
additional 
compliance costs 

+++  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 

+++  Regulators  gain  wider  ability  to 
detect  and  sanction  market  abuse 
thanks to additional powers 

+++  Optimal 
level of market integrity and 

increases 

in 

investor 

+++ 
across  all 
facilities and instruments 

protection 
trading  venues, 

Achieves 

+++ 
objective 
effective enforcement 

of 

specific 
ensuring 

+++  Investors  benefit  from  increased 
market  integrity  and  suffer  fewer 
losses due to market abuse 

increases 

+++  Optimal 
in 
level  s  of  market  integrity 
and 

+++ investor protection  

for 

general 

0  Limitations  on  fundamental  rights 
necessary 
interest 
objective  of  market  integrity  and  to 
protect 
property, 
proportionality  ensured  by  necessary 
safeguards 

right 

to 

(0)  Producers  will 
benefit 
from  more 
stable  prices  but  may 
face  higher  hedging 
costs  

Benefits 

to 
++ 
regulators 
and 
investors  of  enhanced 
ability  to  detect  and 
sanction  market  abuse 
outweigh 
additional 
compliance  costs  of 
suspicious 
transaction 
reporting 

(0)  Limited  number  of 
Member  States  will 
need  to  adapt  existing 
rules  on  administrative 

Preferred  options 
consistent, 
dissuasive sanctions 

to 
effective 

ensure 
and 

+++  Regulators  gain  stricter  powers 
to sanction market abuse  

Achieves 

+++ 
objective 
effective enforcement 

of 

specific 
ensuring 

EN 

65 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
Options 5.4.2 + 5.4.4 + 5.4.6 

(min.  rules  on  admin.  sanctions, 
sanctions, 
criminal 
require 
publication 
and 
sanctions 
of 
cooperation in investigations) 

+++  Investors  benefit  from  increased 
market  integrity  and  suffer  fewer 
losses due to market abuse 

increases 

+++  Optimal 
in 
level  s  of  market  integrity 
and 

sanctions  or  introduce 
new  rules  on  criminal 
sanctions 

+++ investor protection  

for 

general 

0  Limitations  on  fundamental  rights 
necessary 
interest 
objective  of  market  integrity  and  to 
protect 
property, 
proportionality  ensured  by  necessary 
safeguards 

right 

to 

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 
general 
meets 
5.7.7), 
objective  of  creating  a  single 
rulebook  and  a  level  playing 
field 

(0)  No 
discernible 
impact  on  resources  or 
compliance  costs  of 
market participants 

(0) Neutral impact on market 
integrity 
investor 
and 
protection 

Preferred  options 
certain key concepts 

to 

clarify 

+  Issuers  benefit  from  greater  clarity 
and  legal  certainty  even  if  they  face 
some additional compliance costs 

+++  Meets  specific  objective 
of  ensuring  clarity  and  legal 
certainty 

Options 5.6.3 + 5.6.4 + 5.6.5  

(reporting 
disclosure, 
delayed 
delayed  disclosure  for  systemic 
information,  clarify  disclosure  of 
managers' transactions) 

+++  Regulators  gain  legal  certainty 
and tool to control delayed disclosure 

+++  Investors  better  protected  by 
strictly  limited  delays  to  disclosure 
and  additional  publicly  available 
information 

Preferred  options 
administrative 
especially on SMEs 

to  reduce 
burdens, 

+++  SMEs  benefit  from  a  regulatory 
framework  specifically 
to 
their needs 

tailored 

++  Contributes  to  objective 
of creating a single rulebook 

+++  Meets  objective  of 
increasing  market 
integrity 
and investor protection 

+++  Meets  objective  of 
administrative 
reducing 
burden  where 
possible, 
especially for 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) 

(0)  Neutral  for  regulators  who  can 
work  equally  well  with  tailored  rules 
for SMEs 

(0)  Negligible 
impact  on 
market  integrity  and  investor 
protection 

Limited 
(0) 
compliance 
costs, 
mitigated  by  greater 
legal  certainty  and  ex 
of 
reporting 
post 
delayed disclosure 

(+)  SMEs  and  larger 
issuers  will  need 
to 
commit  slightly  fewer 
to 
resources 
compliance  with  these 
options 

(+/0) Neutral to positive for investors 
as  no  discernible  impact  on  investor 
protection  but  they  may  benefit  from 
wider SME investment opportunities 

EN 

66 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The diagram below explains below the envisaged 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 only admitted to  
trading on other Organised Trading 
Facilities (OTF) 

Financial instruments traded Over 
the Counter (OTC) 

Within scope of the new MAD 

Outside scope of the new MAD 

The  new  rules  will  extend  the  scope  of  the  MAD  to  all  instruments  admitted  to  trading  on 
MTFs  and  OTFs.  They  would  also  encompass  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  underlying  that  is  admitted  to  trading  on  one  of  the 
venues or facilities, would also be prohibited. Only those instruments 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 

67 

   EN 

 
 
 
6.2.2.1.  Non-legislative cooperation between Member 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, coordinated through ESMA. It is worth noting 
that  under  the  current  framework  there  is  already  extensive  coordination  and  cooperation 
among  regulators  via  CESR,  for  example  due  to  common  work  on  the  convergent 
implementation  of  the  market  abuse  provisions  or  due  to  coordination  in  cross-border 
investigations.  This  experience  could  be  utilised  and  extended  further  in  order  to  make 
progress  in  achieving  certain  objectives  outlined  in  this  impact  assessment  by  finding  and 
agreeing on common and harmonised approaches. For example, the precise reach of the duty 
to report managers' transactions could be clarified by regulators. Also a list of practices in the 
area of automated trading potentially constituting market manipulation could be agreed on by 
regulators and subsequently enforced accordingly. However, differences in the application of 
the  Market  Abuse  Directive  still  existing  today  illustrate  the  practical  limits  of  voluntary 
cooperation.  

The  substantial  disadvantage  of  this  approach  is  that  it  would  be  based  on  voluntary 
cooperation  of  regulators  against  the  backdrop  of  an  existing  legal  framework.  Voluntary 
cooperation can only go so far as is allowed by the letter of the law. It cannot replace targeted 
amendments, additions or extensions of the legal provisions as envisaged by a large number 
of  proposals  in  this  impact  assessment  designed  to  strengthen  market  integrity  and  investor 
protection.  For  example,  extending  the  scope  of  MAD  to  prohibit  the  use  of  related 
instruments  to  manipulate  the  underlying  market  or  to  prohibit  attempts  at  certain  kinds  of 
market manipulation would as a consequence establish offences punishable by administrative 
or  criminal  sanctions.  Such  extensions  need  a  proper  legal  basis  and  using  non-legislative 
cooperation  as  an  alternative  instrument  is  not  the  appropriate  option.  As  another  example 
SMEs  could  not  be  exempted  from  the  obligation  to  draw  up  insiders'  lists  based  on  non-
legislative  cooperation  between  Member  States.  In  the  current  directive  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 which 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-legislative 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  and  investor  protection  would  be  attained  in 
the entire EU, possibilities for regulatory arbitrage 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 legal instrument should be a Directive or a Regulation. 

Traditionally,  the  Directive  has  been  the  predominant  legislative  instrument  in  the  area  of 
financial  services.  Directives  were  the  most  appropriate  tool  for  gradually  aligning  national 
rules  affecting  financial  markets  and  their  participants.  The  Directive  as  a  legal  instrument 
enables  the  EU  to  impose  binding  results  on  Member  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  often  give  Member  States  the  option  of  imposing  stricter  rules 

EN 

68 

   EN 

 
than is foreseen in the EU legal act. A Directive would leave Member States with a certain 
degree  of  discretion  for  maintaining  divergent  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 which are not fully harmonised in the Market Abuse 
Directive together with the Commission measures.  

6.2.2.3.  Transforming the Market Abuse Directive into a Regulation 

The  high  level  group  on  Financial  Supervision148  highlighted  that  the  current  regulatory 
framework  within  financial  services  lacks  cohesion  which  is  based  on  the  options  and 
discretions  offered  to  Member  States  in  the  transposition  of  Common  Directives  and  its 
implementation at national level. The problem section149 has demonstrated this is also valid 
for  the  current  Market  Abuse  Directive.  The  current  set-up  consists  of  one  framework 
directive and four implementing measures, 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 comprehend for undertakings and ordinary citizens 
alike. To address the issue, the high level group recommends that an effective single market 
for financial services should have a harmonised set of core rules, and the European Council 
endorsed this by requesting the creation of a Single Rulebook for financial services.150 .  

A  Regulation  would  avoid  that  transposition  leads  to  diverging  national  rules,  interpreted 
according  to  diverging  cultures,  and  would  ensure  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 revision of the market abuse framework as a number of preferred 
options  intend  to  reduce  or  eliminate  existing  options  and  discretions  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  concept  like  the  delayed  disclosure  of  inside 
information  can  have  significant  effects  on  financial  stability.  Therefore, 
taking 
implementation as one potential source of divergences 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  stricter  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  Regulation  will  offer  greater  legal  certainty  for 
those subject to the legislation across the EU. Especially those issuers and investors operating 
on a pan-European basis would benefit from the added legal certainty a comprehensive and 
uniform legal framework can deliver. In addition, 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 investors and regulators.  

148 

149 
150 

Recommendation  10,  Report  by  the  High  level  group  on  financial  supervision  chaired  by  Jacques 
Delarosière, available at: http://ec.europa.eu/internal_market/finances/docs/de_larosiere_report_en.pdf 
Particularly section 3.2.3 on enforcement and section 3.2.4 legal certainty and clarity 
Conclusions of 18/19 June 2009. 

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Using  the  instrument  of  a  regulation  would  reduce  regulatory  complexity  and  may  reduce 
compliance costs, for example by diminishing the need for buying-in expensive legal advice 
for investors and issuers operating on a cross-border basis. Especially for issuers operating on 
a cross-border basis a uniform set 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 which venue they choose and where it is situated. 

A single Regulation directly applicable across the EU will also reassure investors that market 
integrity standards follow the same rules in all EU markets, and will contribute to encourage 
them to seek for investment opportunities in foreign markets. It will also contribute to avoid 
any risk of regulatory arbitrage: the potential for violators to structure their trades in a way to 
avoid Member States with strong rules against market abuse rules will be reduced. 

Furthermore, a regulation may from the perspective of third countries transmit the picture of a 
single market with a single rulebook being in place that could be used as a source of reference 
when trying to export regulatory standards.  

Technically, an impact of transforming the MAD into 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 mind that a Regulation is usually immediately applicable after 
adoption  by  the  legislator  and  therefore  the  response  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  Regulation  Member  States  could  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 financial instruments they tend to do so to save for 
the  long  term  and  primarily  through  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  very  popular  with  retail  investors152.  Investments  in  listed 

151 

152 

"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  decisively  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. 
"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. 

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shares by retail investors have experienced 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 institutions (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  options  which  are  likely  to  have  the  greatest  impact  on  retail 
investors  are  those  which  have  an  impact  on  the  financial  instruments  and  markets  popular 
with retail investors and their institutional investors, 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 supervision of MTFs could be expected to benefit 
retail  investors  by  increasing  their  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 unlikely to be used by retail investors. 

However,  retail  investors  could  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 confidence of investors. For example the option to 
prohibit attempted market manipulation, which would make it easier for regulators to sanction 
market  manipulation  and  thereby  increase  the  integrity  of  markets  with  significant  retail 
investor  participation  and  the  confidence  of  retail  investors  in  those  markets.  Similarly  the 
option  to  introduce  reporting  of  suspicious  orders  and  suspicious  OTC  transactions  is 
expected  to  facilitate  the  detection  and  sanctioning  of  market  abuse,  increasing  market 
integrity  and  the  protection  of  retail  investors  on  those  markets.  The  options  which  would 
make  sanctions  more  deterrent  and  consistent  across  Europe  could  also  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 only 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  increased  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 abuse where it does occur.  

Several  preferred  options  are  expected  to  have  an  impact  on  SME  issuers.  The  option  to 
require  issuers,  including  SME  issuers,  to  notify  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 section 6.8). However, other preferred options 
that will have a positive impact on SMEs in terms of administrative burden are the tailoring of 
the  MAD  issuer  obligations  for  SME  issuers  on  SME  markets  by  the  establishment  of  an 

153 

154 

155 
156 

"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. 
Federation  of  European  Stock  Exchanges  (FESE),  Share  Ownership  Structure  in  Europe,  December 
2008, p.7. 
Ibid, p. 11. 
BME Consulting (2007), p.77. 

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SME regime for disclosure of inside information 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,  which  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 overall 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 
(million EUR) 

burden 

SME 

regime 

for  SME 

issuers'  disclosure 

requirements, consisting of: 

SME  regime  for  disclosure  of  inside 

-1.1 (reduction) 

information 

Exemption  SMEs  from  requirement  to 

-1.8 (reduction) 

keep insider lists 

Harmonising 

the 

conditions 

for 

-0.1 (reduction) 

reporting  of  managers  Transactions, 

including an increased threshold for all 

issuers including SMEs.  

Total admin burden for SME regime for SME 

-3 (reduction) 

issuers' disclosure obligation 

Requirement  on  issuers  to  notify  competent 

1.8 

authorities ex post of delayed disclosure 

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  2007,  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  investing  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 overview of the US regime on market abuse is included in annex 9. Since 

157 

FESE (2008), p. 6. 

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the preferred options will introduce greater symmetry 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 regime applies to alternative trading systems, the 
US equivalent of European MTFs. So extending the European market abuse regime to MTFs 
would increase regulatory convergence 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 organised 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  its  market  abuse  regime. 
Another area where the EU approach would converge 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 commodity derivative markets located in the EU, 
for many commodities, the underlying market may be located outside the EU. For example, 
many  commodity  trading  firms  are  based  in  Switzerland,  where  they  generate  one  third  of 
world  trade  in  crude  oil.  The  Chicago  Mercantile  Exchange,  which  trades  several  financial 
instruments  including  interest  rates,  equities,  currencies  and  commodities,  has  the  largest 
number of options and futures contracts outstanding in the world. Detecting and sanctioning 
market  abuse  in  such  cross-border  and  cross-market  situations  will  require  international 
cooperation between financial and commodity regulators. This initiative will therefore require 
heightened international cooperation between regulators. 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  required  to  inform  ESMA  when  they  enter  into 
such agreements.  

6.5. 

Social impact 

The  options  considered  in  this  impact  assessment  will  increase  investor  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  policy  holders.  It  can  be 
anticipated  that  greater  market  integrity  will  lead  to  higher  investor  confidence  and  greater 
participation in financial markets, thereby making 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  compliance  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 private premises, data on whistle 
blowing are subject to appropriate safeguards. These policy options 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.  

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sanctioning regime will ensure that similar market abuses are sanctioned alike throughout the 
EU, unless differences can be objectively justified. 

6.7. 

Environmental impact 

It does not appear that the preferred 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  can  only  been  determined  indirectly.  First,  the 
size of the existing problem of market abuse needs to be estimated and second, the benefits, in 
terms of the estimated reduction of market abuse, should also be estimated. This methodology 
is described in more detail in Annex 12. 

As explained in section 3.1.3, to determine the 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  estimated  at  EUR  13  billion  per  year.  To  estimate  the 
expected  benefits  to  be  achieved  by  applying  the  preferred  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  based  on  the  experience  of  reinforced  efforts  to 
sanction market abuse in the UK (as part of the FSA's "credible deterrence" strategy) which 
has experienced a significant improvement of market cleanliness 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  package  of  measures  are  estimated  at  EUR  2.7 
billion per year. A more detailed description of the calculation of the benefits 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  carried  out  for  the  Commission  by  external  contractors  to  estimate  the 
impact  of  the  possible  changes  to  the  Market  Abuse  Directive,  particularly  in  terms  of 
administrative burden, which has been summarised in section 6.9. The 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 the 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  require  up  to  3  Full  Time 
Equivalents (FTE's) and for the remaining smaller markets, it is expected to require 1 FTE in 

159 
160 

EN 

Capital Markets CRC Limited, Enumerating the cost of insider trading, unpublished, 2010, p. 8. 
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 
at 
for 
http://www.fsa.gov.uk/pubs/annual/ar09_10/ar09_10.pdf 

cleanliness 

available 

market 

FTSE 

350, 

the 

of 

74 

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addition to EUR 20.000 annual costs 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  expected  imply  a  net  benefit  to  the  European 
economy.  The  results  of  the  analysis  of  the  expected  costs  and  benefits  of  the  package  of 
retained options are presented in table 3.  

Table 3. Summary of costs and benefits of the package of retained options 

Recurring (Million EUR) 

One-off (Million EUR) 

Benefits 

Costs 

Compliance costs 

Administrative burden 

Total Costs 

Net Benefit 

2.667, 4 

3,2 

297 

300,2 

2.367,2 

320 

320 

The annual benefits in terms of the reduction of market abuse are estimated 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 policy options is expected to generate net benefits of an 
estimated EUR 2.4 billion per year. 

6.9. 

Estimate of impact in terms of administrative burden 

In order to evaluate the administrative burden of the policy options, an external study161 was 
conducted by EIM on behalf of the Commission. The methodology 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 rules, interviews have been conducted 
with  relevant  stakeholders  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 have an impact on administrative burden are the 
following:  extending  the  scope  of  the  MAD  to  MTFs  and  other  organised  trading  facilities; 
extending  suspicious  transaction  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 requirements for insider lists; exempting SMEs from 
the  requirement  to  keep  insider  lists;  and  harmonising  the  conditions  for  reporting  of 
managers transaction reports, including increasing the threshold.  

161 

EIM, Effects of the changes to the Market Abuse Directive – Impact on administrative burden of firms 
in the EU, Zoetermeer, December 2010. 

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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 objective of reducing market abuse. 
In addition, introducing an SME regime for disclosure 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 expected from harmonising managers transaction 
reports. In light of the above, the revision of the MAD in terms 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 estimated at EUR 320 million. A more detailed 
analysis on the administrative burden can be found back in Annex 10.  

Table 4: overview of admin burden of the MAD 

Policy 

description 

Incremental cost per entity (EUR) 

Total 

incremental 

cost 

option 

(Million EUR) 

Admin 

burden 

One of cost to 

Total 

Total  one  of 

comply  with 

admin 

cost 

to 

information 

burden 

comply  with 

obligation 

(million 

the 

EUR 

information 

obligation 

5.1.4 

Extending  scope  to 

4,810 

0.2 

0.3 

MTFs 

5.1.5 

Extening  scope  to 

4.810 

0.5 

OTFs 

5.3.2 

reporting 

of 

OTC 

11,250 

11,250 

29 

suspicious 

OTC 

transactions 

and 

orders 

Orders 

28,000 

56,000 

Total 

5.6.3 

Reporting 

of 

LE 

17,550 

delayed disclosure  

SMEs 

1755 

Total 

5.7.2 

SME 

regime 

for 

disclosure  of  inside 

145 

147 

127 

1.8 

129 

-1.1 

(reduction) 

29 

291 

320 

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information 

5.7.4  

Harmonisation 

of 

2,025 

insider lists 

-1.2 

(reduction) 

5.7.5 

SME  exemption  for 

945 

-1.8 

insiders lists 

(reduction) 

5.7.8 

Harmonisation 

of 

Large 

405 

-2,2 

managers 

issuers 

transactions reports 

(reduction) 

SMEs 

135 

-0.1 

Overall admin burden 

one-off  cost  to  comply  with 

information obligation 

 Admin burden on SMEs 

(reduction) 

297 

-1.2 

(reduction) 

320,3 

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  legislative  initiative  on  market  abuse.  When 
necessary, the Commission will pursue the procedure set out in Article 226 of the Treaty in 
case  any  Member  State  fails  to  respect  its  duties  concerning  the  implementation  and 
application of Community Law.  

The  evaluation  of  the  consequences  of  the  application  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 the 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. 

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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  pending  proposals  listed  in  the  Communication,  a 
number  are  related  to  this  initiative  and  will  contribute  to  achieving  its  objectives  of 
improving investor protection and enhancing market transparency and integrity. 

The proposal for a Regulation on short selling and certain aspects of Credit Default Swaps163 
includes a short selling disclosure regime which would make it easier for regulators to detect 
possible cases of market manipulation or insider dealing 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 market abuse through the use of derivatives. 

The  review  of  the  Markets  in  Financial  Instruments  Directive165  will  consider  options  to 
widen the current scope of reporting in relation to transactions in instruments only traded on 
multilateral  trading  facilities  (MTFs)  and  reporting  on  over  the  counter  (OTC)  transactions 
including  derivatives.  The  reporting  to  competent  authorities  of  OTC  transactions  in 
instruments  not  admitted  to  trading  on  a  regulated  market  is  not  currently  mandatory,  and 
such  reporting  would  make  it  easier  for  regulators  to  detect  possible  market  abuse  through 
such instruments.  

The  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  Regulation  on  energy  market  integrity  and 
transparency166. 

162 

163 

164 

165 

166 

Communication  from  the  Commission  to  the  European  Parliament,  the  Council,  the  European 
Economic  and  Social  Committee  and  the  European  Central  Bank,  Regulating  financial  services  for 
sustainable growth, COM(2010) 301 final, 02.06.2010, p. 7. 
Proposal  for  a  Regulation  on  Short  Selling  and  certain  aspects  of  Credit  Default  Swaps,  COM 
(2010)482 final, 15.9.2010 
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 
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 
See public consultation on the DG ENER initiative for the integrity of energy markets, 
http://ec.europa.eu/energy/gas_electricity/consultations/2010_07_23_energy_markets_en.htm 

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ANNEX 2 – SUMMARY OF CONTRIBUTIONS TO PUBLIC CONSULTATION 

Overview of Respondents 

The  consultation  raised  interest  and  presented  diverse  comment  among  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. 

20%

17%

10%

3%

16%

34%

Regulator or Government
Energy Company or Body
Exchange or Market Service Provider

Financial Company or Body
Commodities Company or User or Body
Other

Figure 1. Chart of respondents to MAD consultation 

Section A – Extension on the scope of the directive 

1. 

Alignment of the definition of inside information relating to commodity derivatives 

1.1. 

1.2. 

Approximately one third of respondents were in favour of a general expansion. This 
included  strong  support  from  regulators.  There  was  strong  opposition  from  energy 
companies and associated bodies, whilst approximately one third of respondents had 
no strong opinion.  

The  majority  of  all  respondents  agreed,  to  differing  extents,  that  there  are  key 
differences between commodity markets and financial markets; although opinion on 
how this impacted the suggested alignment was diverse. In particular one respondent 
noted that for regulation to be effective there needs to be strengthened co-operation 
between physical market regulators and financial regulators. 

1.3. 

The  majority  of  supporting  respondents  agreed  with  the  Commission  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 

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other reasons were cited in favour of the expansion. These included its inclusion in 
the  G20  agenda,  the  susceptibility  of  commodity  markets  to  "cornering"  and  other 
abusive  practices  and  the  significance  of  derivatives  to  the  underlying  commodity 
market. 

1.4. 

Approximately  one  third  of  all  respondents  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  current  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 provide convincing arguments 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  associated  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 definition. These respondents reiterated the advice 
previously given by CESR/EGREG167 and ESME168 in 2008, noting some of the key 
differences  in  financial  and  energy  markets  (e.g.  physical  fundamentals  such  as 
generation  and  storage169).  Several  respondents  noted  possible  side  effects  the 
alignment may present, such as undermining the incentive to invest in infrastructure 
(as a firm would not be able to extract any value from information flow relating to 
it).  

1.6. 

Respondents  from  the  energy  sector  supported  coordination  with  the  DG  ENER 
proposal on integrity and transparency 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  expressed  an  opinion  were  in  favour  of  the 
proposed extension of the MAD regime. However, respondents were generally also 
concerned  about  the  need  to  improve  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  intent  would  be  proven  on  a  practical 
level. 

167 
168 
169 

CESR/EGREG advice to the European Commission in the context of the Third Energy Package, 2008. 
Advice by the European Securities Markets Expert Group on commodity derivatives business, 2008. 
European Regulators´ Group for Electricity and Gas 

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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  Competent  Authorities'  time  and  resources  to  cases  that  do 
not harm integrity, that the approach is not consistent with the 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 expressed 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  already  modified  local  regimes  to  accommodate 
specialist  MTFs;  for  example  specialist  SME  markets.  These  respondents  felt  that 
current bespoke regimes for these MTFs were appropriate, that harmonisation would 
need to encompass these different evolutions, and that this may be a difficult task.  

