Amended proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on criminal sanctions for insider dealing and market manipulation (submitted in accordance with Article 293(2) TFEU)
Date: 2012-07-25
Institutions: European Commission
Subjects: discriminatory price, insider trading, penalty, restriction on competition, selective dissemination of information, stock-exchange transaction

EUROPEAN COMMISSION 

Brussels, 25.7.2012  
COM(2012) 420 final 

2011/0297 (COD) 

Amended proposal for a 

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

on criminal sanctions for insider dealing and market manipulation 

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

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1. 

CONTEXT OF THE PROPOSAL 

On  20  October  2011,  the  Commission  adopted  a  proposal  for  a  Directive  of  the  European 
Parliament  and  of  the  Council  on  criminal  sanctions  for  insider  dealing  and  market 
manipulation. 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  was  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  EURIBOR  or  LIBOR  may 
have  been  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 covered by its proposal 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, adopted 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  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 
manipulation  and  to  enable  and  facilitate  the  work  of  competent  authorities  in  imposing 
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. 

Therefore,  in  order  to  cover  the  manipulation  of  benchmarks  and  in  order  to  ensure  that 
intentional  manipulation  of  benchmarks  is  a  criminal  offence,  the  Commission  proposes  to 
amend its proposal for a Directive. 

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2. 

LEGAL ELEMENTS OF THE PROPOSAL 

2.1. 

Legal basis 

The  amended  proposal  is  based  on  Article  83(2)  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  Directive  on  criminal  sanctions  for  insider  dealing  and 
market manipulation which are required are as follows: 

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Amendment to the definitions (Article 2) to include a definition of benchmarks;  

Amendment  of  the  offence  of  market  manipulation  (Article  4)  to  capture 
manipulation of benchmarks themselves;  

Amendment of the offence of "inciting, aiding and abetting and attempt" (Article 5) 
to include these behaviours in relation to the manipulation of benchmarks.  

3. 

BUDGETARY IMPLICATIONS  

The amended proposal has no implications for the budget of the Union. 

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The Commission proposal for a Directive on criminal sanctions for insider dealing and market 
manipulation, COM(2011) 654 final, is amended as follows:  

1. 

In Article 2, the following point 3 is added:  

“3.  '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.”  

2. 

In Article 4, the following point (e) is added:  

“(e) transmitting false or misleading information, providing false or misleading inputs, 
or  any  other  equivalent  activity  which  intentionally  manipulates  the  calculation  of  a 
benchmark.”  

3. 

Article 5(2) is replaced by the following:  

“2. Member States shall take the necessary measures to ensure that the attempt to commit any 
of the offences referred to in Article 3(a) and Article 4(a), (b)and, (c) and (e) is punishable as 
a criminal offence.”  

2011/0297 (COD) 

Amended proposal for a 

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

on criminal sanctions for insider dealing and market manipulation 

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

Done at Brussels, 

For the European Parliament 
The President 

For the Council 
The President 

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