Amended proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on insider dealing and market manipulation (market abuse) (submitted in accordance with article 293(2) TFEU)
Date: 2012-07-25
Institutions: European Commission
Subjects: benchmarking, financial institution, insider trading, price formation, restriction on competition, stock-exchange transaction

EUROPEAN COMMISSION 

Brussels, 25.7.2012  
COM(2012) 421 final 

2011/0295 (COD) 

Amended proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

on insider dealing and market manipulation (market abuse) 

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

(Text with EEA relevance) 

EN 

   EN 

 
 
 
  
 
2011/0295 (COD) 

Amended proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

on insider dealing and market manipulation (market abuse) 

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

(Text with EEA relevance) 

1. 

CONTEXT OF THE PROPOSAL 

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

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

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

While it may be difficult or impossible for a competent authority to prove that manipulation 
of a benchmark has had an effect on the price of related financial instruments, any actual or 
attempted  manipulation  of  important  benchmarks  can  have  a  serious  impact  on  market 
confidence  and  could  result  in  significant  losses  for  investors  and  distortions  of  the  real 
economy, given the wide use of benchmark indexes as a reference rate e.g. for interest swaps 
and  variable  rate  mortgages.  It  is  therefore  essential  to  clarify  that  competent  authorities 
should  be  able  to  impose  administrative  sanctions  as  regards  the  offence  of  market 
manipulation in these cases, without the need to prove or demonstrate incidental issues such 
as  price  effects.  It  is  also  essential  that  all  necessary  steps  are  taken  to  prevent  such 
manipulations and to enable and facilitate the work of the competent authorities in imposing 

1 

COM(2011) 651 final 

EN 

2 

   EN 

                                                 
sanctions.  A  stringent  legal  framework  will  act  as  a  credible  deterrent  for  this  kind  of 
behaviour,  thereby  protecting  investors  and  restoring  market  confidence.  These  regulatory 
steps  should  include  criminal  sanctions,  which  is  the  subject  of  the  amended  proposal  for  a 
Directive which accompanies the present proposal. 

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

2. 

LEGAL ELEMENTS OF THE PROPOSAL 

2.1. 

Legal basis 

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

2.2. 

Subsidiarity and proportionality 

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

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

2.3. 

Detailed explanation of the proposal 

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

– 

– 

– 

– 

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

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

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

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

EN 

3 

   EN 

3. 

BUDGETARY IMPLICATIONS  

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

EN 

4 

   EN 

The  Commission  proposal2  for  a  regulation  on  insider  dealing  and  market  manipulation 
(market abuse) COM(2011) 651final is amended as follows:  

1. 

Recital (20a) is added: 

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

2. 

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

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

3. 

In Article 5 the following paragraph 20 is added: 

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

4. 

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

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

Done at Brussels, 

For the European Parliament 
The President 

For the Council 
The President 

2 

COM(2011) 651 final 

EN 

5 

   EN