4.3. 

4.4. 

5. 

5.1. 

6. 

6.1. 

Although agreeing with the proposal in principle, some 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. 

One respondent felt that MAD should not apply to any issuers who had chosen to list 
on an MTF as this would remove their attractiveness to SMEs. 

Disclosure  of  inside  information  for  issuers  who  only  have  instruments  listed  on 
MTFs . 

In  general,  there  was  limited  support  for  any  reduction  in  the  requirements  to 
disclose  inside  information.  Respondents  from  all  areas  felt  that  disclosure 
requirements  were  essential  to  market  integrity,  and  that  they  should  not  be 
compromised. 

Adapted  regime  for  SME  issuers  admitted  to  trading  on  regulated  markets  and/or 
MTFs 

Over half of the respondents did not express a strong opinion, although a number of 
these commented that further analysis should be conducted. Approximately a quarter 
of respondents did not feel a specialist regime was necessary, whilst approximately 
one fifth supported a specialist regime.  

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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  appropriately  reflect  the  difference  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 application 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 dealings obligations 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 regulatory arbitrage and that 
investors in these markets need the same level 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 defined in Prospectus Directive? 

6.4. 

6.5. 

There was little support for basing an adaptive regime on the size of the firm. Only a 
limited number of respondents specifically felt the regime should be harmonised with 
the transparency and prospectus directives. 

Rather,  a  number  of  respondents  felt  it  would  be  more  appropriate  to  apply  the 
regime  on  a  market  by  market  basis.  A  number  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  organisational  requirements  that  are  appropriate  to  their 
size. 

A number of respondents also commented that specialist 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  fulfilled  by  SMEs  as  proposed  for  such  an  adapted 
regime be further specified through delegated acts? 

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6.6. 

This question was largely unanswered by respondents. 

Section B – Enforcement Powers and Sanctions 

7. 

7.1. 

How  can  the  powers  of  competent  authorities  to  investigate  market  abuse  be 
enhanced? 

Responses  from  regulators  and  member  states  generally  differed  from  those  of 
industry  participants.  A  number  of  respondents  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 legislation (including the directive on privacy and 

electronic communications); 

•  Establish the capacity to settle cases; 

•  Implement cross market position limits in MiFID; 

•  Extending Transaction reporting to OTC and derivatives including 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 feed 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,  including  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. 

7.5. 

7.6. 

Generally, respondents 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 the extension).  

Regulators  and  member  states  were  strongly  in  favour  of  an  extension,  and  while 
most other respondents also supported the extension, a number raised potential issues 
as to the increased costs and its practical implementation (no specific details of costs 
were presented). 

Several  responses  (from  financial 
that 
intermediaries  are  not  generally  aware  of  a  client's  intention  and  that  further 
definition of the requirements would be helpful.  

institutions  or  bodies)  commented 

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.  

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To what extent need the sanction regimes be harmonised at the EU level in order to prevent 
market abuse? 

8.2. 

8.3. 

8.4. 

There  was  support  for  harmonisation  of  administrative  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. 

However there was also some potential uncertainty as to the practicality of complete 
harmonisation, especially due to the differences in markets between Member States. 

There  was  limited  specific  discussion  of  harmonisation  of  criminal  sanctions.  Two 
respondents  felt  that  penal  measures  should  be  left  to  member  States,  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. 

8.6. 

8.7. 

8.8. 

Over  three  quarters  of  respondents  did  not  have  a  strong  opinion  on  the  proposed 
clarification of administrative measures and sanctions. 

In relation to the setting of minimum levels 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  lead  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 prescribed minimum fine is not appropriate; 

•  There should also be a corresponding 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. 

Rather  than  set  levels,  there  was  some  support  for  ESMA  to  provide  guidance  on 
appropriate levels. 

Some respondents referred to the UK FSA which had recently assessed its financial 
penalty regime and introduced a new framework based on the following criteria - (1) 
disgorgement;  (2)  assessing  the  seriousness  of  the  conduct;  (3)  adjusting  for 
aggravating  or  mitigating  factors;  (4)  adjustment  for  deterrence;  and  (5)  settlement 
discount. 

8.9. 

In  relation  to  public  disclosure  of  sanctions,  one  respondent  felt  that  this  could 
disproportionately  affect  trust  in  capital  markets  and  give  misleading  signals  (and 

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also  contravene  data  protection  rules),  whilst  other  respondents  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. 

9.2. 

9.3. 

Over  three  quarters  of  respondents  did  not  have  a  strong  opinion  on  the  proposed 
narrowing  of  the  reasons  for  which  a  competent  authority  may  refuse  to  cooperate 
with another.  

Of  those  who  did  respond,  responses  were  mixed.  Those  not  supporting  the 
narrowing  sought  clarification  of  the  reasoning  of  the  proposals,  and  highlighted 
concerns  over  data  protection.  Those  who  supported  the  measure  felt  it  would 
enhance co-operation. 

Respondents  to  the  consultation  were  supportive  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  categories  of  respondents  to  this  topic; 
whilst  most  provided  some  specific  individual  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 guidelines 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  question  directly,  the  following  views  were 

presented: 

•  Whilst  there  was  some  support  for  regulators  to  have  the  power  directly,  the 
majority  of  respondents  (across  all  categories)  felt  that  while  the  proposal  was 

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beneficial,  the  issuer  itself  rather  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  the  trigger  should  not  be  if  the  institution  is 
systematically important, but rather if the information is systematically important; 
and 

12. 

12.1. 

•  Respondents also noted that at times of emergency, regulators and issuers would 

already be involved in close communication. 

Should  there  be  greater  coordination  between  regulators  on  accepted  market 
practices? 

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  harmonisation  would  help  move  towards  a  single 
market  for  financial  instruments  and  would  reduce  legal  uncertainty  for  market 
participants.  However  respondents  also  commented  that  significant  differences  in 
markets currently exist, which justify divergent implementations of accepted market 
practices.  

12.2.  While  some  public  authorities  felt  involvement  by  ESMA  in  a  co-ordination  role 
would  help,  most  felt  that  the  current  procedures  were  sufficient,  and  that  further 
harmonisation would offer little benefit. 

12.3.  One  respondent  commented  that  although  they  would  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 internal market and the creation of a single 
rulebook". 

13. 

Do  you  consider  that  it  is  necessary  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 did felt the threshold should be increased.  

13.2. 

The  respondents  supporting  an  increase  (including  large  support  from  financial 
institutions  and  bodies)  generally  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  respondents  who  opposed  an  increase  of  the 

threshold for the following reasons: 

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•  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. This is in line with 
the objectives and principles of the MAD; 

•  Having a large amount of data is not an issue 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 vastly differing sizes of issuers. 

13.4.  Respondents also provided the following comments: 

•  There was support for the threshold to be set 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  threshold  was  currently  implemented  at  the 
discretion of the member state under the directive, and that some 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  responses  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 higher 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  understandings  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 transaction 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  measure,  also  in  relation  to  disclosing  e.g. 
market abuse practices. 

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•  EC  should  review  the  issue  of  "using  inside  information"  as  raised  in  Spector 
Photo  Group  NV  and  Chris  Van  Raemdonck  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  clarification,  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. 

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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 

Keynote speeches 

2 July 2010 

Jonathan Faull, Director General, DG Internal Market and Services welcomed delegates to 
the  public  hearing.  He  explained  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 aimed to make sure that they complement and 
strengthen  each  other.  Therefore,  the  revision  of  MAD  is  one  part  of  the  Commission’s 
overall programme for regulating financial services, the overarching objective 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  transparency,  clarity  and  harmonisation.  She  raised  the  issue  of 
extending  directive  coverage  to  instruments  traded  solely  on  MTFs  and  providing  greater 
clarity that credit default swaps are covered under the scope of the Directive. In the context of 
debate about the use of naked credit default swaps 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  speculation  about  speculation.  She  supports  greater 
publication by regulators of information about sanctions imposed for market abuse. There is 
no  excuse  for  regulators  not  publicising  such  information.  Regarding  physical  markets  she 
suggested that although there are often differences 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. She also discussed the possibility of adjusting 
the scope of insider lists. These lists are important but, for example, small businesses might be 
exempted  from  routine  maintenance  of  an  insider  list  and  instead  required  to  provide 
information to supervisors on demand. Finally she advocated greater clarity about when there 
can  be  delayed  disclosure  of  inside  information  about  an  institution  of  systemic  importance 
and also supported extending coverage of the Directive 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 extended 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 regulation of financial analysis and of 
requirements  for  journalists  when  quoting  third  parties'  opinions.  He  gave  examples  of 
divergent approaches to the application of MAD in Member States and suggested that options 

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and discretions should be reduced. He also supported removing uncertainties 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.  Finally  he  talked  about  the  need  for  greater 
harmonisation of sanctions for 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)  emphasised  that  a  holistic  regime  was  necessary  in  order  to 
ensure market integrity, as the interaction between the derivatives and underlying markets was 
constant  in  both  directions.  He  also  explained  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 prosecuting attempts at market manipulation was important, and 
that information sharing between regulators world-wide was essential. 

In response to a question on the importance of transaction reporting to trade repositories, Mr 
Obie stated that this would help as it would deter wrongdoing and help regulators to detect the 
motive  for  market  abuse.  Mr  Justham  commented  that  a  large  number  of  OTC  transaction 
reports (5-10 million per day) were received by the 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  impact  of  Credit  Default  Swaps  on  sovereign 
bonds markets, the panel agreed that access to data 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  that  the  definition  of 
insider trading in commodities could not simply be translated from that for equities. 

Concerning  the  issue  of  rumours,  Carlos  Tavares  (CESR)  argued  that  journalists  should  be 
required to identify their source to a regulator investigating a suspected case of market abuse. 
Stephen  Obie  explained  that  the  CFTC  had  sometimes  gone  to  court  to  obtain  information 
from journalists, and Charles 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  Commission,  gave  a  brief  introduction  about  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  the  commencement  of  the  Markets  in  Financial 
Instruments Directive which is why its scope mainly 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 commenced). He also pointed out that MAD does 

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currently cover trading of instruments when traded outside a regulated market (e.g. on a MTF 
or over the counter). But it does not cover instruments only admitted to trading on a MTF. He 
also  explained  that  some  Member  States  already  extend  their  regimes  to  cover  instruments 
admitted to trading on a MTF.  

Fabrice Peresse (NYSE Euronext) explained the view 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  such  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 level which can result in some operators incurring 
greater costs. He also discussed the potential difficulty that has arisen for monitoring market 
abuse of a financial instrument now that trading in a single instrument is now spread across a 
number  of  different  financial  markets  (post  MiFID).  Previously,  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 issue that can be resolved through 
the CESR information sharing systems such as TREM or through greater cooperation between 
regulated markets. 

Duncan Wales (ICAP) welcomed the aims of the MAD review, but stressed the need to take 
into account the nature of existing MTF’s and the wide range of different markets, financial 
instruments and issuers those MTFs represent. In OTC markets, MTF’s are the evolution of 
bilateral  and  voice-brokered  means  of  trading, and  in  many  cases  even  with  full  electronic 
capability  available,  several  perform  as  “hybrid”  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 applying the directive to include 
all  the  diverse  asset  classes  traded  on  MTFs  without  significant  modifications.  It is,  for 
instance, difficult to draw a direct comparison between 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 governments be caught by the same regime?).  

Jose Sanz De Gracia (CNMV, Spain) spoke of his experience as a regulator of dealing with 
the  MAD.  Regarding  the  issue  of  whether  there  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. Therefore 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 stress the major points of 
the consultation document on those topics. 

Anastassios Gabrielides (President of the GCMC and of CESR-Pol) insisted on the usefulness 
of  extending  the  scope  of  suspicious  transactions  reports,  along  the  lines  proposed  by  the 
Commission  (to  orders  and  derivatives).  He  emphasized  the  importance  for  regulators  of 
getting telephone data and on the existence of some difficulties in some Member States in this 

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regard.  He  favoured  a  role  for  ESMA  in  helping  requesting  authorities  to  get  data  needed 
from  requested  authorities,  notably  through  binding  mediation.  He  stressed  the  necessity  of 
having  fines  proportionate  to  the  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 tackling market abuse ("credible deterrence") and 
its recent achievements. She indicated how important it was for competent authorities in the 
course  of  their  investigations  to  be  able  to  ask  judges  for  authorisation  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 the criteria applied by the FSA in deciding the 
levels  of  fines  (4  times  the  profit  is  a  starting  point  that  is  then  adapted  to  other  criteria; 
100.000 euros for individuals is also 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 not function without exceptions. 

Laurent  Combourieu  (Deputy  Head  of  enforcement  division  of  the  AMF)  underlined  the 
progress generated by the MAD, notably in terms of convergence in defining market abuse in 
Europe and in international cooperation. He explained however that MiFID has made the task 
more complex to detect abuse (in terms of manipulation across different platforms, reporting 
of  trades,  algorithmic  trading,  OTC  transactions).  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  International  division  of  the  SEC)  stressed  the 
increases in the number of trades for a few years and the "new face of greed" and gave a few 
examples  of  recent  successes  in  SEC  investigations.  She  also  notably  stressed  the  need  for 
cooperation between European competent authorities and the various US authorities.  

A  few  questions  were  asked  by  the  moderator  and  by  the  audience.  Carlos  Tavares  (vice 
president of CESR) stressed the importance for regulators of understanding how algorithmic 
trading works.  

Summary  of  panel  4:  Moving  towards  a  single  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 specific 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 right definition of SME based on market criteria. 
He pleaded for a non-automatic extension of MAD to all companies listed in MTFs, leaving it 
to national law. He said that some basic principles of market integrity should be the same for 
all, but others, such as insiders' list and managers' transactions, could be calibrated to the size 
of the company.  

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Charles Cronin (Head of the Center for Financial Market Integrity) emphasised that a single 
EU  rulebook  was  crucial  for  the  pan-EU  structure.  He  argued  that  nowadays  SMEs  are  not 
disclosing  enough  information  and  thus  have  not  enough  liquidity;  therefore  he  pleaded  for 
the application of the MAD regime to SMEs. 

Carmine Di Noia (Deputy Director General Assonime) highlighted that the MAD had not led 
to  harmonisation  across  Member  States  of  important  issues  like  the  definition  of  inside 
information subject to the disclosure 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  information”;  treatment  of  rumours  should  be 
inserted in the MAD. 

Tim  Ward  (CEO,  Quoted  Companies  Alliance)  emphasised  the  need  to  take  a  holistic 
approach, requiring consistency within the Prospectus Directive, the Transparency Directive 
and MiFID and the obligation to report trades across the EU to a single venue.  

Concluding remarks 

Maria Velentza (Head of Unit, Securities Markets, 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 without changing its initial objectives of market integrity and efficient 
surveillance. 

The review should be holistic, avoiding the silo 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 equities to a broader concept of 
"organised market" and all financial instruments. Concerning the powers of regulators, it is 
necessary to enhance the investigatory powers of regulators and to deal with the attempts. 
Concerning the quality of supervision, more harmonisation and convergence in the field of 
sanctions is necessary to achieve a better deterrence. 

–  Transparency. It is necessary to enhance transparency both with regard to the information 
to  regulators  (to  better  check  the  integrity  of  the  markets)  and  the  information  to  the 
markets (to ensure correct investment decisions and have better confidence in the markets).  

–  Coherence with other policies. It is important to keep the consistency with 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 considerations of market stability. 

–  International coherence. More cooperation has to be sought among EU regulators and with 
other  jurisdictions.  The  creation  of  the  European  Securities  and  Markets  Authorities 
(ESMA) will help in this process. 

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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. 

1.2. 

In Europe, secondary market equity trading 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  broker  crossing  networks  and  systematic 
internalisers (SIs). 

In  March  2011,  the  European  equity  market  turnover  was  approximately  €1,885 
Billion170. Of this, approximately 52% was conducted 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 Equity Trading Volume by Venue Type- March 
2011

OTC; 34%

MTF; 14%

Exchange

Exchange; 
52%

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  broad  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  introduction  in  2007,  MTFs172  have  undergone  large  growth,  and  now 
occupy  a  significant  proportion  of  the  European  equity  market  turnover.  Estimates 
based on the above data show that MTFs (such as BATS Europe, CHI-X, Turquoise, 

170 
171 

172 

Thomson Reuters Monthly Market Share Report, March 2011.  
All  European  Equities  Market  Activity  by  Trade  Type  (January  2010  to  January  2011),  Thomson 
Reuters, 2011 
There are currently 138 Multilateral Trading Facilities authorised in the EU, with several equity MTFs 
dominating their total volume – see Annex 4 for details. 

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Burgundy  etc)  currently  account  for  approximately  10%  of  total  European  equity 
trading volume.  

1.5. 

Systematic Internalisers (SIs) were also introduced in 2007173, however they have not 
seen  as  significant  a  growth  as  MTFs  -  currently  only  12  SIs  are  registered  with 
competent authorities. Trading on SIs is generally reported as part of OTC statistics. 
CESR  data  suggests  that  they  do  not  represent  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  indication  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 
(Formerly  ABN 
N.V. 
AMRO BANK N.V.) 

AFM  

1305  

£18,834 million  

BNP Paribas Arbitrage 

AMF  

Citigroup Global Markets  

FSA  

Citigroup  Global  Markets 
U.K. Equity  

FSA  

42  

478  

172  

£7 million  

£22,438 million  

£7,174 million  

Credit  Suisse  Securities 
Europe  

FSA  

705  

£33,234 million  

Danske Bank  

Finanstilsynet  80  

DKK 6,044 million  

Deutsche 
Aktiengesellschaft, 
Frankfurt/Main, Germany  

Bank 

BaFin  

792  

£14,033 million  

Goldman 
International  

Sachs 

FSA  

Knight  Equity  Markets 
International  (Started  Jan 
09) 

FSA  

98  

n/a 

Nomura 
(Formerly 
Brothers) 

International 
Lehman 

FSA  

n/a 

Nordea  Bank  Danmark 
A/S  

Finanstilsynet  20  

£179 million  

n/a  

n/a  

DKK 7,513 million  

173 

174 

Systematic  Internalisers  (SIs)  are  trade  matching  systems  run  by  investment  firms  -  see  Glossary  in 
Annex 5 for details. 
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  

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and  UBS  AG 

UBS 
(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  actual  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, financial institutions and corporates raised a total 
of $8,604.8 billion on the domestic (European) debt Market, compared to $14,761.3 
billion raised on the international debt market as of December 2009177. A breakdown 
of  outstanding  domestic  and  international  debt  securities  (financial,  corporates  and 
governments) is shown below.  

International debt securities by residency
As of Dec-09, in billions of US Dollars

Financial 
institutions
Corporate issuers

Governments

3,500

3,000

2,500

2,000

1,500

1,000

500

0

2.2. 

Unlike  equities,  corporate  and  financial  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 relates 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 
176 

177 
178 

See Glossary in Annex 5 for details. 
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  
PWC estimates from their report prepared for Commission services. 
Celent, October 2009 “Electronic Trading of Bonds in Europe – Weathering the storm” 

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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. 

Listings per Bond types for the most active markets

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0

Luxembourg Stock Exchange

Deutsche Börse

Irish Stock Exchange

London Stock Exchange

Listed 2008 Government Bonds

Listed 2008 Corporate Bonds

Listed 2009 Government Bonds

Listed 2009 CorporateBonds  

2.4. 

Although non-government debt may be listed, trading does not necessarily occur on 
exchanges; rather, estimates based on UK FSA transaction reporting data show that 
approximately 89% of non government debt trading occurs OTC180.  

3. 

EQUITY AND DEBT INSTRUMENTS ONLY TRADED ON MTFS 

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  provides  an  approximation  of  volumes  in 
these instruments181.  

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 
180 
181 

PWC estimates based on FESE data, from their report prepared for Commission services. 
PWC estimates based on data from UK FSA, from their report prepared for Commission services. 
PWC estimates based on survey of European MTFs, a limited number of MTFs did not provide data, 
however  these  were  considered  statistically  insignificant.  From  their  report  prepared  for  Commission 
services. 

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4. 

EU DERIVATIVES MARKETS 

4.1. 

4.2. 

There has been significant growth over a sustained period in the derivatives market, 
checked by a marked downturn in 2008. Whilst traditional exchange trading has seen 
some growth, the most significant growth has been in the OTC arena.  

Exchange traded derivatives are generally confined to more standard products such 
as options and futures, whilst OTC derivatives are not and may include products such 
as  swaps  and  forward  rate  agreements.  Data  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 trading compared with 
that of exchange trading182. 

International derivatives m arkets $bn, notional am ounts 
outstanding 

800.00

700.00

600.00

500.00

400.00

300.00

200.00

100.00

0.00

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 total OTC derivative market 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) whilst commodity derivatives represent 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 

Credit default swaps 

--- 

Equity-linked 

2 

6 

4 

40 

29 

7 

56 

58 

8 

50 

42 

6 

49 

33 

6 

182 
183 

BIS, International derivatives markets $bn, notional amounts outstanding.  
BIS, Risk instruments in global OTC markets Notional amounts outstanding. 

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Commodity 

Unallocated 

1 

18 

1 

27 

7 

43 

8 

71 

4 

71 

3 

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. 

4.5. 

The  characteristics  of  the  foreign  exchange  and  interest  rate  markets  (such  as  high 
liquidity  and  their  dependence  on  macro  economic  factors)  mean  there  is  generally 
less risk of market abuse in theses markets. 

The  EU  is  a  key  location  for  OTC  trading  with  the  UK,  France,  and  Germany 
accounting for almost half of the global daily turnover - a breakdown by country is 
shown below184. 

Location of OTC derivatives turnover by average daily turnover 

2001 

% 
share 

33,7 

15,3 

5,7 

7,1 

3,9 

3,4 

2004 

% 
share 

38,0 

19,3 

6,6 

6,0 

3,2 

2,4 

2007 

% 
share 

40,9 

18,6 

5,4 

4,4 

4,1 

4,0 

UK  

US 

France  

Japan  

Singapore  

Switzerland  

184 

BIS,  Triennial  Central  Bank  Survey  of  Foreign  Exchange  and  Derivatives  Market  Activity  in  2007 
http://www.bis.org/statistics/ 

EN 

99 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
Germany  

Hong  Kong 
SAR 

Australia 

Others 

8,5 

2,8 

2,7 

4,1 

2,6 

2,7 

3,2 

3,1 

3,0 

16,8 

15,0 

13,3 

EN 

100 

   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  determine  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 they are sent for matching. Some 
systems  match  only  client  orders,  while  others  (depending  on 
instructions/  permissions)  also  provide  matching 
client 
orders. 
between 
Broker  crossing  networks  do  not  show  an  order  book,  and  as 
noted above, simply aim to match orders; due this nature they 
are  sometimes  compared  to  Dark  Pools,  which  have  similar 
characteristics.  

orders 

house 

client 

and 

Central 
(CCP) 

Counterparty 

A Central Counterparty is an entity that acts as an intermediary 
between  trading  counterparties  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 
(DMA) 

access 

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 3rd party firm electronic 
access to the market via their own systems.  

Lit and Dark orders 

Market Maker 

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. 

A  market  maker  is  a  firm  that  will  buy  and  sell  a  particular 
security  on  a  regular  and  continuous  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 

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Multilateral 
Facility (MTF) 

Trading 

so enhance liquidity in that security. 

introduced 

MiFID 
the  concept  of  Multilateral  Trading 
Facilities  (MTFs)  to  replace  Alternative  Trading  Systems 
(ATSs)  (which  had  been  established  prior  to  MiFID  but  were 
not  subject  to  specific  European  legislation).  An  MTF  is  a 
system, or "venue", which brings together multiple third-party 
buying  and  selling  interests  in  financial  instruments  in  a  way 
that results in a contract, MTFs can be operated by investment 
firms or market operators and are 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  market  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  instruments  examples  include 
GFI's  Creditmatch, 
and 
Energywatch MTFs.  

Forexmatch,  Marketwatch 

Over the counter (OTC)  Over  the  counter,  or  OTC,  refers  to  bilateral  trading  of 
instruments; for example one investment firm selling direct to 
the  definition  has 
another.  As  markets  have  evolved, 
broadened to trading not done on a designated trading venue – 
for example it may now include bilateral trading of instruments 
which are exchange listed, and trading of instruments done via 
more organised arrangements (such as systematic internalisers 
and broker crossing networks). 

Primary 
Operations 

Market 

Primary  Market  Operations  are  transactions  performed  by 
dealers to provide liquidity to issuers of new securities such as 
sovereign  debt  and  for  the  purposes  of  stabilisation  schemes 
(i.e.  share 
to  stabilise  a  share  price). 
Stabilisation  schemes  are  defined  under  the  Market  Abuse 
Directive. 

intended 

issues 

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 MiFID in 2007 Systematic Internalisers (SIs) are 
institutions  large  enough  to  match  client  orders  internally,  or 

185 

CESR MiFID database, http://mifiddatabase.cesr.eu/  

EN 

102 

   EN 

 
                                                 
(SI) 

against  their  own  books  (unlike  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  systematic  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 large) 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  investments,  raising  the  price  of  the 
investment to an abnormal or artificial level. 

Misuse of information 

Misuse of information 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  refers  to  trading,  or  placing  orders  to 
trade,  which  employs  fictitious  devices  or  any  other  form  of 
deception or contrivance. 

Dissemination 

Dissemination  refers  to  giving  out  information  that  conveys  a 
false  or  misleading  impression  about  an  investment  or  the 
issuer of an investment where the person doing this knows the 
information to be false or misleading. 

Distortion 

and  Distortion  and  misleading  behaviour  refers  to  behaviour  that 

186 

UK FSA, http://www.fsa.gov.uk/pubs/public/market_abuse.pdf 

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103 

   EN 

 
                                                 
misleading behaviour 

gives a false or misleading 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  commonly  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 

Short And Distort 

Front Running 

Interpositioning 

Spoofing or Layering 

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  is  the  opposite  of  Pump  and  Dump 
and  is  where  a  person  short-sells  an  instrument  and 
then  spreads  negative  rumours  in  an  attempt  to  drive 
down the instrument's price and realized a profit. 

Front  running  is  where  a  broker  intentionally  trades 
because of and ahead of a client order. For example a 
broker  who  buys  100  Company  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  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 generally also gain some form 
of  benefit  –  e.g.  through  mutual  interpositioning  or 
other  benefits.  The  client  ultimately  loses  out  by  not 
receiving best execution. 

Spoofing  and  layering  are  a  form  of  order  book 
manipulation  and  involve  putting  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  the  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 

104 

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market a misleading impression which may encourage 
them to trade with the intended order. 

EN 

105 

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ANNEX 6 – STAKEHOLDERS CONCERNED BY MARKET ABUSE 

•  Investors are the most concerned by market abuse, as they are the main victims who suffer 
economic losses or lose confidence as a result of insider trading or market manipulation. 
Investors may also perpetrate market abuse (knowingly or otherwise); 

•  Financial  intermediaries,  who  may  also  suffer  economic  loss  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 perpetrate market abuse (knowingly or otherwise); 

•  Trading  venues,  including  regulated  markets,  MTFs  and  other  types  of  trading  facilities, 
who have to have in place surveillance tools to monitor their markets for possible insider 
dealing or market manipulation; 

•  Issuers, whether companies or governments, who may see the prices of their shares/bonds 
affected  by  market  abuse,  who  have  to  comply  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  discharging  managerial  functions  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) who are already listed or may be considering 

seeking a listing in order to raise capital; 

•  Regulators  whose  responsibility  it  is  to  detect,  investigate  and  sanction  cases  of  market 

abuse in cooperation with other stakeholders. 

•  All natural and legal persons that might find themselves subject to investigations, measures 

and sanctions for market abuse practices. 

EN 

106 

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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  prohibiting  insider  dealing  or  market 
manipulation  in  financial  instruments  which  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 markets. Instruments traded on these markets 
were  considered  to  be  sufficiently  standardised,  to  be  the  subject  of  enough  public 
information  and  to  have  a  broad  range  of  investors  (including  retail  investors),  to 
warrant  the  protections  in  MAD  being  applied  to  them.  However,  this  focus  on 
instruments 
regulated  markets  has  been  overtaken  by  market 
developments. 

traded  on 

In  recent  years  (especially  since  the  adoption  of  MiFID),  multilateral  trading 
facilities (MTFs) have provided more competition to existing exchanges, gaining an 
increased  share  of  liquidity  and  attracting  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  also  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  trade  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 market189. Trading in these instruments therefore 
falls  outside  the  scope  of  the  MAD,  and  although  some  Member  States  have 
extended the MAD to such financial instruments only traded on MTFs in whole or in 
part  at  national  level,  8  Member  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  exchanges  have  expressed  concern  that  the 
increasing  fragmentation  of  trading  across  different  venues  may  make  it  more 
difficult  for  a  single  trading  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 
188 

189 

190 

Article 9 para. 1 of directive 2003/6/EC.  
A  crossing  system  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. 
Source: Unpublished PWC report commissioned by DG MARKT, Data gathering and analysis in the 
context of the MiFID review, p. 315 
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 

107 

   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 surveillance requirements because MTFs may 
either  not  be  covered  by  the  MAD  or  may  be  subject  to  different  obligations  or 
standards for the monitoring of possible market abuse192.193 

Issues  regarding  improved  cooperation  and  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 functionalities not fully covered by the MAD 

With  an  increase  in  the  use  of  technology  there  has  been  an  emergence  of  new 
organised  trading  functionalities  that  differ  from  the  established  trading  venues 
(regulated  markets  and  MTFs).  Examples  of  such  functionalities  include  broker 
crossing  systems  (where  systems  are  used  to  cross  client  orders  in  more  liquid 
financial  instruments),  swap  execution  facilities  and  other  inter-dealer  broker 
systems  bringing  together  third-party  interests  and  orders  by  way  of  voice  and/or 
hybrid voice/electronic execution systems.  

Some of these systems such as broker crossing 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  trade  other  financial  instruments  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 default 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  protections  against  insider 
trading and market manipulation ensured for regulated markets by the application of 
MAD,  especially  as  those  instruments  become  more  standardised  and  there  is  a 
broader  participation  by  investors  in  the  trading  of  the  instruments.  This  trend  is 
likely to become more prominent in the future as other EU legislative initiatives will 

191 

192 

193 

194 

See  intervention by  Fabrice Peresse of  NYSE  Euronext, summary  of discussions  of panel  2  at 2  July 
2010 public hearing in annex 3 . 
Source:  Federation  of  European  Stock  Exchanges  (FESE),  Response  to  the  Commission's  call  for 
evidence – Review of the Market Abuse Directive, p 2. 
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  subject  to  the  requirement  in  Article  6.6  of  MAD  to  adopt  structural 
provisions aimed at preventing and detecting market manipulation practices. 
Typically  such  systems  use  algorithms  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 relatively insignificant in terms of the overall percentage of 
trading but continues to grow. 

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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 instruments for market manipulation 

In addition to the growth of MTFs and other organised trading facilities, the focus of 
the MAD on instruments traded on regulated markets has been overtaken by market 
developments in a second respect. Regulators have noted that manipulation of some 
instruments may involve conduct that takes place using financial instruments traded 
outside  the  relevant  market  but  which  has  an  effect  on  trading  of  the  financial 
instrument on the market. The conduct may occur using a related instrument traded 
OTC or a related instrument traded on a different market (e.g. a derivative instrument 
traded  on  one  market  to  manipulate  an  underlying  financial  instrument  on  another 
market).195 The potential impact of such cross-market manipulation is illustrated by 
the  recent  Amaranth  case  as  described  by  the  Commission  services  in  the  impact 
assessment  for  the  proposal  for  a  regulation  on  energy  market  integrity  and 
transparency.196  

Currently  the  MAD  does  not  explicitly  prohibit  market  manipulation  by  the  use  of 
financial instruments not admitted to trading on a regulated market, but that can have 
an  impact  on  such  a  market.  Regulators  have  expressed  concern  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  clearly  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.  Although  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 MAD198. 

7.1.4.  Potential use of high speed, high volume automated trading for market abuse 

Another significant trend since the commencement of the MAD is the increasing use 
of automated trading. Automated trading, also known as algorithmic trading, can be 
defined  as  the  use  of  computer  programmes  to  enter  trading  orders  where  the 
computer algorithm decides on aspects of execution 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 example funds and brokers). A specific type of 
automated or algorithmic trading is known as high frequency trading (HFT).199  

195 

196 
197 

198 
199 

Task  Force  on  Commodity  Futures  Markets,  Final  Report,  Technical  Committee  of  the  International 
Organization of Securities Commissions, March 2009 
REF: DG ENER IA. 
CESR’s  response  to  the  European  Commission’s  call  for  evidence  on  the  review  of  Directive 
2003/6/EC (Market Abuse Directive), p.3. 
Ibid, p3. 
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 horizons199. 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.  

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A  significant  risk  associated  with  the  advent  of  automated  trading  is  the  threat  it 
potentially can pose to the orderly functioning of markets in certain circumstances200. 
In  addition,  specific  strategies  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 market manipulation is adequately 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  they  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  definition  of  market  manipulation  expressly  states  that  it 
should  be  adapted  to  ensure  that  new  patterns  of  activity  can  be  included.  Some 
regulators  have  already  published  information  about  specific  automated  trading 
practices that constitute manipulation of an order book and therefore are contrary to 
the MAD202. However, there appears to be a case for better and uniformly defining 
abusive strategies in the area of automated 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  automated  trading.  Therefore,  in  the  upcoming 
consultation  paper  on  the  MiFID  Review  the  Commission  is  going  to  seek 
stakeholders views on proposals in this area. 

7.2. 

Problem  2:  Gaps  in  regulation  of  commodity  and  commodity  derivatives 
markets 

Market  abuse  may  take  place  across  markets.  Manipulative  schemes  can  extend 
across different types of markets, and a person can benefit from inside information in 
one  market  by  trading  on  another.  This  raises  special  concerns  for  commodities 
markets,  where  market  integrity  and  transparency  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 

201 

202 

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.  
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 
Notably, the UK FSA, cf. http://www.fsa.gov.uk/pubs/newsletters/mw_newsletter33.pdf.  

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commodity  market  has  a  different  market  structure  and  set  of  price  drivers.  The 
degree to which commodities are interchangeable and portable may also vary greatly, 
and their production patterns are global.  

In  contrast,  financial  instruments  are  fungible  and  tied  to  an  issuer  in  a  particular 
jurisdiction.  Strong  business  secrecy  and  geopolitical  issues  may  also  affect  and 
abruptly  alter  information  flows  and  there  is  less  systematic  disclosure  of  market 
relevant information than in the case of financial 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 related derivative markets. 

General  rules,  such  as  the  prohibition  against  fraud,  apply  to  physical  markets,  but 
there  are  no  general  provisions  that  ensure  transparency  of  trading  activity  and 
prices, and that govern how traders 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 may be different for each commodity. 

inside 

information,  nor  record  keeping  of 

Typically,  rules  governing  commodities  markets  do  not  require  comprehensive 
disclosure  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  markets  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  required  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 energy market regulator. The Commission has 
also  adopted  a  Regulation  on  the  timing,  administration  and  other  aspects  of 
auctioning  of  greenhouse  gas  emission  allowances205  which  addresses  market 
oversight  issues,  and  the  Commission's  recent  Communication  on  carbon  market 
oversight206  provides  a  preliminary,  high-level  assessment  of  the  current  levels  of 

203 

204 
205 
206 

CESR  and  ERGEG  advice  to  the European  Commission  in  the  context  of  the  Third Energy  Package, 
Response to Question F.20 - Market Abuse, October 2008, page 3 
Article 25(3) of Directive 2004/39/EC and Articles 10 to 14 of Regulation 1287/2006 
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:302:0001:0041:EN:PDF 
COM (2010) 796 final, 21.12.2010. 

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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  supervisors  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  absence  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  markets.  They  will  therefore  also  be  the 
counterparty  to  many  derivatives  trades.  Both  markets  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 platforms, such as the CME in Chicago and the 
LME  in  London,  others  may  work  on  a  purely  bilateral  basis.  Trading  may  be 
relatively transparent in one market, but prices and trades may be entirely opaque in 
another. The detection of market abuse may be more difficult for commodities due to 
the global nature of these markets. When manipulative strategies extend across both 
the  commodity  and  the  commodity  derivatives  market,  detection  and  prosecution 
would require cooperation between authorities 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  information208. 
However, currently there is no obligation in the MAD for financial regulators to take 
into  account  developments  on  physical  commodity  markets  when  monitoring 
financial  markets  for  possible  market  abuse,  or  to  cooperate  and  exchange 
information with regulators of physical markets. Since it is possible for transactions 
on physical markets to be used to manipulate the prices of instruments on financial 
markets  and  vice-versa,  as  explained  above,  this  lack  of  cooperation  between 
physical  and  financial  market  regulators  could  undermine  the  integrity  of  both 
physical and financial markets.209 

207 
208 

209 

http://www.gtsa.ch/geneva-global-trading-hub/key-figures 
Task  Force  on  Commodity  Futures  Markets,  Final  Report,  Technical  Committee  of  the  International 
Organization of Securities Commissions, March 2009 
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. 

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7.2.3.  Lack of information that affects commodity prices 

The definition of inside information applicable to derivatives on commodities210 lays 
down  a  specific  standard,  which  differs  from  the  general  definition  of  inside 
information  applicable  to  all  other  financial  instruments.211  Essentially,  for 
commodity  derivative  markets  the  determination  of  what  should  be  regarded  as 
inside  information  is  largely  determined  by  the  transparency  standards  prevalent  in 
both the spot and the derivative market 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  markets,  which  creates  legal  uncertainty 
for market participants.213 

In  recent  years,  several  studies  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  -  transparency  of  fundamental  data  has  to  be  improved.  In 
particular, rules and practices are not precise 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  derivatives  of  financial  markets.  Energy  market  regulators 
cite  concern  among  market  participants  that  there  are  information  asymmetries 
linked to a poor level of transparency which may lead to market abuse.215 

210 

211 
212 

213 

214 

Article  1.1  §  2  of  Directive  2003/6/EC  and  implemented  in  Article  4  of  implementing  Directive 
2004/72/EC. 
Article 1.1 § 1 of Directive 2003/6/EC 
This  standard  refers  to  information  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 relevant underlying commodity or commodity derivative 
market. 
ESME  Report,  Market  abuse  EU  legal  framework  and  its  implementation  by  Member  States:  a  first 
evaluation, Brussels, July 6th, 2007, page 17. 
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 Commodity and Commodity Derivatives Markets, Piero Cinquegrana, European 

Capital Markets Institute (ECMI) (2008) 

IMF, Word Economic Outlook, October 2008 
215 

CESR  and  ERGEG  advice  to  the European  Commission  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 market transparency, integrity and investor protection. These proposals 
do not cover other commodities markets. 

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7.2.4.  Uncertainty  on  who  is  responsible  for  disclosing  inside  information  in  relation  to 

commodity derivatives 

Article  6  of  the  level  1  directive  suggests  that,  like  all  issuers  of  other  financial 
instruments  admitted  to  trading  on  regulated  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 participant, who will only possess a small part 
of the information covered by the transparency standards prevalent in both the spot 
and the derivative market of the relevant commodity. While the market operator or 
other  participant  who  issued  the  instrument  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 respect the issuer of 
a commodity derivative is in quite a different 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  field216.  Regulators  have  noted 
that it will typically be market participants in the product markets who possess such 
information, but it may not be appropriate 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 markets. This means that such information 
may not be published, or only published in a fragmented way. 

Respondents218  to  the  public  consultation  have  raised  the  point  that  commodity 
markets vary according to the type of commodity and were of the opinion that tailor-
made,  sector  specific  transparency  regimes  that  would  enhance  transparency  in  the 
spot markets would be a good solution. 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 definition of inside information for commodity 
derivatives.219  

7.2.5.  Concern that speculation in derivatives markets affects commodity prices  

Concerns  have  been  raised  that  investment  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 
217 

218 
219 

http://www.cesr-eu.org/index.php?page=document_details&from_title=Documents&id=5270 
European  Commission  Consultation  Paper  on  a  Revision  of  the  MAD,  Contribution  des  autorités 
françaises 
For example FOA, AIMA, AFG and ICAP. 
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  emission  allowances  trading  which  lays  down  uniform 
requirements  ensuring  market  transparency,  integrity  and  investor  protection.  These  proposals  do  not 
cover other commodities markets. 

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For  instance,  the  price  rises  in  respect  of  certain  staples  may  be  attributed  to  a 
substantial  extent  to  speculation  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  increase  futures  prices,  impede 
price convergence and contribute 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  distorting  or  trying  to  distort  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  hypothesis  that  speculators  play  a  role  in 
providing liquidity to the markets and may benefit from price movements, but do not 
have a systematic causal influence on prices.224 

When  speculation  uses  abusive  methods  to  manipulate  prices  on  a  market  it 
constitutes  market  manipulation  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  Markets  in  Financial  Instruments  Directive 
(2004/39/EC), which considers the option of giving regulators the power to set limits 
on derivative positions market participants can hold under certain conditions. 

7.2.6.  No prohibition against market manipulation in commodities markets 

Market  manipulation  in  commodities  markets  is  currently  not  prohibited.  While 
in  commodity  derivatives  markets, 
MAD  prohibits  market  manipulation 
manipulation  of 
is  currently  not  prohibited.  Also, 
manipulating  derivatives  markets  through  commodities  markets  is  not  adequately 
covered under the current directive. 

the  underlying  markets 

Regulators have expressed concern that the scope of MAD may not properly address 
market  integrity  issues  in  energy  markets,  as  physical  products  are  not  covered.225 

220 

221 

222 

223 

224 
225 

UNCTAD,  Addressing  the  global  food  crisis.  Key  trade,  investment  and  commodity  policies  in 
ensuring sustainable food security and alleviating poverty, 2008 
Timmer, C. Peter. Causes of High Food Prices. Asian Development Bank Working Paper Series No. 
128, October 2008 
U.S.  permanent  sub-committee  on  investigations,  "excessive  speculation  in  the  wheat  market,"  June 
2009 
Commission  Staff  Working  Document  –  Task  force  on  the  role  of  speculation  in  agricultural 
commodities price movements, SEC (2008) 2971 
IMF, Global Economic Outlook, September 2006. 
CESR  and  ERGEG  advice  to  the European  Commission  in  the  context  of  the  Third Energy  Package, 
Response to Question F.20 - Market Abuse, October 2008, page 15 

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This  is  due  to  the  fact  that  manipulative  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  takes  place  on  commodity  futures,  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  legal  framework  is  not  suited  to  address 
manipulative strategies that extend across physical and derivatives markets.229 

For instance, a manipulative strategy may involve taking a large derivatives position; 
stockpiling the underlying commodity, and then requiring the counterparties on the 
derivatives  deals  to  settle  the  derivatives  contracts  by  physical  delivery  of  the 
underlying. 

Of notable concern are cases 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 commodity 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 limited to transactions or orders to trade 
which distort the prices of financial instruments to an artificial level. Transactions in 
derivatives  which  distort  the  prices  of  other  financial  instruments  are  illegal,  while 
transactions  in  derivatives  which  distort  the  prices  of  physical  markets  are  not 
covered under the current definition of market manipulation. This means that market 
manipulation  of  prices  on  physical  commodities  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 certain information or powers 

7.3.1. 

Insufficient information available to regulators to monitor market integrity 

Article  6(9)  of  the  MAD  requires  persons  professionally  arranging  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 

227 

228 

229 

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. 
Task  Force  on  Commodity  Futures  Markets,  Final  Report,  Technical  Committee  of  the  International 
Organization of Securities Commissions, March 2009, page 15 
Proposal  for  a  regulation  on  Energy  Market  Integrity  and  Transparency,  Impact  Assessment, 
SEC(20101510), 08/12/2010 
European  Commission  Consultation  Paper  on  a  Revision  of  the  MAD,  Contribution  des  autorités 
françaises 

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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. Consequently these markets and instruments remain 
in-transparent and outside the supervisory oversights of competent authorities. As a 
result market abuse remains undetected. 

The  reporting  of  OTC  transactions  on  instruments  not  admitted  to  trading  on  a 
regulated  market  to  the  competent  authorities  is  not  currently  mandatory,  and  such 
reporting would make it easier for regulators to address any issues of market integrity 
which  might  emerge230.  This  issue  falls  outside  the  scope  of  the  MAD  review  but 
will  be  addressed  in  the  MiFID  review,  since  that  is  where  transaction  reporting 
requirements  are  provided  for.  Options  under  consideration  in  the  context  of  the 
MiFID review relating to the widening of the current scope of reporting concern (i) 
transactions  on  instruments  only  traded  on  MTFs;  and  (ii)  transaction  or  position 
reporting on OTC derivatives. 

An  additional  problem  is  that  while  Article  6(9)  of  the  MAD  requires  persons 
professionally  arranging  transactions  in  financial  instruments  to  report  suspicious 
transactions to the competent authority without delay, this obligation does 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 misleading 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  OTC  derivatives  mandatory  as  regulators  are 
concerned about the potential for OTC derivatives to be used for insider dealing and 
market manipulation231. 

7.3.2. 

Insufficient investigation powers of competent authorities 

a) access to telephone and existing data traffic records 

Article  12  of  the  MAD  stipulates  that  competent  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 authorities or with the market; or (c) under its responsibility 
by delegation to such authorities or to the market undertakings; or (d) by application 
to  the  competent  judicial  authorities.  In  practice,  two  types  of  data  constitute 
important evidence to detect and prove the existence of market abuse such as market 
manipulation  and  insider  dealing:  data  records  from  investment  firms  executing 
transactions and telephone data records from telecom operators.  

230 

231 

Article 25(3) of Directive 2004/39/EC (MiFID) and Articles 10 to 14 of Regulation 1287/2006/EC implementing 
MiFID  establish  the  current  requirements  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 require 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). 
CESR’s  response  to  the  European  Commission’s  call  for  evidence  on  the  review  of  Directive 
2003/6/EC (Market Abuse Directive), p. 6. 

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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 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 trading with this inside information, access to telephone data records held 
by telecom operators can be very important evidence. For example, this data would 
represent  important  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 who afterwards 
executes  a  suspicious  transaction  based  on  the  inside  information  received.  The 
telephone traffic records from telecom operators 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 called their broker to instruct them to make a 
suspicious  transaction.  The  traffic  records  from  telecom  operators  would  provide 
evidence of a link which could be used as evidence to sanction the case. 

Therefore, access to this data from telecom 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 article 15 of Directive 2002/58/EC233 (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.  State  security),  defence,  public  security,  and 
the  prevention, 
investigation, detection and prosecution of criminal offences or of unauthorised use 
of the electronic communication system, as referred 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 existing telephone data records from telecom 
operators to provide evidence for the investigation and sanctioning of market abuse 
when the authority does not have the possibility to pursue criminal cases. As a result, 
specific  market  abuses  subject  to  administrative  measures  and/or  administrative 
sanctions  may  remain  undetected  and  unsanctioned  regardless  of  the  powers 
provided by article 12 of the MAD.  

It should be noted that any policy 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.  

b)  Power  to  ask  permission  from  a  court  to  enter  private  premises  and  seize 
documents 

232 

233 

234 

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. 
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. 
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. 

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For the purpose of detecting market abuse, it is important for competent authorities 
to have the possibility to be granted access 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 believing 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  provide  for  access  to  any  document,  not  all 
competent authorities have the power to enter private premises and seize documents 
avoiding  the  risks  described  above.  As  a  result,  the  risk  exists  that  competent 
authorities  in  such  cases  are  deprived  from  important  and  necessary  evidence,  and 
accordingly, market abuse remains undetected and unsanctioned.  

In  this  context,  is  important  to  point  out  that  such  an  access  constitutes  an 
interference  with  the  fundamental  right  to  private  and  family  life,  recognised  by 
Article  7  of  the  EU  Charter  and  could  constitute  a  limitation  to  the  freedom  to 
conduct  a  business.  Therefore,  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  anti-competitive 
practices, and where various documents and data media were seized. The Court has 
found that the conditions applicable 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 appropriate redress in case of unlawful search 
and seizure. 

7.3.3.  Attempts at market manipulation not prohibited  

Another gap in the Directive is that currently it does not cover 'attempts' at market 
manipulation235,  so  proving  a  market  manipulation  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  always  possible.  For 
example,  there  may  be  situations  where  a  person  takes  steps  and  there  is  clear 
evidence of an intention to manipulate the market but for some reason either an order 
is not placed, or a transaction 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  regulators  with  a  tool  to  sanction  attempts  at  market 
manipulation which do not succeed, or cases where 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 prohibiting attempted market manipulation in its 
legislation and has prosecuted cases on this basis236. 

235 
236 

Article 6 para. 9 of Directive 2003/6/EC. 
See intervention by Stephen Obie, Commodities and Futures Trading Commission (CFTC), summary of 
the MAD hearing of 17 July 2010 in annex 3. 

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7.3.4.  Absence of protections and incentives for whistle blowers 

When  investigating  market  abuse,  competent  authorities  have  many  investigatory 
tools  at  their  disposal;  however  a  useful  source  of  primary  information  is  the 
financial industry itself, which may alert competent 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  differ  significantly  and  there  are  key  areas  where  current 
provisions  are  considered  insufficient;  specifically  -  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 protection 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 
all238. Without sufficient protection, market participants who may be aware of market 
abuse  may  not  feel  confident  to  report  their  suspicions  for  fear  of  reprisals  (for 
example  losing  their  job,  not  gaining  promotion  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 provisions in place for whistle blowing for 
the  purpose  of  market  abuse  to  alert  competent  authorities  to  potential  cases  of 
market abuse and have issued little guidance on the subject239. Whilst firms generally 
have their own internal procedures, competent authorities play a vital, independent, 
3rd party role for whistle blowers who cannot  raise an issue internally or who have 
tried to raise an issue internally without success. As a consequence, whistle blowers 
may be discouraged from contacting competent authorities and so potential cases of 
market abuse may go unreported. 

It is also important that competent authorities 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 dismissed240. Therefore there is the potential problem, 

237 

238 
239 

240 

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. 
Feedback received from CESR-Pol members, December 2010. 
Whilst some member states already have provisions in place (e.g. UK FSA has a public email address, 
telephone number and guidance on its website), the majority do not. 
SEC - Office of Inspector General, Investigation of Failure of the SEC To Uncover Bernard Madoff's 
Ponzi Scheme, Case No. OIG-509, August 2009  

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as seen in the US, that competent authorities may not have the appropriate internal 
processes in place to adequately review information sourced 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  have  a  regulatory  obligation  to  report  this 
(for  example  workers  in  a  prospectus  printing  firm),  whilst  other  participants  may 
stand to lose personally if they do report their suspicions (for example they may find 
it hard to find employment after being named 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  attention  of  the  competent  authority  actually  remain 
undetected.  It  is  in  order  to  provide  an  incentive  for  such  persons  that  the  US  is 
currently finalising specific provisions for financially rewarding 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 SEC241.  

Whistle blowing has proved to be a useful tool across many sectors - according to a 
recent  survey  analysing  360  cases  across  Europe,  Middle  East  and  Africa,  25%  of 
occurrences  of  fraud  came  to  light  as  a  result  of  whistle  blowing  –  more  than  any 
other  actor  including  regulators,  auditors  and  the  media242.  In  the  case  of  market 
abuse, whistle blowing can also be a powerful tool, not only providing evidence in 
specific  cases  but  also  helping  regulators  to  enhance  their  market  intelligence  and 
maintain  an  overview  of  suspected  abuses/abusers.  In  the  UK,  for  example, 
approximately 30% of investigations are originated via a member of the public or an 
anonymous person contacting its telephone helpline or email inbox (excluding those 
originated by suspicious transaction reports or stock exchange notifications)243.  

It  should  be  noted  that  whistle  blowing  raises  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  schemes  should  comply  and  integrate  data 
protection  principles  and  criteria  indicated  by  EU  data  protection  authorities244  and 
ensure safeguards in compliance with the Charter of fundamental rights. 

241 

242 

243 

244 

The Financial Regulation Bill (also known as the Dodd-Frank Act) includes the provision for a reward 
programme to compensate whistleblowers who report fraudulent 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. 
Alternative  to  Silence,  Whistle  blowing  protection  in  10  European  Countries;  Transparency 
International, 2010. Source – KPMG Forensic, profile of Fraudster, Survey 2007 
Figures provided by UK FSA for period 01 December 2009 – 30 November 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. 
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  accounting,  internal  accounting  controls,  auditing 

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Part 2: Sanctions for market abuse 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  sanctioning  regimes".  To  this 
end,  the  group  considers  supervisory  authorities  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, proportionate 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  are  regarded  as  in  general  weak  and 
heterogeneous. To this end, the Commission has published a Communication246 with 
regard to sanction regimes in the financial sector. 

7.3.5.  Not all Member States have all types of sanctions at their disposal 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 the 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  are  optimal  in  terms  of  effectiveness,  proportionality  and 
dissuasiveness247. Evidence shows that not all competent 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  administrative  sanctions.  For  example,  4  Member 
States  do  not  have  administrative  measure  available  for  insider  dealing  and  for 
market manipulation. In addition, as shown in table 1 respectively 4 and 8 Member 
States  do  not  have  pecuniary  administrative  sanctions  available  for  insider  dealing 
and market manipulation. Further, in 8 Member States, competent authorities do not 
have the possibility to withdraw the authorisation in case of violations. As a result, in 
cases  where  it  would  be  appropriate  and  proportionate  to  withdraw  authorisation, 
competent authorities would not be allowed to do so. In addition, 18 Member States 

245 
246 

247 

EN 

fight 

against 

bribery, 

banking 

matters, 
http://ec.europa.eu/justice/policies/privacy/docs/wpdocs/2006/wp117_en.pdf 
Report of the High-Level Group on Financial Supervision in the EU, Brussels, 25.2.2009, p. 23. 
European  Commission,  Communication  on  Reinforcing  sanctioning  regimes  in  the  financial  sector, 
COM (2010) 716, 8 December 2010. 
European  Commission,  Communication  on  Reinforcing  sanctioning  regimes  in  the  financial  sector, 
COM (2010) 716, 8 December 2010, p 4-6  

available 

financial 

crime 

and 

at 

122 

   EN 

 
                                                                                                                                                         
do  not  provide  for  the  disqualification/dismissal  of  the  management  and/or 
supervisory body in cases involving market manipulation248.  

Table 1: overview of availability of administrative sanctions249 

Administrative sanctions 

Insider dealing 

MS without administrative measures 

MS 
pecuniary sanctions 

without 

administrative 

4 

8 

Market 
manipulation 

4 

4 

Source: Executive summary to the report on administrative 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, and additional information received from Member States in 2010.  

7.3.6. 

Insufficient  level  of  administrative  measures  and  sanctions  (Article  14  of  Directive 
2003/6/EC) 

The High Level group on Financial Supervision underlined that "sanctions for insider 
trading  range  from  a  few  thousands  of  euros  in  one  Member  State  to  millions  of 
euros  or  jail  in  another"250,  which  could  lead  to  regulatory  arbitrage  in  a  single 
market.  

First  of  all,  the  level  of  administrative  pecuniary  sanctions  varies  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 undermined251. This is 
reinforced by the fact that the offender might 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 the benefit gained from the offence252. As shown 
in table 2, respectively 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  Million  for  the  same  offences.  These  sanctions  can  be  considered  weak  as 
insider  dealing  and  market  manipulation  offences  covered  by  Directive  2003/6/EC 

248 

249 

250 
251 

252 

CESR,  report  on  administrative  measures  and  sanctions  as  well  as  criminal  sanctions  available  in 
Member  States  under  the  Market  Abuse  Directive  (MAD),  ref  CESR/07-693,  available  at  www.cesr-
eu.org 
Executive summary to the CESR report on administrative measures and sanctions as well as criminal 
sanctions available in Member States under the Market Abuse Directive (MAD), p 2, ref CESR/08-099 
available at www.cesr-eu.org 
Report of the High-Level Group on Financial Supervision in the EU, Brussels, 25.2.2009, p. 23 
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 
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 

123 

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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  dealing  and  Market  Manipulation  among  Member 
States. 

Member States with maximum 
administrative sanctions  

≤ 200. 000 

> 1 Million 

Member States with administrative sanctions linked to the benefit 

No administrative pecuniary sanctions 

Insider 
dealing 

Market 
manipulation 

4 

10 

9 

8 

9 

14 

11 

4 

Source: Executive summary to the report on administrative 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, and additional information received from Member States in 2010.  

Second,  the  criteria  to  determine  the  level  of  sanctions254  vary  widely  among 
Member States. As demonstrated in table 2, respectively 10 and 11 Member States 
take  into  account  the  benefit  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  than  the  benefit  that  may  be  gained  from  a 
violation, its deterrent 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  the  sanctions  (administrative  versus  criminal 

sanctions ) 

MAD requires Member States to provide for administrative sanctions and measures. 
The Directive offers Member States the freedom 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  Member  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 

254 

European  Commission,  Impact  assessment  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  
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 

124 

   EN 

 
 
                                                 
Article  2  (insider  dealing  by  a 
primary insider) 

Article  3a  (disclosure  of 
information by a primary insider)  

inside 

Article  3b  ("tipping"  by  primary 
insiders) 

Article  4 
secondary insiders) 

(insider  dealing  by 

Article  4 
information by secondary insiders) 

(disclosure  of 

inside 

Article  4  ("tipping"  by  secondary 
insiders) 

criminal sanctions 

sanctions 

26/27 

22/27 

25/27 

23/27 

19/27 

21/27 

BG (SI has criminal fines not 
imprisonment) 

BG; CZ; EE; FI; SI 

BG;SI 

BG; IT; SI; ES 

BG; CZ; ET; FI; DE; IT; SI; ES 

BG; CZ; DE; IT; SI; ES 

Article 5 (market manipulation) 

23/27 

AT; BG; SK; SI 

Source: Executive summary to the report on administrative 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, and additional information received 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  expected  to  have  negative 
effects  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 law enforcement authorities. Further, since 
criminal  sanctions  have  a  greater  deterrent  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  dealing  and  15  countries  can  do  the  same  for 
market  manipulation.  On  the  other  hand,  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 dissuasiveness 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 should be imposed and enforced by competent 

EN 

125 

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authorities  when  infringements  occur.  The  fact  that  few  abuses  are  sanctioned  has 
been  underlined  by  some  regulators  and  other  stakeholders  in  their  answers  to  the 
call for evidence255. It can also be deduced, for example 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 insider 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 
States258. 

7.4. 

Problem 4: Lack of clarity and legal certainty 

7.4.1.  Lack of a single rulebook due to options and discretions 

A  number  of  provisions  of  the  MAD  include  options  and  discretions  for  Member 
States which have resulted in divergent 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 options or discretions to implement specific provisions of 
the MAD in different ways means that different Member States have different rules. 
According to the De Larosière report, the single market cannot function properly if 
national  rules  and  regulations  are  significantly  different,  such  diversity  can  cause 
competitive  distortions  and  encourage  regulatory  arbitrage  and  is  inefficient  for 
cross-border  groups.  De  Larosière  also  argues  that  the  main  cause  of  this  situation 
stems  from  the  options  provided  to  Member  States  in  the  enforcement  of  EU 
directives260.  

In light of the advice of the De Larosière report, the Commission has stressed in its 
Communication on Driving European Recovery the need to identify and remove key 
differences in national legislation stemming from exceptions, derogations, additions 
made at national level or ambiguities in current directives261. Some of the provisions 
which  provide  for  options  or  discretions  have  already  been  addressed  in  previous 
sections, and the remaining issues are addressed below. 

Call for evidence on the review of Directive 2003/6/EC on insider dealing and market manipulation 

255 
(Market Abuse Directive), april 2009 
256 

257 

258 
259 

260 
261 

Updated  Measurement 

FSA, 
http://www.fsa.gov.uk/pubs/occpapers/op25.pdf 
CESR,  review  panel  report  on  MAD  options  and  discretions,  p  19,  ref.  CESR/09-1220,  available  at 
www.cesr-eu.org 

6-8  March 

on  market 

cleanliness, 

2007, 

p 

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. 
Report of the High Level Group on Financial Supervision in the EU, Chaired by Jacques de Larosière 
Communication for the Spring European Council, Driving European Recovery, COM(2009) 114 final, 
4.3.2009, p. 6. 

EN 

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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 (AMPs) are behaviours that can reasonably be expected in 
one or more national markets and are accepted by the competent regulatory authority 
as not constituting market abuse. The concept of AMPs was intended to reflect the 
fact  that  the  characteristics  of  each  market  may  differ  and  as  such,  a  particular 
practice may well be appropriate for one market 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 financial 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 
website262.  

The  difficulty  in  relation  to  AMPs  is  that  they  provide  scope  for  divergent 
implementation  by  Member  States.  More  precisely,  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 may be justified by local specificities, may be 
problematic, does not contribute to an integrated financial market where participants 
should be able to rely on the same framework applying across the EU263.  

While  some  stakeholders  have  argued  that  it  is  necessary  for  such  practices  to 
continue  to  be  agreed  at  national  level  to  take  account  of  market  specificities264, 
others consider that more coordination between 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  issuers.  The  purpose  of  this  requirement  is  to  ensure  that 
inside  information  available  to  the  issuers  is  not  unjustifiably  withheld  from  the 
markets,  but  is  disclosed  and  may  be  priced  as  soon  as  possible.  However,  this 

262 
http://www.cesr-eu.org/index.php?page=contenu_groups&id=51&docmore=1#doc  
263 
264 

ESME report (2007), p. 16. 
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. 
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 

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265 

EN 

 
                                                 
 
provision is complemented by the deferred disclosure mechanism set out in Article 
6.2 266, which allows issuers under specific conditions 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 possibility 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  complement  and  amend  the  periodic  information 
disclosed by issuers.  

When considering whether or not to delay the disclosure of inside information to the 
markets,  issuers  have  to  take  legal  advice  to  ensure  that  the  above-mentioned 
conditions for delay are met, because they would be in breach of the Directive if they 
delayed disclosure and this was not the case.  

In  this  regard,  some  issuers  have  signalled  difficulties  with  interpreting  and 
following  the  specific  conditions  under  which  the  disclosure  of  inside  information 
can  be  delayed267.  These  concern  in  particular  the  requirements  that:  (i)  deferred 
disclosure  should  not  mislead  the  public  and  (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 some 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  standard  conditions  for  delayed  disclosure 
should be clarified and/or amended, or special conditions imposed relating to delayed 
disclosure  of  information  of  systemic  importance  (such  as  emergency  lending 
assistance). 

7.4.4.  Clarification of scope of managers' transaction reporting obligations 

As  described  in  more  detail  in  section  3.3.2.  below,  managers'  transaction  reports 
serve important purposes by deterring managers from insider trading 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  reporting  obligation  there  is  a  lack  of 
consistency and clarity among Member States about whether transactions need to be 

266 

267 
268 

"An issuer may under his own responsibility delay the public disclosure of inside information (…) 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 confidentiality of that information". 
See e.g. ESME report. 
With regard to the Northern Rock, competent authorities needed to establish whether delaying information in the 
situation  of  the  bank  was  possible  even  though  confidentiality  of  inside  information  could  not  be  ensured  and 
whether any such delay would not mislead the public (See notably the House of Common's report of January 2008). 
In the case of Société Générale, competent authorities needed to consider whether the delay in revealing the fraud 
and the implied increase in capital would not mislead the public. 

EN 

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reported  in  the  case  of  managed  portfolios  when  the  decision  is  not  taken  by  the 
manager himself, or in situations where the manager pledges or lends their shares.  

7.5. 

Problem  5:  Disproportionate  administrative  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  against  potential  insider  dealing 
practices.  

The insider lists have proved very useful for the competent authorities and are very 
much  used  in  their  investigations,  according  to  the  feedback  received  from  the 
members  of  the  European  Securities  Committee  and  members  of  the  Committee  of 
European  Securities  Regulators270,  as  well  as  from  the  responses  to  the  call  for 
evidence271.  Insider  lists  are  used  by  the  competent  authorities  to  provide  a  ‘first 
instance’ tool in market abuse inquiries. The Member State competent authority can 
then request additional information from the issuer if necessary at a later stage.  

On  the  other  hand,  market  participants272  in  particular  have  been  critical  about  the 
requirement  to  draw  up  insider  lists  because  of:  considerable  compliance  and 
administrative  costs;  uncertainty  about  the  duties  of  insiders  other  than  issuers  (i.e. 
persons  acting  on  their  behalf  or  for  their  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  drawing  up  insider  lists, 
which for multi-listed companies leads to additional compliance and administrative 
costs273.  

Some  competent  authorities,  such  as  for  example  in  the  UK,  only  require  financial 
institutions to include the first name and 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 the insider list can then be gathered at a 
later  stage,  should  a  competent  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  companies  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 insider lists; consequently they tend to produce their lists 

269 
270 

271 

272 
273 

Article 6.3 of Directive 2003/6/EC and 5 of Directive 2004/72/EC. 
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.  
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.  
See ESME report pages 10-13. 
See response by Herbert Smith to the call for evidence, 15 June 2009, p. 6. 

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in accordance with the most detailed requirements 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' transactions 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 share 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 Directive 2004/72/EC at the level of 5 thousand euro276, which the 
majority  of  respondents  to  the  public  consultation  considered  to  be  much  too  low. 
Some stakeholders such as the Association 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  transactions  of  50,000  euro  (calculated  on  a  yearly  basis). 
Under those rules 1600 transactions were notified within a year (from 1 April 2005 
till  31  March  2006).  After  the  entry  into  force  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 executive remuneration in 2008, which has been 
conducted  in  8  Member  States  (UK,  Germany,  France,  Italy,  Spain,  Netherlands, 
Belgium and Sweden), shows that total average 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 Markets Association to the call for evidence of 20 April 
2009, p.11.  

275  The measure imposes an obligation on “persons discharging managerial 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 concerning such transactions (…) is readily available as soon 
as possible”. 
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.  
Data provided to the Commission services by Assonime. 

276 

277 

EN 

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managers'  transactions  is  currently  set  far  too  low  when  compared  with  managers' 
remuneration.278  

Respondents  to  the  public  consultation  have  also  raised  concerns  that  there  is  no 
consistency  or  clarity  about  how  to  treat  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  their  shares  to  be  borrowed.  They  have 
also  raised  the  problem  that  persons  closely  related  to  a  manager  are  not  bound  to 
disclose  relevant  information  to  the  manager  himself  in  order  for  him  to  fulfil  the 
transaction reporting obligation. 

Moreover,  the  provisions  of  the  directive  are  not  very  clear  on  the  relationship 
between  the  obligation  to  notify  the  regulator  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  (SMEs)  significantly  contribute  to  economic 
growth,  employment,  innovation  and  social  integration  in  the  European  Union280. 
According  to  a  survey  by  the  European  Central  Bank  in  2009,  the  main  source  of 
funding  for  such  companies  is  private  financing  by  banks  (32%);,  in  contrast,  only 
0.9%  of  SMEs  had  issued  debt  securities  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  that  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 extending 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 market284. The obligations to disclose price 
sensitive  information,  draw  up  insider  lists  and  disclose  managers'  transactions  are 
those particularly identified by stakeholders as problematic in this regard285.  

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 

279 
280 

281 

282 
283 
284 
285 

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 
This is confirmed by the CESR report on options and discretions (ibid). 
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). 
Survey  on  the  access  to  finance  of  small  and  medium-sized  enterprises  in  the  euro  area,  European 
Central Bank, September 2009, p. 4. 
Fabrice Demarigny, An EU-listing Small Business Act, March 2010, p. 13 
There are currently 14 specialist markets for SMEs that operate across Europe, including AIM and AlterNext. 
See response by European Issuers to public consultation, 27 July 2010, p. 2. 
See response by European Issuers to call for evidence, 15 June 2009, p. 1. 

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   EN 

 
                                                 
monitor information it has and to exercise judgment and seek advice about whether 
and  when  information  needs  to  be  disclosed  to  the  public.  A  study  by  external 
consultants for the Commission services estimates 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  insider  lists  creates  significant  expense  and 
management burdens for smaller quoted companies and that the MAD regime needs 
to  be  simplified287.  The  yearly  cost  of  implementing,  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 

287 

288 
289 

EIM, Effects of the changes in the Market Abuse Directive – Impact on Administrative Burden of Firms 
in the EU, EIM, December 2010, p. 31. 
The  Quoted  Companies  Alliance,  response  to  the  consultation,  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 
at: 
on 
http://www.eurocapitalmarkets.org/node/446. 
EIM (2010), p. 32. 
The Quoted Companies Alliance, response to the consultation, 28 July 2010, p. 4. 

EU-Listing 

available 

Business 

Small 

Act", 

2010 

"An 

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ANNEX 8 – DETAILED ANALYSIS OF IMPACTS OF OPTIONS 

This  section  discusses  the  advantages  and  disadvantages  of  the  different  policy 
options  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 given level of resources or at least cost. 

The  options  are  measured  against  the  above-mentioned  pre-defined  criteria  in  the 
tables  below.  Each  scenario  is  rated  between  "---"  (very  negative),  0  (neutral)  and 
"+++"  (very  positive).  The  assessment  highlights  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 impacts of policy options 

8.1.1.  Policy  options  to  ensure  organised  markets,  new  platforms  and  OTC  transactions 

are appropriately regulated 

These  options  will  be  assessed  against  their  effectiveness  in  achieving  the  specific 
objective of ensuring regulation keeps pace with market developments. These policy 
options  will  also  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.  

8.1.1.1.  Option 5.1.1 – take no action at EU level 

If no action is taken, then the extent to which 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  increasing  investor  protection  and  market 
integrity will therefore not be met, and gaps in regulation of these instruments will 
continue to exist in Member States not covering 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 swaps) uncertainty would 
remain in specific situations about whether 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  financial  instrument  in  the  MAD  would  be 
aligned with the definition in MiFID. Further 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  participants  about  which 
instruments, especially derivatives, are covered by the Directive. While in substance 
the definitions are very similar, the MiFID definition sets out in more detail than the 
MAD  definition  the  instruments,  especially  financial,  commodity  and  other 

EN 

133 

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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  prohibit  the  use  of  such 
derivatives  for  market  abuse  purposes  and  enable  enforcement  action  in  relation  to 
such behaviour it will promote greater market integrity and investor protection.  

The  disadvantage  to  this  option  is  that  the  MiFID  definition  includes  some  more 
exotic or unusual derivative instruments which would fall within the scope of MAD. 
However,  this  is  mitigated  by  the  fact  that  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 would 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  use  of  related  instruments,  such  as  OTC 
derivatives or CDS, to manipulate the 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  market  manipulation  using  such  instruments  would  be 
prohibited in all Member States, whereas currently only some Member States clearly 
prohibit such behaviour. 

Over  three  quarters  of  respondents  to  the  public  consultation  who  expressed  an 
opinion on this option expressed support for extending the scope in this way. There 
was  limited  opposition,  although  some  respondents  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  Directive  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 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  options  and  discretions  by 
harmonising an area which is currently subject 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  different  issuers.  For  example,  issuer 
obligations under the Directive are arguably more costly for SME issuers relative to 
their  size.  But  this  issue  could  be  addressed  by  nuancing  the  application  of  those 
obligations to such issuers (see options in section 5.7). 

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Another disadvantage of this option is that, if adopted in isolation, instruments only 
admitted  to  trading  on  other  organised  trading  facilities  would  remain  outside  the 
scope of the MAD (see option 5.1.5 below). This would mean unequal protection of 
investors and market integrity on organised trading venues with many similarities to 
MTFs and could lead to possibilities for regulatory arbitrage.  

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.  However,  some  respondents  commented 
that  some  Member  States  had  already  modified  local  regimes  to  accommodate 
specialist  MTFs;  for  example  specialist  SME  markets.  These  respondents  felt  that 
current bespoke regimes for these MTFs were 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 probably 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  broad  and  include  a  voice  broking  facility,  a 
swap  execution  facility,  a  broker  crossing  system  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 investors who trade in instruments on such facilities that are 
not  traded  on  a  regulated  market  (and  therefore  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  instruments  not  traded  on 
regulated  markets  or  MTFs  but  for  which  there  is  a  market  of  some  form.  By 
introducing a harmonised approach at EU level across Member States it would also 
meet the objective of a level playing field. 

Increased  market  integrity  and  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 already likely to apply 
as such facilities will typically trade liquid 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  different  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  difficulties  for  operators  and  users  of  the 
facility and issuers in understanding and applying the MAD. However this risk could 

EN 

135 

   EN 

 
be  mitigated  by  calibrating  the  application  of  MAD,  depending  on  the  type  of 
instrument, so that it applies 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 Directive 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  MAD.  But  there  are  not  likely  to  be  any 
benefits  in  terms  of  increased  investor  protection  and  market  integrity  as  these  are 
essentially private transactions between two parties that are negotiated commercially. 
The parties are likely to be able to protect 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 create significant legal uncertainty in determining how the 
MAD  rules  apply  to  essentially  private  and  individual  commercial  transactions. 
Many  such  transactions  would  not  ordinarily  be  considered  to  be  financial  market 
transactions  (for  example,  purchases  of  businesses  or  transfers  of  shares  in  private 
companies).  The  concepts  in  MAD  are  aimed  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 meet 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  prohibition  on  market  manipulation  would  be  prescribed  in  level  2 
measures. 

This option would meet the objective of ensuring regulation keeps pace with market 
developments. This option would also have the advantage that it would create greater 
legal  certainty  by  specifying  the  current  definition  of  market  manipulation,  which 
while broad enough to capture different strategies and forms of trading that may be 
manipulative  would  benefit  from  clarification.  It  would  provide  greater  clarity  to 
market  participants  and  help  supervisors  to  enforce  breaches  of  the  existing 
provisions  involving  automated  trading.  This  option  has  the  potential  disadvantage 
that  there  could  be  other  automated  trading  practices  that  do  not  constitute  market 
abuse, but could nevertheless have other adverse 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 there 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 

136 

   EN 

 
                                                 
8.1.1.8.  Option  5.1.8  –  Improve  supervision  of  investment  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 monitoring obligations in Article 26 of 
MiFID  apply  to  market  operators  and  investment  firms  alike.  However,  the 
obligation  to  adopt  structural  provisions  aimed  at  preventing  and  detecting  market 
manipulation  practices  in  Article  6  paragraph  6  MAD  only  applies  to  market 
operators. This option would close that gap in the existing regulatory framework and 
the  obligation  would  be  extended  to  investment  firms  operating  an  MTF  and  to  all 
entities operating an organised trading facility as described under Option 5.  

Implementing  the  option  would  have  the  advantages  of  ensuring  regulation  keeps 
pace with market developments, contributing to levelling the playing field between 
entities  operating  trading  venues,  providing  legal  certainty  as  to  the  obligations 
applying under European law and enhancing investor protection by emphasising that 
structural provisions against market manipulation have to be adopted by all trading 
venues.  

A  disadvantage  could  be  that  the  regulatory  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  issuers  who  want  to  trade  and  have  their  instruments 
traded in a properly protected environment.  

Respondents  to  the  public  consultation  generally  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 
(baseline) 

5.1.1 

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 

(++) 
objective  

achieves 

specific 

(0)  

(++) 
protection  

investors 

receive 

greater 

(++) 
protection and 

increases 

investor 

(+)  market  integrity  is  increased  for 
investors 

(++)  market 
ensuring 
through  CDS 
prohibited 

integrity  by 
abuse 
clearly 

market 
is 

291 

Cf. Articles Para 1 No 15 MiFID. 

EN 

137 

   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 
the 
underlying market  

to  manipulate 

(0) 

specific 
achieves 
(++) 
instruments 
objective 
for 
traded  OTC 
as 
(such 
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 

(++) 
market 
increases 
integrity  by  ensuring  market 
manipulation  through  related 
OTC 
is 
prohibited 

instruments 

(++) 
achieves 
objective for MTFs 

specific 

(++) 
protection on MTFs 

increases 

investor 

(++) 
integrity of MTFs 

increases 

market 

achieves 
(++) 
objective 
for 
trading facilities  

specific 
organised 

(++) 
protection on OTFs 

increases 

investor 

(++) 
integrity of OTFs 

increases 

market 

(0)  SME  issuers  listed 
only  on  MTFs  could 
face  increased  costs  to 
disclose 
inside 
information  and  keep 
insider 
in 
accordance  with  MAD 
these  would  be 
but 
mitigated 
SME 
by 
specific options below 

lists 

some 

(-) 
MTF 
face 
operators  could 
some increased costs of 
monitoring 
for  MAD 
compliance  by  issuers 
and investors 

costs 

(-)  issuers  could  face 
to 
increased 
disclose 
inside 
information  and  keep 
in 
insider 
accordance  with  MAD, 
but these costs could be 
mitigated 
by 
calibration of measures

lists 

Option 5.1.4 

(extend  the  MAD  to 
financial 
instruments 
traded only on a MTF) 

investors 

(++) 
instruments 
only  traded  on  a  MTF  receive  greater 
protection 

trading 

(+)  there  is  improved  market  integrity 
for instruments only traded on MTFs 

Option 5.1.5 

(++)  increased  protection  and  market 
integrity for investors on such facilities 

legal  uncertainty 

for 
(-)  possible 
operators,  investors  and  issuers  in 
applying 
to  differing 
instruments  and  facilities  –  could  be 
mitigated by calibration of measures 

the  MAD 

(extend  the  MAD  to 
only 
instruments 
traded on other trading 
facilities  (other  than 
MTFs) ) 

Option 5.1.6 

(extend  market  abuse 
rules 
instruments 
traded purely OTC ) 

to 

(-)  some  operators  of 
facilities  could 
face 
some increased costs of 
monitoring 
for  MAD 
compliance  by  issuers 
and investors 

increased 
(--) 
for 
compliance  costs 
private 
parties 
to 
transactions 
to 
determine  if  and  how 
to 
Directive  applies 
them. 

investor 
(0)  negligible  effect  on 
protection since instruments are traded 
privately 

(+) partially achieves specific 
objective,  

(--)  un  certainty  for  users  and  issuers 
about when and how the MAD applies 
to instruments 

effect 

negligible 

(0) 
on 
investor protection as there is 
no  market  to  protect  from 
abuse  in  the  case  of  purely 

EN 

138 

   EN 

 
 
 
 
 
 
 
bilateral  OTC 
and 

transactions 

(0) negligible effect on market 
integrity for the same reasons 
as above 

Option 5.1.7 

(provide  examples  of 
specific algorithmic or 
that 
HFT  strategies 
constitute 
market 
manipulation) 

(++)greater 
help 
clarity 
regulators  to  take  enforcement  action 
against  automated  trading  strategies 
that are manipulative 

will 

(0)  

specific 
(++)achieves 
objective 
without 
compromising broad scope of 
existing  definition  of  market 
manipulation 

(++)  greater  clarity  will  help  prevent 
and  provide  increased  protection  for 
other  investors  against  manipulative 
strategiess 

(++) 
protection and 

increases 

investor 

it 

integrity  by 
(++)  market 
making 
for 
easier 
regulators to sanction market 
abuse 
through  automated 
trading strategies 

Option 5.1.8 

(Improve  monitoring 
for  market  abuse  of 
firms 
investment 
trading 
operating 
as 
such 
facilities 
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 

(++) 
objective  

achieves 

specific 

(++) also achieves objectives 
of 
investor 
protection and  

increasing 

firms  operating 
(0) 
face 
platforms  could 
increased 
costs, 
however,  these  will  in 
most cases be mitigated 
due 
to  arrangements 
already in place 

(++) market integrity 

Over  three  quarters  of  respondents  to  the  public  consultation  who  expressed  an 
opinion on option 5.1.3 expressed support for extending the scope in this way. 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.  However,  some  respondents  commented  that  some  Member  States  had 
already  modified  local  regimes  to  accommodate  specialist  MTFs;  for  example 
specialist  SME  markets.  These  respondents  felt  that  current  bespoke  regimes  for 
these  MTFs  were  appropriate,  that  harmonisation  would  need  to  encompass  these 
different evolutions, and that this may be a difficult task.  

Most respondents to the public consultation did not address option 5.1.7 specifically 
in  their  responses,  although  there  was  specific  support  for  it  from  some 
stakeholders.292  Respondents  to  the  public  consultation  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.  

292 

The  Association  of  British  Insurers,  Autorité  des  marchés  financiers  and  Ministère  de  l'économie,  de 
l'industrie et de l'emploi. 

EN 

139 

   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  investment  firms,  they  can  admit  to  trading 
financial  instruments  not  admitted  to  trading  on  a  regulated  market.  Therefore 
including OTFs within the scope of market abuse rules (option 5.1.5) in addition to 
MTFs (option 5.1.4) would ensure that trading 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 investors 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  instruments  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  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  trading  fall  within  the  definition  of  market  manipulation.  Finally, 
combining  option  5.1.8  with  the  above  options  ensures  that  the  different  types  of 
trading venues and facilities which are within the scope of market abuse legislation 
are subject to similar requirements to monitor 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 authorities 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  also  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. 

8.1.2.1.  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  producers  who  use  these  markets  for  hedging 

EN 

140 

   EN 

 
purposes  continue  to  face  uncertainty  as  to  the  information  that  they  can  expect  to 
receive  in  relation  to  the  underlying  commodity  markets.  Further,  regulators  will 
continue to face gaps with regards to the relevant information 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  commodity  and  not  information  about  the 
derivative itself. It is therefore not the issuer of a derivative who is in possession of 
information  that  affects  the  price  of  the  derivative.  Such  information  typically  lies 
with  producers,  transporters,  and  others  involved  in  the  primary  market.  For 
commodity  derivatives,  MAD  only  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  obligation  to  inform  the  public  of  inside 
information  would  be  extended  to  all  market  participants.  The  definition  of  market 
manipulation  would  be  extended  to  transactions  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  market  information.  It  also  introduces  a 
prohibition on market manipulation for markets 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  market  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 investment decisions. Furthermore, it will create a 
level playing field for all commodity markets, as the same rules will apply across all 
markets. The comprehensive set of rules allows for holistic oversight, and will ensure 
adequate oversight in commodity markets where this is currently lacking. 

The  main  disadvantage  of  this  approach  is  that  financial  market  rules  are 
inappropriate  for  most  commodity  markets.  Unlike  physical  commodities  whose 
production  varies  across  the  world  depending  on,  for  example,  weather  patterns  or 
geopolitical  and  trade  developments,  financial  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  the  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 
traded  may  not  be  sufficiently 
sophistication  and 

liquidity.  The  products 

EN 

141 

   EN 

 
standardised,  and  there  may  be  strong  business  secrecy  issues  about  disclosing  a 
company's  production,  stocks,  or  supply  chain  issues.  Extending  financial  rules 
would thereby not only impose compliance costs on all market participants, but also 
limit  their  opportunity  to  hedge  their  business  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  expertise  to  monitor  these  markets,  and 
clearly  discerning  what  practices  in  the  physical  market  would  be  considered  as 
abusive  would  present  innumerable  legal  and  practical  problems.  For  example,  to 
determine  whether  an  attack  by  a  rebel  group  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  market  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 clarified so that in relation to commodity 
derivatives,  inside  information  would  mean  information  of  a  precise  nature  which 
has  not  been  made  public,  relating  directly  or  indirectly  to  one  or  more  such 
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 regulatory provisions at EU or national level, market rules, 
contracts  or  customs  on  the  relevant  underlying  commodity  market  or  commodity 
derivatives  market.  This  should  not  be  taken  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  would  ensure  more  legal  certainty,  by 
bringing the definition of inside information for commodity derivatives closer to the 
general  definition  of  inside  information.  This  legal  certainty  is  good  for  investors, 
because it allows them to form clear expectations 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 understood by financial market participants. While rules and 
customs may vary from market to market, the clarification that inside information is 
price  sensitive  information  would  impose  a  uniform  norm  that  applies  to  all 
derivatives markets. 

EN 

142 

   EN 

 
A  second  advantage  is  that  this  option  may  promote  publication  of  inside 
information,  because  it  means  that  primary  market  participants  cannot  hedge  their 
exposure in the derivatives market without having disclosed 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 stockpiling 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  may  be  deemed  to  be  inside  information. 
Disclosing this, would make it difficult to squeeze one's counterparts or benefit from 
knowing that you hold a significant share of the market. 

Another advantage of this approach is that investors will not enter into transactions 
with  parties  who  have  an  information  advantage  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  information  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 norm 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  derivatives  market  before  having  disclosed  their 
price  sensitive  information.  Such  behaviour  may  be  considered  to  be  legitimate 
behaviour  in  the  underlying  market  and  introducing  this  option  would  thus  make 
hedging  more  expensive.  This  increased  cost  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 participant hedges his future needs before 
disclosing  them,  he  will  do  so  at  the  current  market  price.  This  means  that  his 
counterparts  get  a  lower  price  than  they  would  have  had  the  information  been 
disclosed. When a market participant hedges his future needs after disclosing them, 
he  will  do  so  at  a  higher  market  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  investors  would  expect  to  receive  inside 
information will continue to be governed by diverging rules. It also means that not all 
inside  information  will  be  published.  Also,  this  approach  does  not  address  the 
question of insider dealing in the underlying market. Only market participants who 
are  active  in  both  markets  will  need  to  disclose  their  price  sensitive  information, 

EN 

143 

   EN 

 
while  those  only  active  in  the  underlying  market  do  not  and  will  continue  to  be 
allowed to trade on this information.293  

However,  it  is  not  the  purpose  of  financial  regulation  to  govern  non-financial 
markets.  Would  not  be  effective  as  markets  are  international,  fragmented,  different 
rules apply to different commodities, different market structures. Price transparency 
of  heterogeneous  products  is  misleading.  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 Commission initiative in this area.  

This  option  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.  This  included  strong  support  from  regulators.  There  was  strong 
opposition  from  energy  companies  and  associated  bodies,  who  supported 
coordination  with  the  proposal  for  a  regulation  on  energy  market  integrity  and 
transparency, while approximately one third of respondents had no strong opinion.  

8.1.2.4.  Option 5.2.4 – obligation for spot market traders 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, competent authorities will not be able to access 
spot market data on a regular basis. 

The  power  to  request  information  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  abuse  in  markets  where  there  is  no  sectoral 
authority  for  oversight.  Notably,  non-financial  firms  will  not  have  the  same 
obligations towards the competent authority 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 collate information from different data sources. 
By gaining access to spot market traders' systems, 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 markets by the above-mentioned Commission initiatives. 

EN 

144 

   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 market 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  manipulation)  is  likely  to  extend  across  both 
markets.  This  means  that  supervisors  would  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  data  needed  to  monitor  trading  behaviour. 
This  option  would  induce  financial  market  regulators  to  cooperate  with  existing 
physical market regulators in order to obtain all the available information they should 
need.  The  advantage  of  this  option  is  that  exchange  of  information  between  the 
respective regulators gives them both a consolidated overview of the market, thereby 
contributing to reducing the risks of market abuse on commodity derivative markets. 
Exchange  of  information  allows  regulators  to  assess  behaviour  in  their  respective 
markets against the behaviour and impact in the overall market. 

In addition to this consolidated view, intensifying cooperation allows both regulators 
to benefit from each others' knowledge of their respective markets, thereby helping to 
meet  the  objective  of  enhancing  the  powers  and  information  of  regulators. 
Cooperation with authorities around the world, possibly through ESMA, will require 
establishing  new  memoranda  of  understanding  and  cooperation  agreements.  In 
addition,  there  will  also  be  ongoing  information  sharing,  assistance  in  sending 
information 
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 these costs fall only on supervisors and do not 
extend  to  a  broader  range  of  market  participants,  they  are  likely  to  be  very  limited 
compared to the potential gains in terms of market oversight. 

requests,  and  cooperation 

in  cross-border 

In  the  public  consultation  this  option  was  not  specifically  raised.  However,  the 
majority of all respondents agreed, to differing 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  strengthened  co-
operation between physical market regulators and financial regulators294. 

8.1.2.6.  Option  5.2.6  –  require  issuers  of  commodity  derivatives  to  publish  price  sensitive 

information 

The  advantage  of  this  approach  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 issuer would need to 

294 

Ministère de l'économie, de l'industrie et de l'emploi 

EN 

145 

   EN 

 
                                                 
make arrangements with key market participants, 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 investors 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  trading,  which  is  relevant  to  the  market  as  a 
whole. 

The disadvantage of this approach is that, while an issuer may have better access to 
information than other users, they still may not have access to all the information that 
is inside information for the derivative. The 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 feeds, because it will take the issuer time 
to  gather  the  information.  This  would  limit  the  use  of  this  obligation  notably  for 
investors who have access to newsfeeds themselves. 

Second,  this  option  will  impose  costs  on  issuers,  who  will  need  to  make  resources 
available  to  gather  information  on  a  best  efforts  basis.  These  costs  may  deter 
issuance of such instruments. 

8.1.2.7.  Option 5.2.7 – clarify market manipulation for commodity derivatives 

The  prohibition  against  market  manipulation  is  currently  limited  to  false  or 
misleading signals as to the supply of, demand for or price of financial instruments. 
This means that certain forms of manipulation 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 transactions in the 
underlying  market  are  used  to  manipulate  the  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  underlying  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  advantage  is  that  it 
allows them to consider other forms of behaviour which affect price formation in the 
derivatives market. 

The  drawback  of  extending  the  definition  to  include  the  impact  on  underlying 
markets,  is  that  financial  competent  authorities  would  also  need  to  monitor  price 
movements  in  non-financial  markets.  Supervisors  may  not  have  the  market 
experience, systems and data to do so. Supervisors would not, however, be required 
to take on market supervision responsibility in the underlying market. Data from the 
underlying market would aid them in monitoring 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 

146 

   EN 

 
 
Option 
(baseline) 

5.2.1 

n.a. 

n.a. 

n.a. 

Option 5.2.2 

(extend  MAD 
commodity 
markets) 

to 
spot 

insures 

market 
(+) 
transparency  and 
integrity 
rules  apply  to  all  commodity 
markets 

(-)  financial  market  rules 
may  overlap  and  conflict 
sectoral 
with 
legislation 

existing 

competent 
(+) 
gives 
authorities  a 
consolidated 
view  over  commodity  (spot 
and derivatives) markets 

(-)  commodity  markets 
are  global  and  EU  rules 
to  all 
will  not  apply 
relevant firms 

Option 5.2.3 

(define 
information 
commodity 
derivatives) 

(-) financial market rules may 
not be appropriate for market 
certain 
participants 
markets  

in 

 (+)  improves  legal  certainty 
for producers as to when they 
need 
to  disclose  and  are 
allowed to trade 

inside 
for 

clarifies 

(++) 
information 
expect to receive 

investors 

which 
can 

(+)  gives  supervisors  clear 
benchmark  to  assess  insider 
dealing 

increase 
(-)  will 
costs 
compliance 
market 
for 
participants 
not 
currently  obliged 
to  disclose  price 
sensitive 
information 

(-) 
competent 
authorities may not 
have  the  expertise 
and  manpower  to 
spot 
monitor 
markets effectively 

(-)  difficult 
general 
heterogeneous markets 

to  apply 
to 

rules 

(+) 
all 
captures 
information  relevant  for 
derivatives prices 

(+) does not affect 
underlying 
the 
market itself 

(++)  creates  information 
symmetry 
between 
investors 

(-)  may  make 
more 
hedging 
for 
expensive 
producers 

(+)  creates  incentives  for 
disclosure 
inside 
information 

of 

(--)  does  not  ensure  that 
all inside information will 
be published- 

(-) those only active in the 
underlying  market  will 
continue  to  be  allowed  to 
trade 
inside 
on 
information 

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 
to 
participants 
submit information 
specific 
in 
a 
allow 
format, 
their 
access 
to 
systems,  and 
report  suspicious 
transactions. 

to 

Option 5.2.5 

(promote 
international 
cooperation  among 
of 
regulators 
and 
financial 
physical markets) 

(+)  gives 
supervisors  a 
consolidated  overview  of  the 
market 

(++) 
increases  market 
integrity  by  reducing  risk 
of 
cross-market 
manipulation 

(+)  no  additional 
on 
obligations 
market 
participants 

(+)  allows  supervisors 
combine 
experience 

their 

to 
market 

(-) supervisors will 
for 
costs 
incur 
and 
transmitting 

EN 

147 

   EN 

 
 
 
 
Option 5.2.6 

(require  issuers  of 
commodity 
derivatives 
publish 
sensitive 
information) 

to 
price 

Option 5.2.7 

market 
for 

(clarify 
manipulation 
commodity 
derivatives) 

processing data 

(+)  provides  investors  with  a 
single  feed  to  all  relevant 
information 

published 
(--) 
information 
be 
can 
inaccurate or incomplete 

(+) lowers investor 
costs  of  gathering 
information 

(-)  time  lag  compared  to 
news feeds 

(--) 
issuer  costs 
may deter issuance 
of such instruments 

(+)  allows  supervisors 
sanction 
offence 
the 
manipulating 
markets through derivatives 

to 
of 
commodity 

(++) 
the 
closes 
regulatory  gap  for  forms 
of  market  abuse 
that 
affect commodity markets 

to 
(+)  allows  supervisors 
of 
sanction 
offence 
the 
manipulating 
derivatives 
markets  through  commodity 
markets 

(++)  increases  protection 
of investors and 

(++) market integrity 

financial 

(-) 
competent 
authorities 
will 
need to incur costs 
to  gain  access  to 
data 
necessary 
and 
extend 
monitoring 
capability 

promotes 

investor 
derivatives 

in 

(+) 
confidence 
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.  This  included  strong  support  from  regulators.  There  was  strong 
opposition  from  energy  companies  and  associated  bodies,  who  supported 
coordination  with  the  proposal  for  a  regulation  on  energy  market  integrity  and 
transparency, while approximately one third of respondents had no strong opinion.  

In  the  public  consultation  option  5.2.5  was  not  specifically  raised.  However,  the 
majority of all respondents agreed, to differing 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  strengthened  co-
operation between physical market regulators and financial regulators295. 

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  differences  in  the 

295 

Ministère de l'économie, de l'industrie et de l'emploi 

EN 

148 

   EN 

 
 
                                                 
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  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  information  from  spot  market  participants,  is 
notably important for markets where such requests cannot be done through a sectoral 
supervisor.  5.2.4 
to  option  5.2.5  (strengthening 
international  cooperation  between  spot  and  derivative  market  supervisors).  Even  in 
markets  where  a  sectoral  supervisor  is  active,  the  power  to  request  the  necessary 
information directly may be more efficient in certain cases. 

thereby  complementary 

is 

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  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 markets. This package achieves this without 
extending financial regulation to underlying commodity markets, 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 clarify 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  powers  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 
they  suspect  specific  market  abuse. 
Furthermore, some competent authorities will not have the possibility to enter private 
premises and will be deprived from providing important evidence when they suspect 
market  abuse.  In  addition,  competent  authorities  will  have  difficulties  to  prove 
market  abuse  when  they  discover  attempts  of  market  manipulation  which  did  not 
lead to benefits for the offender.  

to  provide  evidence  when 

8.1.3.2.  Option  5.3.2  –  Introduce  reporting  of  suspicious  orders  and  suspicious  OTC 

transactions 

Under this option banks and investment firms would be required to report suspicious 
orders  and  suspicious  OTC  transactions.  For  orders  this  would  impact  all  market 

EN 

149 

   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 contribute to the objective of increase market integrity by 
further  facilitating  the  detection  of  market  abuse  through  reporting  of  suspicious 
orders  and  suspicious  OTC  transactions  to  the  competent  authorities.  As  this  will 
improve  the  possibility  to  investigate  and  detect  potential  market  abuse  and  where 
necessary impose sanctions, this policy option is highly effective in contributing to 
the objective of deterrent sanctions.  

This  option  is  considered  efficient  as  to  a  large  extent,  market  participants  already 
today  monitor  both  orders  and  OTC  transactions  for  their  own  purposes  and  this 
would require limited modification of internal systems in place. Therefore, the cost 
of  reporting  these  transactions  is  considered  proportionate;  ensuring  that  market 
abuse can be detected and sanctioned. 

Generally,  respondents  to  the  public  consultation  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  the  extension). 
Regulators  and  member  states  were  strongly  in  favour  of  an  extension,  and  while 
most other respondents also supported the extension, a number raised potential issues 
as  to  the  increased  costs  and  its  practical  implementation  (although  no  specific 
details of costs were presented). 

Assessment of fundamental rights 

This option entails an interference with the right to private life (Art.7); protection of 
personal data (Art 8); and freedom to conduct a business (Art.16) of the Charter of 
Fundamental Rights. 

This  option  provides  for  the  limitation  on  these  rights  to  be  provided  for  by  law, 
respects  the  essence  of  those  rights,  and  is  necessary  to  meet  objectives  of  general 
interest recognised by the Union and the need to protect 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  general  interest  objective  of  ensuring  market 
integrity  and  to  protect  the  fundamental  right  to  property  (article  17  of  CFR). 
Reporting  of  suspicious  orders  and  OTC  transactions  is  necessary  to  ensure  that 
competent authorities can detect and sanction market abuse effectively, and 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 to 
their investments due to market manipulation which goes undetected in the absence 
of  reporting  of  suspicious  orders  or  suspicious  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  authorities  and  data  access  should  be  limited  to 
the time necessary to conduct market abuse investigations.  

The  Data  Protection  Directive  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 addition personal data must only be processed 
for no longer than necessary. A system of reporting suspicious transactions requires 

EN 

150 

   EN 

 
 
the processing of personal data 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,  regulators  would  gain  the  power  to  sanction  as  market  abuse 
attempts to manipulate the market. In essence, even a "failed" attempt to manipulate 
the market would be subject to sanctions 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  greatly  to  achieving  the  objective  of  ensuring  deterrent 
sanctions.  In  addition,  this  increased  power  would  help  regulators  in  sanctioning 
attempted  market  abuse  and  therefore  contributes  further  to  the  objective  of 
enhancing market integrity. 

The public consultation highlighted that there is broad support from stakeholders for 
this  policy  option.  Overall,  three  quarters  of  those  respondents  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 need to improve 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 
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 participants 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  freedom  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  these  rights  to  be  provided  for  by  law, 
respects  the  essence  of  those  rights,  and  is  necessary  to  meet  objectives  of  general 
interest recognised by the Union and the need to protect 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  general  interest  objective  of  ensuring  market 
integrity  and  to  protect  the  fundamental  right  to  property  (article  17  of  CFR). 
Prohibiting  attempts  at  market  manipulation  is  necessary  to  ensure  that  competent 
authorities will be able to sanction attempted market manipulation where they have 
evidence  of  intent  to  commit  market  manipulation,  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 

151 

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the  intent  to  manipulate  is  clear  even  if  the  effects  on  prices  of  that  attempt  at 
manipulation cannot be proven, and therefore 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  followed  and  the  conditions  to  be  fulfilled  in 
order  to  gain  access  to  retained  data  from  telecom  operators  in  accordance  with 
necessity and proportionality requirements would be defined by each Member State 
in  its  national  law,  subject  to  the  relevant  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 contribute to the objective of market integrity by ensuring 
that market abuse can be detected, by enabling competent authorities to access data 
and  telephone  records  from  telecom  operators  when  they  suspect  market  abuse. 
Access  to  telephone  and  data  traffic  records  held  by  telecom  operators  can  be 
sometimes  the  sole  piece  of  evidence  to  establish  whether  inside  information  has 
been  transferred  from  a  primary  insider  to  someone  trading  with  this  inside 
information. For example, this data would represent the only piece 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  transaction  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 before that person then called their broker to instruct them 
to make a suspicious transaction. The traffic records from telecom operators would 
provide  evidence  of  a  link  which  could  be  used  as  evidence  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-condition  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  consultation  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  cases296.  Industry  respondents  mainly 
responded that competent authorities should make better use of existing information 
they receive and apply fully their current powers. 

Assessment of fundamental rights 

296 

Joint FSA/HM Treasury Response (UK), Ministry of Finance of the Czech Republic, CNMV (Spain), 
Ministère de l'économie, de l'industrie et de l'emploi 

EN 

152 

   EN 

 
                                                 
This option entails an interference with fundamental rights, more particularly: respect 
for  private  and  family  life  (Art.  7)  and  protection  of  personal  data  (Art.  8)  of  the 
Charter of fundamental rights.  

This  option  provides  for  the  limitation  on  these  rights  to  be  provided  for  by  law, 
respects  the  essence  of  those  rights,  and  is  necessary  to  meet  objectives  of  general 
interest recognised by the Union and the need to protect 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  general  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 investigative leads on the possible 
possession  of  insider  information  or  market  manipulation,  and  will  therefore 
facilitate  the  detection  and  sanctioning  of  market  abuses.  As  a  result,  currently 
undetected  abuses  will  be  detected  and  sanctioned,  ensuring  market  integrity  and 
more equal treatment of authors of violations. This option is necessary to protect the 
right  to  property,  as  market  abuses  that  go  unsanctioned  because  competent 
authorities cannot access this data to obtain evidence lead to investor losses.  

It is proportionate as data from telecom operators should be only provided based on 
the safeguard of the existence of a reasonable suspicon of insider dealing or market 
manipulation.  This  ensures  that  data  retained  are  provided  only  to  the  competent 
national  authorities  responsible  for  market  abuse  investigations,  in  specific  cases 
when  there  are  reasonable  grounds  for  suspecting  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 investigation is closed without further action, the data from 
telecom operators should be deleted. Furthermore, the procedures to be followed and 
the  conditions  to  be  fulfilled  in  order  to  gain  access  to  retained  data  in  accordance 
with necessity and proportionality requirements would be defined by each Member 
State in its national law, subject to the relevant 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 premises to seize documents for market abuse 

investigations  

Under this option, competent authorities who suspect market abuse 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 believing 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. 
This would be subject to permission from a judge. 

The possibility to detect market abuse is an important factor in the deterrent effect of 
sanctions.  Therefore,  as  this  option  will  ensure  that  competent  authorities  are  in  a 
position to gather evidence necessary to detect market abuse which otherwise would 
remain  undetected  and  unsanctioned,  it  contributes  significantly  to  meeting  the 
objective of increasing the deterrent effect of sanctions.  

EN 

153 

   EN 

 
It should be noted also that this option ensures a balance between 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 judge). 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  judge  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  participants.  Few  respondents 
addressed this issue specifically but some respondents stated that public authorities in 
their Member State already had such a power and supported clarifying that all should 
have it297. Industry respondents mainly responded that competent authorities should 
make  better  use  of  existing  information  they  receive  and  apply  fully  their  current 
powers. 

Assessment of fundamental rights 

The  following  fundamental  rights  of  the  Charter  of  Fundamental  Rights  are  of 
particular  relevance:  respect  for  private  and  family  life  (Art.  7),  protection  of 
personal data (Art. 8); freedom to conduct business (Art. 16).  

This  option  provides  for  the  limitation  on  these  rights  to  be  provided  for  by  law, 
respects  the  essence  of  those  rights,  and  is  necessary  to  meet  objectives  of  general 
interest recognised by the Union and the need to protect 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  general  interest  objective  of  ensuring  market 
integrity and to protect the fundamental right to property (article 17 of CFR).  

More  specifically,  access  to  premises  is  necessary  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 right to property, as market abuses that go 
unsanctioned because competent authorities cannot access private premises to obtain 
evidence of market abuse lead to investor losses.  

In addition the option includes safeguards that ensure proportionality, as this power 
will be exercised by competent authorities only when it is necessary and in relation 
to  the  breach,  with  the  permission  of  a  judge,  thereby  ensuring  that  fundamental 
rights  remain  protected.  Safeguards  should  ensure  that  access  to  premises  to  seize 
documents  is  only  granted  in  cases  where  there  are  reasonable  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 request relates, would be removed, tampered 
with  or  destroyed.  If  the  data  obtained  of  such  an  investigation  would  lead  to  no 
further action, these data should be deleted by the competent authorities.  

297 

Joint FSA/HM Treasury response (UK), Central Chamber of Commerce of Finland, Athens Exchange 

EN 

154 

   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 anti-competitive practices, and where various 
documents  and  data  media  were  seized.  The  Court  has  found  that  the  conditions 
applicable to this search 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  enhance  the  market  abuse  framework  and  could 
include  the  following  specific  whistle  blowing  requirements:  appropriate  protection 
for  whistleblowers  reporting  suspected  market  abuse;  a  provision  for  providing 
financial  incentives  for  persons  who  provide  a  competent  authority  with  salient 
information (that leads to a monetary sanction); and enhancements of Member States' 
provisions for receiving and reviewing whistle blowing notifications. 

Although  some  Member  States  have  in  place  specific  systems  to  protect  whistle 
blowers against reprisals298 such systems are usually horizontal 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  would  be  provided  for  within  the  market 
abuse  framework  and  would  seek  to  ensure  whistle  blowers  not  discriminated 
against.  Persons  who  report  violations  to  the  competent  authorities  could  receive 
financial incentives which would be determined as a percentage of the fine issued by 
the competent authority, and would be granted for information which was genuinely 
new  and  resulted  in  a  sanction.  The  framework  would  include  a  provision  for 
competent authorities to include clear reporting mechanisms (for example telephone 
numbers  or  email  boxes)  as  well  as  published  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  authorities  to  suspected  cases  of  market  abuse, 
provide  very  strong  incentives  for  those  who  would  not  normally  report  cases  of 
suspected  market  abuse  to  do  so,  and  increase  the  ease  with  which  cases  can  be 
reported.  All  of  these  factors  will  increase  the  market  intelligence  available  to 
competent  authorities  and  assist  in  the  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  attempt  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 

155 

   EN 

 
                                                 
financially rewarding those who may struggle to find employment after blowing the 
whistle, this option will provide appropriate social protection to such individuals. 

This  option  could  have  the  disadvantage  of  leading  to  an  increase  in  false 
submissions  by  persons  seeking  financial  advantage.  However  this  risk  could  be 
mitigated and the quality of submissions ensured 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 minimum level of monetary sanction for which 
a  whistle  blower  would  receive  financial  incentives.  This  would  ensure  competent 
authorities were able to appropriately focus resources on the most significant cases. 

There is also a risk that such a provision could discourage 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 whistle-blowing could play an important role 
in ensuring stable and well-functioning financial markets in general299.  

Assessment of fundamental rights 

The  following  fundamental  rights  of  the  Charter  of  Fundamental  Rights  are  of 
particular  relevance:  respect  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 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 improving detection of market abuse) and 
to  protect  the  fundamental  right  to  property  (article  17  of  CFR).  The  option  meets 
these objectives by facilitating the detection of market abuses which would otherwise 
not  be  reported  to  the  authorities,  resulting  in  abuses  going  undetected  and 
unsanctioned, to the detriment 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  private  and  personal  data.  In  addition,  the 
personal and private data of suspects under investigation 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  authorities.  To  this  end,  competent  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 the "presumption of innocence and right of 
defence".  While  the  whistle  blowing  activity  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 

156 

   EN 

 
                                                 
suspect  market  abuse,  based  on  the  presumption  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 effective detection and sanctioning of market 
abuse.  

In  this  context  it  is  important  that  the  implementation  of  whistle  blowing  schemes, 
comply  with  data  protection  principles  and  criteria  indicated  by  the  data  protection 
authorities300.  

8.1.3.7.  The preferred options 

Impact on stakeholders 

Effectiveness 

Efficiency 

Option 
(baseline) 

5.3.1 

n.a. 

n.a. 

n.a. 

Option 
5.3.2 
(introduce  reporting 
of  suspicious  orders 
and suspicious OTC 
transactions) 

(++)  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  

Impact on fundamental rights 

to 

(++)contributes 
the 
objective  of  dissuasive 
sanctions  by  improving 
of  market 
detection 
abuse  based  on  orders 
and 
suspicious  OTC 
transactions  

(+)  adaptation  of 
internal  monitoring 
systems 
are 
proportionate  and 
therefore  reporting 
is  an  efficient  tool 
to  detect  market 
abuse . 

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  transaction  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. 

5.3.3 
Option 
(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 
sanctions 
to 
attempts 
to  market 
manipulation 

facilitates 
(++) 
sanctioning 
of 
market  abuse  by 
competent 
authorities, 
can 
attempts  

who 
sanction 

(++) 
contribution 
general 
market integrity  

objective 

to 

overall 
the 
of 

300 

EN 

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,  auditing  matters,  fight  against 
bribery, 
at: 
financial 
http://ec.europa.eu/justice/policies/privacy/docs/wpdocs/2006/wp117_en.pdf 

available 

banking 

crime, 

and 

157 

   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.  

Option 5.3.4 (ensure 
access  to  telephone 
traffic 
and 
data 
from 
records 
telecom 
operators 
for  market  abuse 
investigations)  

(++)  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 

(++)  contribution  to  the 
objective  of  dissuasive 
sanctions  by  increasing 
possibility 
detect 
market abuse 

to 

(+) 
the 
facilitates 
detection  of  market 
abuse  by  enabling 
collection 
of 
evidence. 

(++)  contribution  to  the 
of 
general 
market integrity 

objective 

investors: 

(++) 
indirect 
benefit  from  increased  market 
integrity 

(++)  market  participants: 
benefit  from  increase  market 
integrity  due  to  more  easy 
detection of market abuse.  

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 specific 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. 

Option  5.3.5  ensure 
to  private 
access 
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 

(+)  contribution  to  the 
objective  of  dissuasive 
sanctions  by  increasing 
possibility 
detect 
market abuse 

to 

(+) 
facilitates 
detection  of  market 
abuse  by  enabling 
collection " on-site" 
of evidence.  

investors: 

indirect 
(++) 
benefit  from  increased  market 
integrity 

(+)  contribution  to  the 
general 
of 
market integrity 

objective 

(++)  market  participants: 
benefit  from  increase  market 
integrity  due 
improved 
detection of market abuse. 

to 

EN 

158 

   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  and  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 with or destroyed. 

Option  5.3.6  (grant 
and 
protection 
incentives 
to 
whistleblowers) 

increases  protection 
individuals 

(++) 
available 
reporting market abuse. 

to 

(++) 
the 
enhances 
information  available  to 
regulators. 

(+)  highly  efficient 
limited 
to 
due 
associated costs 

(+)  provides  regulators  with 
primary 
and 
assistance  in  market  abuse 
cases. 

information 

(+)  acts  as  a  deterrent 
against  potential  market 
abuse. 

(+) increases the  accessibility 
of regulators. 

(+)  ensures  legal  clarity 
for 
the  protection  of 
whistle blowers. 

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).  

including  of 

It is proportionate as it will ensure the protection of whistle 
blowers, 
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. 

their  personal  data,  and 

Generally,  respondents  to  the  public  consultation  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  the  extension). 
Regulators  and  member  states  were  strongly  in  favour  of  an  extension,  and  while 
most other respondents also supported the extension, a number raised potential issues 
as  to  the  increased  costs  and  its  practical  implementation  (although  no  specific 
details of costs were presented). 

The public consultation highlighted that there is broad support from stakeholders for 
the option of prohibiting attempts at market manipulation. Overall, three quarters of 
those  respondents  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  need  to  improve  the  clarity  of  the  proposed  definition  as  they 

EN 

159 

   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  regulators  and  member 
states  generally  differed  from  those  of  industry  participants.  Several  public 
authorities welcomed this option in their responses 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  and  confirming  market  abuse  cases301.  Industry 
respondents mainly responded that competent authorities should make better use of 
existing information they receive and apply fully their current powers. 

Few respondents addressed option 5.3.5 specifically 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  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-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 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  transactions,  nor  do  they  all  receive  information  from  whistle 
blowers.  Combining  these  options  will  therefore  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  the  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 have 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  sanction  market  abuse,  but  are  proportionate  as  they  are 
subject to appropriate safeguards (notably the existence of a reasonable suspicion of 

301 

302 
303 

Joint FSA/HM Treasury Response (UK), Ministry of Finance of the Czech Republic, CNMV (Spain), 
Ministère de l'économie, de l'industrie et de l'emploi 
Joint FSA/HM Treasury response (UK), Central Chamber of Commerce of Finland, Athens Exchange 
Response by UNI-Europa Finance 

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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 operators 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. Option 5.2.5 will 
also  facilitate  the  enforcement  task  of  financial  regulators  by  promoting  good 
international  cooperation  with  physical  commodity  market  regulators,  thereby 
making the detection of cross-border and cross-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  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 preferred option 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 common 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 divergent 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  financial  markets.  When  the  European  supervisory 
framework takes effect in 2011, ESMA is expected to conduct a peer review analysis 
of  the  sanctioning  process  and  Member  States  will  start  to  disclose  their  published 
sanctions to ESMA.  

8.1.4.2.  Option 5.4.2 - minimum rules for administrative measures and sanctions 

This  option  is  aims  to  reinforce  an  effective  sanctioning  regime  in  line  with  the 
Commission Communication reinforcing sanctions in the financial sector.304 To this 
end,  this  option  determines  common  rules  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  profits.  This  could  include 
the formulation of minimum and maximum levels of administrative 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 

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manipulation).  However,  these  amendments  should  not  prevent  individual  Member 
States from fixing even higher levels than the common standards. 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  objective  of  improving  the  deterrent  effect  of 
administrative sanctions. Minimum rules would 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 administrative sanctions would 
be  based  on  common  minimum  rules.  As  a  result,  similar  offences  would  be 
sanctioned based on the same common minimum rules, which would reduce the risks 
of regulatory arbitrage and contribute 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 arbitrage305. This will contribute 
to  investor  protection  as  more  coherent  administrative  sanctions  will  ensure 
improved deterrence, thereby avoiding potential market abuse.  

Respondents  to  the  consultation  generally  supported  harmonisation  of  sanctions  at 
the  EU  level  as  a  means  to  increase  their  deterrent  effect.  There  was  support  for 
harmonisation  of  administrative  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. 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.  

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  will  improve  the  coherent  application  of 
sanctions  within  the  EU  which  is  necessary  to  ensure  that  comparable  offences  of 

305 
306 

Responses to the public consultation on the MAD from June 2010. 
EU Charter of fundamental rights,  

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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  losses  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 minimum 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  fundamental  rights).  In  addition,  the  principle  of 
innocence and right of defence (Article 48) will be preserved. In view of the above, 
this policy option is considered in compliance with the charter of fundamental rights. 

8.1.4.3.  Option 5.4.3 - uniform administrative measures and sanctions 

Under this option both the types of administrative sanctions available to competent 
authorities  as  well  as  the  minimum  and  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  aggravating  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  administrative  sanction 
regimes are fully harmonised and that any infringement would be subject to the same 
type and level of sanction across all Member States. 

This  option  is  expected  to  be  effective  in  achieving  the  objective  of  dissuasive 
administrative  sanctions  as  the  minimum  and  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  reduction  in  the  maximum  level  of  administrative 
sanctions and reduce deterrence if the actual 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  market  abuse  is  expected  to  be  sanctioned 
administratively in a consistent way across 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 achieving the policy objectives of deterrence, 
it  is  not  sure  that  this  option  is  efficient  as  market  situations,  legal  systems  and 
traditions  differ  among  Member  States.  This  has  been  pointed  out  by  multiple 
stakeholders in the public consultation on the 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  and  proportionate  to 
ensure deterrent sanctions. However as financial markets are increasingly integrating, 

307 

UK, IT 

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having more convergent sanctioning regimes ensure a future-proof legal framework. 
Therefore this option is considered less efficient then introducing minimum rules for 
administrative sanctions. 

Respondents  to  the  consultation  generally  supported  harmonisation  of  sanctions  at 
the  EU  level  as  a  means  to  increase  their  deterrent  effect.  There  was  support  for 
harmonisation  of  administrative  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. 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.  

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  fundamental  right  to  property  (article  17  of  CFR).  In 
particular, introducing uniform rules for administrative measures and sanctions will 
ensure  the  coherent  application  of  sanctions  within  the  EU,  which  is  necessary  to 
ensure  that  comparable  offences  of  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 losses 
suffered by investors due to market abuse. 

It is proportionate it would ensure that the 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 offence 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 innocence and right of defence (Article 48) will 
be  preserved.  In  light  of  the  above,  this  policy  option  is  considered  in  compliance 
with the charter of fundamental rights. 

8.1.4.4.  Option 5.4.4 - requirement for criminal sanctions  

Under this option, which builds on the Communication Reinforcing sanction regimes 
in  the  financial  sectors309,  Member  States  will  be  required  to  provide  for  effective, 

308 

EU Charter of fundamental rights,  

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proportionate and dissuasive criminal sanctions for the most serious insider dealing 
and market manipulation offences as defined at EU level. As pointed out in table 1 
above, only a limited number of Member States would need to amend their national 
legislation.  For  example,  2  Member  States  would  need  to  introduce  criminal 
sanctions for market manipulation and 1 Member State for insider dealing310 .  

In the case of market abuse, criminal sanctions 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  potential  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  boundaries  in  law  that  certain  behaviours  are 
regarded as unacceptable and sends a message to the public that these are taken very 
seriously  by  society;  this  could  be  expected  to  lead  to  changes  in  behaviour313. 
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  abuse314.  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 deterrent316. 

309 

310 

311 

312 

313 
314 

315 

316 

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 
Executive  summary  to  the  report  on  administrative  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,  
Executive summary to the CESR report on administrative measures and sanctions as well as criminal 
sanctions available in Member States under the Market Abuse Directive (MAD), p 2, ref CESR/08-099 
available at www.cesr-eu.org 
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 that the threat of a custodial sentence is a  much more significant 
deterrent. The good news is that in this area stakeholders and commentators all seem to agree with us." 
http://www.fsa.gov.uk/pages/Library/Communication/Speeches/2008/0618_mc.shtml 
See speech by Margaret Cole, FSA Director of Enforcement, on 18 June 2008 referenced above. 
Margaret  Cole,  speaking  at  the  FSA  Annual  Financial  Crime  Conference  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/Communication/Speeches/2009/0427_mc.shtml 
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. 
Report for the Office of Fair Trading (UK), An assessment of discretionary penalties regimes, London 
Economics,  October  2009.  In  a  survey  by  the  OFT,  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 

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The  introduction  of  common  definitions  of  the  most  serious  market  abuse  offences 
and a requirement for Member States to put in place criminal sanctions is expected to 
contribute  to  a  more  effective  investigation  and  prosecution  of  such  crimes  by 
offering a new tool to address market abuse. This would complement administrative 
measures  and  sanctions.  The  EU  wide  availability  of  criminal  sanctions  improves 
deterrence and provides for a level playing field, and therefore, will lead to improved 
financial  market  integrityFinally,  there  is  evidence  that  effective  enforcement  of 
market  abuse  legislation,  and  in  particular  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 harmonisation of criminal sanctions in the 
responses  to  the  public  consultation.  Two  respondents  felt  that  penal  measures 
should  be  left  to  member  States319,  while  others  noted  the  difficulties  of 
implementing 
that 
harmonisation  was  needed  to  prevent  the  same  wrongdoing  being  a  crime  in  one 
member state and an administrative offence in another320.  

respondent  commented 

in  criminal 

law.  One 

regimes 

legislation 

in  general  outlined 

There  was  a  mixed  response  to  the  option  of  harmonising  criminal  sanctions  in 
financial  services 
the 
Communication  on  reinforcing  sanctioning  regimes  in  the  financial  services  sector. 
On the one hand some public authorities321 and industry or union groups322, as well 
as  some  individual  and  institutional  investor  groups323,  were  favourable  to,  or  not 
against, harmonisation of criminal sanctions in the financial services sector. On the 
other  hand,  other  public  authorities324, 
investor 
representatives325  or  others326  were  opposed  to,  or  sceptical  of,  harmonisation  of 

the  responses 

industry  and 

institutional 

to 

in 

317 

318 

319 
320 
321 

322 

323 

324 

325 

Utpal  Bhattacharya  and  Hazem  Daouk,  The  World  Price  of  Insider  Trading,  Journal  of  Finance, 
February  2002,  p.  25,  concludes  that  although  the  introduction  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". 
See  section  3.1.3.  Evidence  from  one  Member  State  (UK),  where  they  have  recently  reinforced  their 
approach regarding criminal sanctions, shows that this had a positive impact on "market cleanliness".  
Finnish Ministry of Finance and Central Chamber of Commerce of Finland 
German Insurance Association (GDV) 
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 interference with criminal law in general to be avoided, offences to be 
clearly defined), Spanish CNMV (offences to be clearly defined). 
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).  
Financial  Services  User  Group,  Private  Client  Investment  Managers  and  Stockbrokers  (but  to  be 
properly targeted and applied carefully). 
Czech National Bank, Swedish Ministry 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.  
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 (further 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 

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criminal  sanctions.  At  the  same  time,  many  respondents  from  public  authorities, 
industry  and  one  investor/user  group  took  the  view  that  criminal  sanctions  for  the 
most  serious  offences  were  appropriate327,  and  several  banking  and  institutional 
investor  representatives  specifically  cited  market  abuse  as  being  an  appropriate 
sector  for  criminal  sanctions328.  A  smaller  number  of  respondents  from  public 
authorities,  industry  and  one  consumer  organisation  argued  that  administrative 
sanctions were equally or more effective329.  

Assessment of fundamental rights and compliance with 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 defence (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  for  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  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 criminal sanctions in national law to address market 
abuse.  Common  minimum  rules  on  definitions  for  the  most  serious  market  abuse 

326 

327 

328 

329 

330 

Linklaters  (may  be  an  obstacle  to  consistent  application  of  EU  law)  IMF  (may  create  problems  in 
cooperation between authorities). 
Central Bank of Ireland, Danish FSA (for both legal 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  cooperation  issues  to  be  reflected);  Association  Française  des  marches 
financiers; FSUG (but right to claim damages to be dissociated from the result of criminal 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).  
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).  
ING  Group,  Austrian  FSA,  CFA  Institute  (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.  
EU Charter of fundamental rights,  

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offences would facilitate the cooperation of law enforcement authorities in the EU. 
Criminal sanctions show a particularly strong disapproval of society for certain forms 
of behaviour331. The entering of convictions in criminal 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 demonstration effect, as it shows that the competent 
authorities are serious about tackling market abuse. The increased deterrent effect of 
criminal sanctions for the most serious offences could be expected to result in greater 
market  integrity  and  a  reduction  in  the  losses  suffered  by  investors  due  to  market 
abuse. 

The absence of criminal sanctions in some Member States entails the risk that serious 
market abuses such as market manipulation 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  imprisonment  and  fines  for  the  most  important 
market abuses, e.g. insider dealing and market manipulation.  

In those countries which do not yet have criminal sanctions in place, the introduction 
of  criminal  sanctions  is  expected  to  contribute  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  harmonisation  contributes  to  a  level  playing  field  between  all 
actors and improving legal certainty.  

However,  as  the  legal  frameworks  and  systems  for  market  abuse  criminal  offences 
differ  widely  among  Member  States  at  present  and  the  effects  of  minimum 
harmonisation  concerning  the  offence  definitions  and  the  requirement  for  criminal 
sanctions have not been explored yet,, in light of the spirit of Article 83 (2), it seems 
to  be  premature  to  foresee  already  minimum  rules  on  types  and  levels  of  criminal 
sanctions at this stage. It is preferred to follow a gradual approach, i.e. introduction 
of a general obligation on MS to provide criminal 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 harmonisation of criminal sanctions in the 
responses  to  the  public  consultation.  Two  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 that the threat of a custodial sentence is a  much more significant 
deterrent. The good news is that in this area stakeholders and commentators all seem to agree with us." 
http://www.fsa.gov.uk/pages/Library/Communication/Speeches/2008/0618_mc.shtml 

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should  be  left  to  member  States332,  while  others  noted  the  difficulties  of 
implementing 
that 
harmonisation  was  needed  to  prevent  the  same  wrongdoing  being  a  crime  in  one 
member state and an administrative offence in another333. 

respondent  commented 

in  criminal 

law.  One 

regimes 

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  and  fair  trial  (Art.  47),  the  presumption  of 
innocence and right of defence (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  sanctioning  of  market  abuse)  and  to  protect 
the fundamental right to property (article 17 of CFR). 

In accordance with article 83 (2) of the Treaty (TFEU), the level of harmonisation of 
criminal sanctions for market abuses of the 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  introduction  of  common  defitnitions  of  certain 
offences  and  the  general  obligation  of  introducing  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  sanctions  would  be  improved  by  introducing  a 
requirement to publish imposed sanctions and improve cooperation on investigations 
among Member States, where appropriate 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 disproportionate damage to the parties involved.  

The  publication  of  imposed  sanctions  is  considered  by  regulators  as  being  of  high 
importance to enhance transparency and maintain confidence in financial markets335. 
Therefore  publication  of  imposed  sanctions  will  contribute  to  the  objective  of 
deterrence  and  improves  market  integrity  and  investor  protection.  This  option  will 
also contribute to the objective of eliminating options and discretions where possible 
by  removing  the  current  discretion  Member  States  have  not  to  require  such 

332 
333 
334 
335 

Finnish Ministry of Finance and Central Chamber of Commerce of Finland 
German Insurance Association (GDV) 
EU Charter of fundamental rights,  
CESR,  review  panel  report  MAD,  Options  and  Discretions,  2009,  p.  19,  reference:  CESR/09-1120 
available at www.cesr-eu.org 

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publication. However, already 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  sanctions,  one  respondent  felt  that  this  could 
disproportionately  affect  trust  in  capital  markets  and  give  misleading  signals  (and 
also  contravene  data  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  supportive  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 
(baseline) 

5.4.1 

n.a. 

n.a. 

n.a. 

Option 
Introduction 
minimum 
administrative 
measures 
sanctions  

5.4.2 
of 
rules  on 

and 

(++) 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 
sanctions 
deterrence 

rules  of 
to 

contribute 

playing 

(++)level 
field: 
abuse 
market 
similar 
sanctioned based on the same 
common standards  

(++)  minimum  rules  reduce 
regulatory arbitrage 

(+/0)  compliance  costs 
competent 
for 
authorities 
those 
for 
Member  States  which 
lower level of sanctions 
in place  

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  ensuring  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. 

336 

337 

CESR,  review  panel  report  MAD,  Options  and  Discretions,  2009,  p.  19,  reference:  CESR/09-1120 
available at www.cesr-eu.org 
European Savings Banks Group 

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distinct  market 
legal 

(-) 
situations  and 
traditions 

(+/0)  a  limited  number 
States 
of  Member 
without 
criminal 
sanctions  will  need  to 
introduce  new  rules  on 
criminal  sanctions  and 
ensure enforcement 

5.4.3 

Option 
uniform 
administrative 
measures 
sanctions  

– 

and 

(++) 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 
sanctions 
deterrence 

rules  of 
to 

contribute 

playing 

(++)level 
field: 
abuse 
market 
similar 
sanctioned based on the same 
common standards  

(++)  uniform  rules  reduce 
regulatory arbitrage  

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  ensuring  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.  

5.4.4 

Option 
–
for 
requirement 
criminal  sanctions  for 
market abuse  

(+)  regulators  gain  a  tool  to  sanction 
market abuse in those MS where this is 
not yet available 

(++)  availability  of  criminal 
sanctions contribute strong to 
the  objective  of  deterrence  of 
market abuse 

(+)  all  market  participants  will  be 
subject 
for 
market  abuse  improving  level  playing 
field 

to  criminal  sanctions 

criminal 
to 

(+) 
contribute 
investor protection 

sanctions 
improved 

(+)Investors  will  benefit  from  greater 
market  integrity  due  to  the  additional 
deterrent effect of criminal sanctions 

(+)  improves  level  playing 
field  by  ensuring  that  in  all 
criminal 
States 
Member 
sanctions will be available 

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 Member 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  criminal  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 serious market abuse offences would 
facilitate  the  cooperation  of  law  enforcement  authoritiess  in  the  EU. 

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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. 

Option 
minimum 
criminal sanctions  

5.4.5 
rules 

– 
for 

(+)  regulators  gain  a  tool  to  sanction 
market abuse in those MS where this is 
not yet available 

(++)  availability  of  criminal 
sanctions contribute strong to 
the  objective  of  deterrence  of 
market abuse 

of 
(--)the  majority 
Member State will need 
to  introduce  new  rules 
to ensure compliance 

(++)  all  market  participants  will  be 
subject to criminal sanctions based the 
same  minimum  principles  for  market 
abuse improving level playing field 

criminal 
to 

(+) 
contribute 
investor protection.  

sanctions 
improved 

(+)Investors  will  be  subject  to  more 
integer  market  due  to  the  additional 
deterrent effect of criminal sanctions 

(+)  contributes  strongly  to 
creation  of  a  level  playing 
field  as  similar  market  abuse 
can be addressed by 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 Member 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 criminal 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 reconsidered whether any further EU level 
harmonisation is required in this area.  

Option 5.4.6 –improve 
by 
enforcement 
for 
providing 
of 
publication 
and 
sanctions 
on 
cooperation 
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 
investor 
protection.  

to 

(+)  improved  level  playing 
field  by  better  detection  of 
market  abuse  and  improved 
enforcement by publication of 
in  all  Member 
sanctions 

(0/-)  limited  additional 
effort  generated  by 
publication 
of 
and 
sanctions 
improved  cooperation 
among regulators . 

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States  

Respondents  to  the  MAD  public  consultation  generally  supported  harmonisation  of 
sanctions  at  the  EU  level  as  a  means  to  increase  their  deterrent  effect.  There  was 
support  for  harmonisation  of  administrative  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.  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 harmonisation of criminal sanctions in the 
responses to the public consultation on the 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  the  same  wrongdoing  being  a  crime  in  one 
member state and an administrative offence in another339.  

legislation 

in  general  outlined 

There  was  a  mixed  response  to  the  option  of  harmonising  criminal  sanctions  in 
financial  services 
the 
Communication  on  reinforcing  sanctioning  regimes  in  the  financial  services  sector. 
On the one hand some public authorities340 and industry or union groups341, as well 
as  some  individual  and  institutional  investor  groups342,  were  favourable  to,  or  not 
against, harmonisation of criminal sanctions in the financial services sector. On the 
other  hand,  other  public  authorities343, 
investor 
representatives344  or  others345  were  opposed  to,  or  sceptical  of,  harmonisation  of 

the  responses 

industry  and 

institutional 

to 

in 

338 
339 
340 

341 

342 

343 

344 

Finnish Ministry of Finance and Central Chamber of Commerce of Finland 
German Insurance Association (GDV) 
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 interference with criminal law in general to be avoided, offences to be 
clearly defined), Spanish CNMV (offences to be clearly defined). 
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).  
Financial  Services  User  Group,  Private  Client  Investment  Managers  and  Stockbrokers  (but  to  be 
properly targeted and applied carefully). 
Czech National Bank, Swedish Ministry 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.  
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 (further 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. 

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criminal  sanctions.  At  the  same  time,  many  respondents  from  public  authorities, 
industry  and  one  investor/user  group  took  the  view  that  criminal  sanctions  for  the 
most  serious  offences  were  appropriate346,  and  several  banking  and  institutional 
investor  representatives  specifically  cited  market  abuse  as  being  an  appropriate 
sector  for  criminal  sanctions347.  A  smaller  number  of  respondents  from  public 
authorities,  industry  and  one  consumer  organisation  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 together 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  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  the  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 exceptions) that 
sanctions should be published, and by strengthening cooperation between regulators 
in investigating 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  regulators  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 organised markets and platforms and in relation 
to commodity and related derivative markets. 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 

346 

347 

348 

Linklaters  (may  be  an  obstacle  to  consistent  application  of  EU  law)  IMF  (may  create  problems  in 
cooperation between authorities). 
Central Bank of Ireland, Danish FSA (for both legal 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  cooperation  issues  to  be  reflected);  Association  Française  des  marches 
financiers; FSUG (but right to claim damages to be dissociated from the result of criminal 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).  
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).  
ING  Group,  Austrian  FSA,  CFA  Institute  (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.  

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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  information  and  powers  they  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  sector349.  They  are  in 
conformity with the Charter of Fundamental Rights as the limitations they impose on 
fundamental  rights  are  necessary  and  proportionate  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  address  market  abuse  is  likely  to  lead  to 
increased succesful prosecution of market abuse offences and contribute to ensuring 
the effective functioning of the internal market (for a more detailed evaluation of the 
impacts on fundamental rights and compatibility with article 83 (2), see annex 8).  

In light of the above analysis, the preferred option is a combination of options 5.4.2, 
5.4.4 and 5.4.6. 

8.1.5.  Policy options to reduce or eliminate options and discretions 

These  options  will  be  assessed  against  their  effectiveness  in  achieving  the  specific 
objective  of  ensuring  clarity  and  legal  certainty  in  the  market  abuse  framework,  as 
well as the objective of ensuring a single rulebook and level playing field while not 
jeopardising  investor  protection  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, the 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  practices.  If  no  action  at  EU  level 
was  taken  these  divergences  would  continue  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 granted a safe harbour in another.  

8.1.5.2.  Option 5.5.2 - harmonise accepted market practices 

With this option the concept of AMPs would 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 recognised as not constituting market abuse in 
all Member States. ESMA would need to play 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 

175 

   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  levelling  of  the  European-playing  field  by 
ascertaining that the same rules apply across markets. 

However, implementing this option does have significant disadvantages. Despite an 
extensive set of harmonisation measures, market 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 constitute 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 legal. Therefore, this option would cause a 
decrease in market integrity and the level of investor protection in the EU.  

The majority of respondents to the public consultation, including financial companies 
and bodies, supported enhancing harmonisation of AMPs, although they also noted 
the  difficulties  of  completing  this.  These  responses  generally  felt  harmonisation 
would help move towards a single market for financial instruments and would reduce 
legal uncertainty for market participants. However respondents also commented that 
justify  divergent 
significant  differences 
implementations of accepted market practices.  

in  markets  currently  exist,  which 

While  some  public  authorities  felt  involvement  by  ESMA  in  a  co-ordination  role 
would  help,  most  felt  that  the  current  procedures  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  would  be  removed  from  the  market  abuse 
framework, with existing practices gradually being phased 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  which  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 

176 

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devised  during  which  ESMA  would  periodically 
appropriateness on a case-by-case basis.  

review 

their  continued 

8.1.5.4.  The preferred options 

Impact on stakeholders 

Effectiveness 

Efficiency 

Option 5.5.1  

n.a. 

n.a. 

n.a. 

(baseline) 

Option 5.5.2 

(harmonise 
market practices) 

accepted 

investment 

firms  and 

applying  EU-wide 

investors 
(0) 
the  certainty  of  safe 
would  have 
harbours 
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 

no 

(0) 
discernible 
impact  on  resources  of 
or compliance costs for 
market participants 

(+)  enhancing  clarity  and 
legal certainty 

(-)small  negative  impact  on 
investor protection and 

(-) on market integrity 

Option 5.5.3 

(remove 
accepted 
market  practices  and 
phase-out 
existing 
practices) 

(+)  investment  firms  and  investors 
would  benefit 
legal 
certainty  and  a  gradual  move  towards 
a single rulebook 

from  greater 

(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 
and 
market integrity 

protection 

no 

(0) 
discernible 
impact  on  resources  of 
or compliance costs for 
market participants 

Based on the analysis above, the highest scoring option is option 5.5.3. Implementing 
this  option  would  reduce  a  source  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  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  require  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  will  also  eliminate  options  and 
discretions in the current legislation. Taken together, all these options will go a long 
way towards the objective of creating a single rulebook and a level playing field. 

EN 

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In light of the above analysis, option 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  continue  to  face  legal  uncertainty  about  the 
circumstances  in  which  they  can  legitimately  delay  the  disclosure  of  inside 
information. In addition, Member States will 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/EC350.  This  could  be  further  developed,  for 
example  by  clarifying  that  a  delay  is  likely  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  which  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 delay are met. By harmonising the conditions 
for  delayed  disclosure  across  the  EU,  this  option  would  also  create  a  level  playing 
field in this area which would be particularly beneficial for cross-border issuers. 

However  this  option  has  the  significant  disadvantage  that  it  would  reduce  investor 
protection  by  narrowing  or  eliminating  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 market integrity by allowing 
greater scope for trading to take place by some in possession of inside information 
not available to the wider public. 

350 

351 
352 

Commission  Directive  2003/124/EC  of  22  December  2003  implementing  Directive  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 
ESME (2007), p. 9. 
Ibid, p. 9. 

EN 

178 

   EN 

 
                                                 
8.1.6.3.  Option 5.6.3 - Reporting of delayed disclosure of inside information 

Under  this  option,  issuers  would  be  required  to  inform  the  competent  authority  of 
their decision to delay the disclosure of inside information immediately 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 protection and market 
integrity  by  ensuring  that  inside  information  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  harmonising  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 the delayed disclosure 
of inside information, the responsibility for assessing whether a delay to disclosure is 
justified would remain with the issuer, but the requirement to inform the competent 
authority  ex  post  would  provide  a  mechanism  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 the risk of no disclosure 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 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.  

This  option  would  meet  the  objective  of  enhancing  clarity  and  legal  certainty  with 
regard to delays to disclosure in such cases. It would not have a negative impact on 
investor  protection  as  the  decision  to  authorise  a  delay  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  the  stability  of  the  financial  system  and 
avoiding the losses which would result from the failure of an issuer. 

Many respondents to the public consultation did not address this issue. Of those who 
did respond, while there was some support for regulators to have the power directly, 
the majority of respondents (across all categories) felt that the issuer itself rather than 

353 

See response by FSA/HM Treasury. 

EN 

179 

   EN 

 
                                                 
the  appropriate  responsibility.  Some 
the  competent  authority  should  have 
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 the information is systematically 
important,  and  respondents  also  noted  that  at  times  of  emergency,  regulators  and 
issuers would already be involved 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  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.  

An advantage would be that additional types of transactions will also be accessible to 
the public that are similar to sales or purchases by the manager him- or herself and 
may  convey  important  information.  In  addition,  legal  certainty  for  issuers  and 
managers regarding the scope of the reporting obligation would be enhanced.  

A  disadvantage  would  be  that  issuers  may  have  to  report  more  transactions, 
increasing slightly the costs imposed by the market abuse framework. However, this 
seems to be justified by the additional market transparency achieved and issuers and 
managers benefit from greater clarity about what needs to be reported. 

This option is supported by CESR354. 

8.1.6.6.  The preferred options 

_ 

Impact on stakeholders 

Effectiveness 

Efficiency 

5.6.1 

n.a. 

n.a. 

n.a. 

Option 
(baseline) 

Option 5.6.2 

(clarify  conditions  for 
delayed  disclosure  of 
inside information) 

(+)  issuers  obtain  greater  freedom  to 
delay disclosure of inside information 

(+)  Partially  meets  objective 
of greater legal certainty (for 
issuers) 

(+)  Likely  to  reduce 
costs for issuers but 

(- - -) investors have less transparency 
on actions of issuers in their investment 
decisions 

(+)  Partially  meets  objective 
of  a  level  playing  field  (for 
issuers) 

(-)  regulators  may  have  to  investigate 
more  cases  of  delayed  disclosure  or 
insider trading 

(-  -  -)  Negative  impact  on 
investor protection  

increase 
(-)  Could 
regulators 
costs 
for 
who  may  have 
to 
investigate  more  cases 
of  delayed  disclosure 
or insider dealing 

Option 5.6.3 

(-) issuers face costs (see section 6.8) 

(Reporting  of  delayed 
disclosure  of 
inside 
information) 

(+++) 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 

to 
costs 

impose 
(-)  Likely 
increased 
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 

180 

   EN 

 
                                                 
Option 5.6.4 

(+) issuers obtain greater clarity  

(Determine  conditions 
of  delayed  disclosure 
in  case  of  systemic 
importance) 

(0)  neutral  for  investors  as  permission 
of  regulator  needed  and  losses  due  to 
failure or financial instability limited 

(+) regulators gain legal certainty 

Option 5.6.5  

(+) issuers and 

(clarify  disclosure  of 
managers 
transactions) 

(+)  regulators  would  benefit 
enhanced legal certainty 

from 

investors  would  benefit 
publicly 

from 
available 

(+) 
additional 
information 

(+++)  Meets  objective  of 
greater legal certainty 

(0)  Cost  implications 
limited  as  such  cases 
are relatively rare 

(0)  Neutral 
investor 
market integrity 

impact 

protection 

on 
and 

(+) Meets objective of greater 
legal certainty for issuers and 
regulators 

(+)  Meets 
of 
increasing investor protection 

objective 

(-)Likely 
increase 
issuers 
additional reports  

to 
costs 
due 

slightly 
for 
to 

Most respondents to the public consultation 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 have the power directly, 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  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  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 CESR356. 

Based on the analysis above, the highest scoring 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  contribute  effectively  to  the  objective  of  creating  a  single 
rulebook and a level playing field. These options would also provide additional tools 
for enforcement by regulators, as they would be systematically informed of delayed 
disclosure  and  could  therefore  sanction  delays  which  were  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 would therefore also contribute to achieving the specific 
objective of effective enforcement by regulators. 

The preferred option is therefore a combination of options 5.6.3, 5.6.4 and 5.6.5. 

355 
356 

See response by FSA/HM Treasury. 
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 

 
 
 
 
                                                 
8.1.7.  Policy options for reducing administrative burdens, especially on SMEs 

These  options  will  be  assessed  against  their  effectiveness  in  achieving  the  specific 
objective  of  reducing  administrative  burdens  for  issuers  of  financial  instruments 
admitted  to  trading  while  at  the  same  time  avoiding  unduly  negative  effects  on 
market integrity, investor protection and market transparency. For SMEs specifically 
the options will also be assessed against the objective of making it more attractive for 
SMEs to raise finance via securities markets. 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.  

8.1.7.1.  Option 5.7.1 – no action at EU level  

As  explained  in  the  problem  definition,  there  are  shortcomings  in  relation  to  the 
design  and  application  of  the  issuer-related  obligations  in  the  Market  Abuse 
Directive. In addition, applying the issuer obligations in an undifferentiated manner 
to  SMEs  may  continue  to  deter  small  issuers  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 disclosure of inside information 

Under  this  option,  SMEs  would  be  required  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  SMEs  would  be  set  out  in  the  Directive. 
Rather than applying a general test for disclosure of inside information SMEs would 
follow  a  more  prescriptive  test.  Rationale  for  this  would  be  that  information 
published  by  large  issuers  does  need  to  potentially  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 business of an SME is much more restricted and the events 
giving rise to the need to disclose inside information are 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" which the Commission services are currently 
considering  as  part  of  the  review  of  the  Markets  in  Financial  Instruments 
Directive357.  A  modified  disclosure  obligation  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 objectives of reducing administrative 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. Implementing this option could 
also contribute to establishing a specific single rulebook for small issuers that would 

357 
http://ec.europa.eu/internal_market/consultations/2010/mifid_en.htm  

The consultation document on the MiFID can be found at this page:  

EN 

182 

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be  recognisable  throughout  Europe  and  may  attract  more  investors  on  an  EU-wide 
basis to invest in SMEs, thereby promoting the single market.  

Potential  disadvantages  would  be  that  the  level  of  transparency  and  the  degree  of 
supervision  on  the  SME  Markets  could  be  slightly  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  transparent  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 those markets so that overall a sufficiently 
high  degree  of  investor  protection  is  preserved.  These  requirements  originate  from 
the  MiFID  framework  but  also,  as  an  example,  the  obligation  for  intermediaries  to 
report  suspicious  transactions  to  supervisory  authorities  would  apply  to  financial 
instruments  on  SME  Markets.  On  balance,  an  increase  in  investor  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  respondents  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, whilst approximately one fifth supported an 
SME  regime.  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 appropriately reflect the difference 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  application  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 dealings obligations that apply to issuers. 

Of the approximately one 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.  

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 option are, however, more severe than under option 2. The 
obligation  to  disclose  inside  information  is  one  of  the  cornerstones  of  the  Market 
Abuse Directive, ensuring timely and consistent information of investors and serving 

EN 

183 

   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 would be more difficult for regulators and 
investor  protection  thus  considerably  decreased.  Investors  would  regard  a  market 
without a disclosure duty applying as substandard358 and would be very cautious in 
committing investments.  

A large majority of respondents to the public consultation who addressed this issue 
opposed 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. 

8.1.7.4.  Option 5.7.4 - harmonise insiders' lists 

This option would entail prescribing conclusively the precise data an insider list has 
to  contain  in  relation  to  each  individual  included  on  the  insider  list,  rather  than 
prescribing only minimum requirements. One example would be the identification of 
individuals  which  could  be  by  first  name  and  surname  only  or  also  by  additional 
details such as date and place of birth, address etc.  

Such  a  harmonisation  would  lower  administrative  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 level-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 need to be included in insider lists as they 
are  comfortable  with  their  current  requirements  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 fields 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 
issuers359. 

8.1.7.5.  Option 5.7.5 - SME exemption for insiders' lists 

Under  this  option,  SMEs  listed  on  an  SME  Market  would  be  exempted  from  the 
obligation  to  draw  up  insiders'  lists,  while  they  would  remain  subject  to  a 
requirement  to  ensure  that  employees  were  reminded  of  their  obligations  and  the 
prohibitions on market abuse in the MAD. 

358 

359 

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 
See response by European Issuers. 

EN 

184 

   EN 

 
                                                 
This  option  would  reduce  regulatory  complexity  for  small  issuers,  therefore, 
achieving  the  objective  of  decreasing  administrative  burden.  This  would  also 
contribute  to  the  objective  of  increasing  the  attractiveness  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  supervisory  authorities  may  find  combating  market 
abuse more burdensome due to the absence of insider lists, which have proved to be 
a useful tool in supervisory practice. However, insider lists for small issuers are not 
as  comprehensive  as  for  large  multi-national  undertakings.  Therefore,  conducting 
investigations  without  being  able  to  consult  insider  lists  first  does  appear  feasible 
without  lowering  the  existing  level  of  market  surveillance  and  investor  protection 
significantly.  

8.1.7.6.  Option 5.7.6 - abolish managers' transactions reporting 

Under this option the provisions in the Market Abuse framework requiring managers 
of  issuers  to  report  transactions  in  shares  of  the  said  issuer,  or  in  associated 
derivatives or other financial 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 managers 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  requiring  directors'  dealings  anymore  would  be  that  the 
deterrent effect the reports have on managers from engaging in insider trading would 
disappear.  As  the  managers'  transaction  reports  need  to  be  made  publicly  available 
they also serve as a useful tool for investors in estimating how managers of issuers 
themselves  assess  the  current  and  future  development  of  a  share  price.  Hence, 
another  disadvantage  is  that  a  well-established  transparency  feature  of  capital 
markets would be lost.  

8.1.7.7.  Option 5.7.7 - harmonise managers' transactions reporting and raise threshold 

With  this  option  the  currently  existing  threshold  of  €5,000  in  a  year  below  which 
managers'  transactions  do  not  need  to  be  reported  would  be  adjusted  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 would 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  burdens  for 
the 
application  of  the  threshold  by  making  it  compulsory  all  over  Europe  would 
evidently  reduce  the  number  of  notifications  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.  

issuers.  Harmonising 

EN 

185 

   EN 

 
A disadvantage would be a moderate reduction in market transparency which would 
not harm investor protection as even a slightly increased 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  Markets.  Such  a  regime  would  require 
disclosure  of  managers'  transactions  not  when  transactions  reach  an  absolute  figure 
but  rather  when  a  certain  small  percentage  of  market  capitalisation  (0.02%)  of  the 
issuer  is  reached.  Such  an  approach  would  tie  in  with  the  specific  structure  of  a 
significant number of SMEs where there is one majority shareholder 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 approach would be that the number of reports 
necessary for SMEs would be reduced constituting a slightly reduced administrative 
burden.  

(measuring 

reporting  obligations 

However,  this  approach  would  add  a  certain  level  of  complexity  for  issuers  in 
transactions  against  market 
determining 
capitalisation rather than having a fixed absolute figure). Also reporting of managers' 
transactions of issuers in SME Markets would 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  

n.a. 

n.a. 

n.a. 

(baseline) 

Option 5.7.2 

regime 

(SME 
disclosure  of 
information) 

for 
inside 

(++)  SMEs  would  profit 
simplified regime 

from  a 

(-)  regulators  would  need  to  adapt  by 
supervising a modified, additional rule 

(+) investors may benefit from a wider 
choice  of  SMEs  accessing  the  capital 
markets 

(+)  SMEs  would  need 
fewer 
slightly 
to  comply 
resources 
with 
disclosure 
obligation 

(-)  regulators  would 
need to commit slightly 
more  resource  to  cope 
with an adapted rule 

(+)  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 

EN 

186 

   EN 

 
 
 
 
Option 5.7.3 

(SME  exemption 
disclosure  of 
information) 

for 
inside 

obligation 

(-)  SMEs  would  not  have  to  adhere  to 
the 
but 
investments  in  SMEs  would  be  limited 
due to a lack of investor confidence  

anymore 

(---) regulators would face problems in 
supervising 
trading 
prohibition  

insider 

the 

(--)  investors  would  rate  a  market  as 
the  disclosure 
substandard  where 
obligation  for  inside  information  does 
not apply  

(+)  contribution  to  objective 
of  reducing  administrative 
burden 

(0)  on  balance,  would  not 
improve  the  attractiveness  of 
finance  on  capital 
raising 
markets to SMEs 

(--- )severe impact on market 
transparency, 

(---) integrity and 

(---) investor protection  

(++) SMEs would need 
significantly 
fewer 
to  comply 
resources 
with 
issuer-related 
obligations  on  trading 
venues 

(--)  regulators  would 
need 
to  expand  on 
resources  significantly 
to 
SME 
markets 

supervise 

Option 5.7.4  

(harmonise 
lists) 

insiders' 

(+)  issuers  would  benefit  from  the 
certainty and uniformity of harmonised 
rules 

(+)  contribution  to  objective 
of  reducing  administrative 
burden 

(+) issuers would need 
fewer 
slightly 
resources 
for 
compliance 

(0) regulators could work equally well 
with harmonised requirements 

(0) no discernible impact on investors 

(0)  no  discernible  impact  on 
transparency, 
market 
integrity 
investor 
protection 

and 

Option 5.7.5 

(++)  SMEs  would  not  need  to  commit 
resources to drawing up insiders' lists 

(SME  exemption  for 
insiders' lists) 

(-)  regulators  cannot  use  lists  as  a 
supervisory tool for SME issuers 

(0) no discernible impact on investors 

Option 5.7.6 

(abolish 
managers' 
transactions reporting) 

feel 

issuers  would 

(+) 
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 

(+)  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 
transparency, 
market 
investor 
integrity 
protection 

and 

(++)  strong  contribution  to 
reducing 
of 
objective 
administrative burden 

(---) severe impact on market 
transparency and  

(-)  small  impact  on  investor 
protection  

to 

(+)  SMEs  would  not 
commit 
need 
resources 
the 
drawing up of insiders' 
lists  

to 

issuers 

could 
(++) 
resources 
reduce 
committed  to  fulfilling 
issuer-related 
obligations 
significantly 

to 

(--) market efficiency is 
significantly 
reduced 
important 
due 
not 
information 
the 
contributing 
of 
valuation 
instruments anymore 

to 

Option 5.7.7 

(+)  issuers  would  benefit  of  moderate 
reduction of transaction reports 

(harmonise  managers' 
transactions 
reporting 
requirements  and  raise 
threshold) 

(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 
managers' 

regime 

for 
transaction 

(+)  SMEs  would  benefit  of  further 
moderate  reduction  of 
transaction 
reports 

(0)  negligible  contribution  to 
objective 
reducing 
of 
administrative burden and 

resources 
(0)  SMEs 
committed 
to 
compliance  would  not 
be discernibly reduced 

(-)  regulators  would  need  to  adapt  to 

(0)  making  the  raising  of 

EN 

187 

   EN 

 
 
 
 
reporting) 

additional rule 

finance  on  capital  markets 
more attractive to SMEs  

(-)  investors  would  lose  benefit  of 
clearly 
applying 
fixed 
uniformly for all issuers 

threshold 

(-)  small  impact  on  market 
transparency 

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 commented 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.  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 appropriately reflect the difference 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  application  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 dealings obligations that apply to issuers. 

Of the approximately one 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.  A  large  majority  of  respondents  to  the  public  consultation 
who  addressed  the  issue  opposed  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 
issuers360. 

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  compatible  with  each  other  and  could  be 
combined.  

A  combination  of  such  options  would  comprehensively  reduce  the  administrative 
burdens  related  to  the  issuer-related  requirements  of  the  market  abuse  framework, 
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  administrative  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 regulators to impose additional requirements, 
thereby reinforcing the options for creating a single rulebook and level playing field 
(see section 6.1.3). 

360 

See response by European Issuers. 

EN 

188 

   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 

189 

   EN 

 
ANNEX 9 - THE MARKET ABUSE REGIME IN THE UNITED STATES  

In  the  United  States,  market  manipulation  and  insider  dealing  are  covered  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 information in order to secure prices at abnormal 
levels.  The  Dodd-Frank  Act  now  clarifies  that  this  prohibition  applies  to  any  security  other 
than a government security, any security not registered on a national securities exchange, or in 
connection  with  any  security-based  swap  or  security-based  swap  agreement  with  respect  to 
such  security.361  The  1934  Act  did  not  expressly  prohibit  manipulation  in  OTC  securities. 
However, already before the Dodd-Frank Act amendments, the courts have interpreted Rule 
10b-5's  broad  prohibition  against  securities  fraud  (as  described  below)  to  prohibit  market 
manipulation in the OTC market.362  

Insider Trading  

No  federal  statute  defines  insider  trading.  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  manipulative  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 implemented by Rule 10b-5,364 which has been generally interpreted 
by the courts to prohibit securities fraud. Over 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  has  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 federal insider trading law in its Rule 10b5-
1.366  

Therefore the 1934 Act and its implementing rules prohibit securities price manipulation by 
corporate insiders. The paradigm case of insider trading arises when a corporate insider trades 
securities  using  material,  non  public  information  obtained  through  the  insider's  corporate 

361 
362 
363 
364 
365 
366 

Security-based swap as defined by Section 3(63) of the 1934 Act.  
SEC v. Resch-Cassin & Co., 364 F. Supp.964 (S.D.N.Y. 1973).  
Regulation of the use of manipulative and deceptive devices.  
Employment of manipulative and deceptive devices.  
See Chiarella v. United States, 445 U.S. 222 (1980).  
Trading “on the basis of” material non-public information 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 the 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 

190 

   EN 

 
                                                 
position. Moreover, under the 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 information, even if the source is a complete stranger to the traded 
securities.  

Regulation FD complements the statutory and implementing provisions 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  information.  Therefore,  when  the  disclosure  is 
intentional  issuers  must  disclose  inside  information  to  the  investing  public  simultaneously 
with  any  disclosure  to  selected  analysts  or  investors.  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  investigations  as  it  deems  necessary  to  determine 
whether any person has violated, is violating, or is about to violate any provision of the 1934 
Act.369  The  SEC  has  broad  administrative  authority  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  restraining  order.  The  SEC  can  also  refer  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 who 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  person  who  has  violated  the 
securities laws.  

In addition to the SEC enforcement described below, 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  whose  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  obtained  by  the  SEC  under  its  authority  to 
seek injunctive relief.  

367 

368 

369 
370 
371 
372 

373 
374 
375 

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.  
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.  
See Section 21(a)(1) of the 1934 Act – "Investigations; Injunctions and Prosecution of Offenses."  
See Section 21C of the 1934 Act – "Cease-and-Desist Proceedings."  
See Section 21(d)(1) of the 1934 Act – "Investigations; Injunctions and Prosecution of Offenses."  
See Section 32(a) of the 1934 Act – "Penalties." Maximum criminal fines are up to $5m ($25 for non 
natural persons) and jail sentences to 20 years.  
See Section 21B(e) of the 1934 Act – "Civil Remedies in Administrative Proceedings."  
See Section 21(d)(3) of the 1934 Act – "Investigations; Injunctions and Prosecution of Offenses."  
See Section 20A of the 1934 Act – "Civil liability to contemporaneous traders."  

EN 

191 

   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  action  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 judicially imposed civil penalty of up to three 
times the profits realized or losses 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  new  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  action  resulting  in  monetary  sanctions  exceeding  $1m.  The 
protection  of  whistleblowers  is  ensured  by  the  prohibition  against  any  retaliation  by  the 
employer and some confidentiality provisions on the identity of a whistleblower.  

376 
377 
378 
379 

380 

See Section 21B(e) of the 1934 Act – "Civil Remedies in Administrative Proceedings."  
See Section 21A(a)(2) of the 1934 Act – "Civil Penalties for Insider Trading."  
See Section 21A(a)(3) of the 1934 Act – "Civil Penalties for Insider Trading."  
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  
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 

192 

   EN 

 
                                                 
ANNEX 10 – ADMINISTRATIVE BURDEN 

In order to determine the administrative burden of the policy options, an external study381 was 
conducted by EIM on behalf of the Commission which assessed the 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 rules, interviews were conducted with relevant 
stakeholders  including  financial  markets,  banks  and  investment  firms  and  issuers  including 
SMEs. Particular attention was given to impact of administrative burden on SME issuers.  

In  this  context,  administrative  burden  is  defined,  in  accordance  with  the  impact  assessment 
guidelines, 
and 
national/regional/local  administrations  that  are  likely  to  be  added  or  eliminated  if  a  policy 
option were implemented. 

information  obligations 

for  businesses, 

citizens 

the 

for 

as 

The preferred options which are estimated to have 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 organised trading facilities (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 managers transaction reports (option 5.7.8), 

including increasing the threshold (option 5.7.8).  

•  The impacts of these options on administrative burden are further explored below.  

Extending the scope to MTFs (option 5.1.4)  

According to a study carried out by external consultants 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 MAD 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  available  for  their  internal  controls384.  This  number  does  not 

381 

382 

383 

384 

EIM, Effects of the changes to the Market Abuse Directive – Impact on administrative burden of firms 
in the EU, Zoetermeer, December 2010, See annex 13 
EIM, Effects of the changes to the Market Abuse Directive – Impact on administrative burden of firms 
in the EU, Zoetermeer, December 2010, see annex 13 
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 MTF3s) EMI, Effects of the change in the Market 
Abuse Directive, 2010. 
Given the high level of uncertainty regarding the estimates, care should be taken in using these results. 

EN 

193 

   EN 

 
                                                 
cover  the  one-  off  cost  related  to  developing  monitoring  systems  which  amount  to  EUR  1 
Million,  70%  of  which  could  be  considered  business  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 trading facilities (OTFs) option 5.1.5 

The  administrative  burden  of  extending  the  scope  of  the  MAD  to  other  organised  trading 
facilities  is  estimated  at  EUR  481,000.  These  costs  relate  to  surveillance  costs  of  these 
markets. As the study on administrative burden385 does not cover this topic, the Commission 
services have estimated the administrative burden based on the assumption of 100386 of such 
facilities operating in EU markets and similar cost (as for MTFs) of EUR 4,810 per facilities. 

Extending suspicious transaction reporting to orders and OTC 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 EUR 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 suspicious transactions would occur. In addition it takes into 
account that only 40% of financial institutions trade in OTC Derivatives. This assumption was 
based on a survey of respondents to the EIM study. 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  redesign  of  the  order  system.  The  one-off  cost  relates  to  the 
modifications and adaptations of the ordering systems 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  would  need  to  adapt  their 
surveillance systems and report suspicious orders 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  and  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 

386 

EIM, Effects of the changes to the Market Abuse Directive – Impact on administrative burden of firms 
in the EU, Zoetermeer, December 2010, see annex 13 
As no statistical data are available on such facilities, the Commission services estimate the number of 
"other  trading  facilities"  on  100  other  trading  facilities,  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  Association.  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 

194 

   EN 

 
                                                 
Currently, according the study 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 SME 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 and 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 million 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 would be subject to disclosure requirements and 
small enterprises in the survey did not report any delay of disclosure.  

SME regime for disclosure of inside information. (option 5.7.5) 

An SME regime for disclosure of inside information 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 SMEs on which information is considered inside information. 
This option is expected to reduce administrative burden for SMEs. In order to estimate what 
this  reduction  would  consist  in,  the  current  administrative  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 usual and EUR 500.000 can be considered linked to 
the existing MAD provisions.388 In addition, disclosing 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 EUR 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  regime,  which  implies  a  simplified  and  market-
specific  disclosure  process  for  inside  information,  would  lead  to  a  reduction  30%  in 
administrative burden, which would lead to costs saving of EUR 1.1 Million for SME issuers. 

Harmonising the requirements for 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 and EUR 25 million for 
other issuers. According to the study, the harmonisation 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 

388 

EIM, Effects of the changes to the Market Abuse Directive – Impact on administrative burden of firms 
in the EU, Zoetermeer, December 2010, see annex 13 
EIM, Effects of the changes to the Market Abuse Directive – Impact on administrative burden of firms 
in the EU, Zoetermeer, December 2010, see annex 13 

EN 

195 

   EN 

 
                                                 
Exempt SMEs from insiders 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 administrative burden of the current obligation in the 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'  transactions  reports  per  year,  with  the  existing 
threshold of EUR 5.000, is estimated at 78.800 transactions reports per year with a threshold 
of  EUR  5.000.  A  questionnaire  among  CESR  Members  found  that  that  41%  of  managers' 
transactions  concerned  transactions  are  below  EUR  20.000.  Therefore,  increasing  the 
threshold to 20.000 would lead to a reduction of 32.000 transaction reports. This implies an 
administrative burden reduction of EUR 2.2 million for large issuers and 0,1 for SME issuers. 

Total administrative burden linked 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 EUR 297 million recurring administrative burden. In 
addition,  a  one  off  cost  for  complying  with  the  information  obligation  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 

Policy 
option 

5.1.4 

5.1.5 

5.3.2 

5.6.3 

5.7.2 

5.7.4  

5.7.5 

description 

Incremental cost per entity (EUR) 

One- off cost 

Recurring 
Admin 
burden 

incremental 

cost 

One of cost 
(million 
EUR)  

Total 
(Million EUR) 
recurring 
annual 
admin 
burden 
(million 
EUR) 
0.2 

0.3 

Extending  scope  to 
MTFs 
Extening  scope  to 
OTFs 
reporting 
suspicious 
transactions 
orders 
Reporting 
delayed disclosure  

of 
OTC 
and 

of 

SME 
for 
regime 
disclosure  of  inside 
information 
Harmonisation 
insider lists 
SME  exemption  for 

of 

OTC 
Orders 
Total 

LE 
SMEs 
Total 

4,810 

4.810 

11,250 
28,000 

17,550 
1755 

2,025 

945 

11,250 
56,000 

29 
291 
320 

0.5 

29 
145 
147 

127 
1.8 
129 
-1.1 
(reduction) 

-1.2 
(reduction) 
-1.8 

EN 

196 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5.7.8 

insiders lists 
Harmonisation 
managers 
transactions reports 

of 

Large 
issuers 
SMEs 

405 

135 

Recurring admin burden 
One  off  costs  to  comply  with 
information obligations 
 Admin burden on SMEs 

(reduction) 
-2,2 
(reduction) 
-0.1 
(reduction) 
297 

-1.2 
(reduction) 

320,3 

EN 

197 

   EN 

 
 
 
 
 
 
 
 
 
 
 
ANNEX  11  -  LIST  OF  OPTIONS  AND  DISCRETIONS  IN  THE  MARKET  ABUSE  DIRECTIVE  AND 
389 

RELATED IMPLEMENTING MEASURES

A. 

B. 

C. 

D. 

E. 

F. 

G. 

H. 

I. 

J. 

K. 

L. 

389 

Whether to extend the scope of application of the MAD to MTFs in full, in part or 
not at all (article 9) 

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) 

Whether to require that managers' transaction 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) 

What  do  "all  necessary  measures"  that  Member  States  may  take  to  ensure  that  the 
public is correctly informed consist of (article 6.7) 

Whether  to  extend  suspicious  transaction  reports  to  OTC  derivatives  whose 
underlying  is  traded  on  a  regulated  market  and  to  suspicious  unexecuted  orders 
(article  6.9  of  Directive  2003/6/EC  and  articles  7,  8,  9  and  10  of  Directive 
2004/72/EC)  

How the supervisory and investigatory powers 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) 

Whether to foresee the possibility to waive the obligation of professional secrecy and 
for which reasons (article 13) 

Whether  and  how  to  disclose  to  the  public  every  measure  or  sanction  imposed  for 
infringement of the Directive and in which circumstances this publication may not be 
required (article 14.4) 

Reasons for denying assistance or joint investigations with the regulator of another 
Member State (article 16.4) 

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) 

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) 

Whether  to  apply  additional  obligations  in  relation  to  fair  presentation  of 
recommendations (article 4.1 of Directive 2003/125/EC) 

All references to articles concern the level 1 Directive 2003/6/EC unless otherwise specified. The source for this 
list of options and discretions is the CESR review panel report of 27 January 2010, MAD Options, Discretions and 
Gold-plating 2009 

EN 

198 

   EN 

 
                                                 
M. 

Whether to require disclosure of additional 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 are expected to achieve. 

1) Estimating the size of the 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  which  goes  undetected?  How  many  cases  are 
detected  but  there  is  insufficient  evidence  to  prosecute?  How  many  cases  are  deemed  too 
difficult or insignificant to prosecute by competent authorities? 

Estimates  of  market  abuse  can  therefore  only  be  made  indirectly,  based  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)  which  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 manipulation 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 quantify the cost of insider dealing, in terms of 
estimated  profit  from  insider  dealing391.  Table  1  shows  the  estimated  profit  gained  from 
insider dealing on 3 major exchanges 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 

391 
392 

This  measure  of  market  cleanliness  is  based  on  the  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 
2006, 
nr 
papers 
http://www.fsa.gov.uk/pubs/occpapers/op23.pdf,  
Capital Markets CRC Limited, Enumerating the cost of insider trading, unpublished, 2010, p. 8. 
Thomson  Reuters,  Monthly  Market 
share 
http://thomsonreuters.com/products_services/financial/financial_products/equities_derivatives/europe/
market_share_reports/#tab2 

reports,  2011:  Thomson  Reuters  website, 

Cleanliness, 

Measuring 

Market 

March 

series, 

23, 

EN 

199 

   EN 

 
                                                 
 
Market turnover 
volume  (EUR 
Million)

147.315 
116.431 
228.765 
492.511 

Euronext
Deutsche Borse
LSE Group
Total
weighted average

estimated cumulative profit  (due to 
market abuse) as percentage of market 
turnover

weight

2009

29,9%
23,6%
46,4%
100,0%

0,0418%
0,0073%
0,0463%
0,0318%
0,0357%

average 2003-2009
0,0173%
0,0394%
0,0455%
0,0341%
0,0356%

Source: European Commission, Thomson Reuters, Capital Markets CRC Limited393,  

As  shown  in  table  3,  the  weighted  average  profit  gained  from  insider  dealing  on  these  3 
exchanges, which equates to the detriment for investors due to this form of market abuse, is 
estimated at 0.0356% in the period 2003-2009 and represented 0.0357% in 2009 . However, 
this data only estimates 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 market manipulation would be of the same order of magnitude as insider 
dealing,  namely  0,0353%  of  market  turnover.  Based  on  this  assumption,  the  cost  of  market 
abuse,  including  both  insider  dealing  and  market  manipulation,  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 

Market turnover Equity Markets (M EUR)
Estimated yearly detriment
Estimated yearly detriment due to market abuse
Esimated reduction of market abuse
Estimated benefits (M EUR)

Total impact
18.803.179
0,0712%
13.388
20%
2.677,6

Source: European Commission, Thomson Reuters 2010 

To estimate the cost of market abuse for the European market as a whole, the estimated size 
of market abuse in terms of market turnover (0.712% of total market turnover) is extrapolated 
to be applied to the total market turnover of European markets. 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 markets 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 size 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 achieved by applying the preferred 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 based on the experience of reinforced efforts to 
sanction market abuse in UK (as part of the FSA's "credible deterrence" 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 

200 

   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  benefits  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 the 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  summarised  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 stakeholders. In addition, the Commission services 
assessed  the  additional  cost  implications  of  the  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  conduct  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 smaller markets, it is expected to require 1 
FTE.  A  full  time  equivalent  is  assumed  to  represent  200  mandays  of  8  hours  at  an  average 
hourly rate of EUR 45 throughout the EU. This would lead to an estimated cost of EUR 2.7 
Million per year in terms of manpower for all EU Member States to perform the supervisory 
activities  required  by  the  package  of  preferred  options.  In  addition,  Member  States  would 
probably need to invest in systems and get access to market data to ensure market monitoring 
of  the  new  rules.  This  is  expected  to  generate  an  annual  cost  of  EUR  20.000  per  year  per 
Member  State  or  EUR  0.5  Million  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 administrative burdens linked to 
information  requirements  and  one-off  costs  to  comply  with  these  information  obligations. 
These costs have been assessed in detail in Annex 11 of the report. The package of retained 
policy  options  entails  an  estimated  administrative  burden  of  annual  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 

395 

EN 

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 
at 
for 
http://www.fsa.gov.uk/pubs/annual/ar09_10/ar09_10.pdf 
EIM, Effects of the changes to the Market Abuse Directive – Impact on administrative burden of firms 
in the EU, Zoetermeer, December 2010, See annex 13 

cleanliness 

available 

market 

FTSE 

350, 

the 

of 

201 

   EN 

 
                                                 
Recurring (Million EUR) 

One-off (Million EUR) 

Benefits 

Costs 

Compliance costs 

Administrative burden 

Total Costs 

Net Benefit 

2.667, 4 

3,2 

297 

300,2 

2.367,2 

320 

320 

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 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 policy options is expected 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 years, 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 

202 

   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 

EN 

203 

   EN